Industry Stalls Online Consumer Rules

Education and filtering technology can avert heavy-handed government regulation, says industry

To prevent Congress from writing heavy-handed consumer protection rules for cyberspace, the online industry must collectively educate its customers and develop better filtering technology, say industry executives.

For example, mass e-mailings, dubbed spamming, are the consumers' No. 1 complaint, said Bill Burrington, policy chief for America Online. Without industry action, which came when AOL sued the direct-marketing companies that launched the spamming campaigns, Congress might have stepped in to regulate the industry, he said.

AOL has given its customers the software technology to filter mass e-mailings and has stepped up efforts to educate them about other online problems, such as fraudulent online advertising, Burrington said.

If these efforts fail to suppress spamming, AOL and other companies may ask Congress to expand the regulatory authority of the Federal Trade Commission, he said. "We might find out that we need to do a little tinkering with the law," he said.

"Not always, but sometimes," Congress can help promote consumer confidence, Burrington said.

But other problems face online customers and the industry, such as fraudulent online ads, privacy violations, online pornography, deceptive messages and traditional Ponzi schemes, which could combine to undermine public confidence in online services, say executives and government officials. A Ponzi scheme is an investment swindle in which some early investors are rewarded with money put up by later investors.

To resolve some of these concerns, industry executives have begun discussions with government officials at the FTC, the U.S. Office of Consumer Affairs, Congress and in the states.

Numerous legal issues must be decided as existing anti-fraud and anti-deception rules are transplanted into cyberspace, said Teresa Schwartz, deputy director of consumer protection at the FTC. These include clear definitions of what constitutes a "clear and conspicuous" online consumer-alert warning, the proper distinction between advertising and free speech, the liability of Internet service providers for fraud committed through their networks and rules to protect children using the Internet or World Wide Web, she said.

The companies have also launched public education campaigns about potential online pitfalls. For example, the industry-backed Interactive Services Association, Silver Spring, Md., the Washington-based National Consumers League and several major online companies have formed the Online Public Education Network, which uses a variety of announcements, toll-free phone numbers and Web sites to distribute warnings and advice to adults and children using the networks.

Also, the online industry has funded the Washington-based National Fraud Information Center to collect and disseminate warnings about online fraud. The center currently receives hundreds of phone calls and roughly 10 e-mails per day about suspected online fraud.

"I can only expect that we'll see increases as time goes on," said Susan Grant, director of the center.

However, industry officials are working hard to prevent regulation of their online business. In September, online companies allied with the Washington-based Direct Marketing Association to stop a draft bill that would have restricted the collection of information from children using the network.

The online industry has also bankrolled successful lawsuits against the Communications Decency Act, designed to bar the placement of indecent images to electronic sites that could be viewed by children.

One major problem, say industry officials, is that the great increase in subscribers has attracted con artists from traditional mail and phone fraud schemes, said Glee Harrah Cady, public policy manager at Netcom Online Communication Services, San Jose, Calif. Also, the most recent subscribers "are less cynical and technically adept," making them more vulnerable, she said.

For example, one scheme sends e-mail to Internet users, urging them to call an 809 phone number for news about a fictional emergency in their family. The con artists profit because they collect much revenue from calls made via the 809 exchange.

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