Consumer Protection on Online Auction Sites: Just an Illusion?

Buying and selling via online auction sites such as eBay is one of the latest craze. eBay in the UK counts as many as 9 million registered users[1] and close to 150 million worldwide,[2] amounting to a staggering $40 billion in transactions occurring on the sites.[3] There is such effervescence around this method of sale that human scientists have even started to study the addiction that can develop from the excitement created by the auction process.[4] and a new monthly magazine entitled Online Auctions was launched in the UK in April 2005.[5] But from a legal perspective, auction sites raise many questions especially as to the protection offered to consumers. For example, what laws may be applicable to disputes between a buyer and a seller located in two different countries? What recourses may be available for products sold by a consumer to a consumer or by a small business to a consumer? In the case of transactions where consumers are dissatisfied, how can they go about recovering their monies, cancelling the contract formed or obtaining a replacement item? The answers to those questions lie first of all in defining the legal nature of online auction sites. This is a particularly obscure area as no legislation at European level or in England clarifies this legal regime as is the case for example in France,[6]where the law differentiates between traditional public auctions conducted online and eBay style auctions.[7]

Classification

The legal qualification of auctioneer seems the most evident characteristic pertaining to an auction and there is no doubt that the activities of an auction house such as Sotheby’s or Christie’s can be conducted online without changing the legal nature of the sales taking place in the auction rooms. However, the sales taking place online on eBay do not attract such a definitive answer. According to Halsbury’s Laws an auction can be defined as “ a manner of selling or letting property by bids, usually to the highest bidder by public competition”. On eBay the auction process does seem to fit this rather wide definition. However, this is not a definition which allows consumers to be strongly protected. Indeed, the English law of auctions does not afford specific protection to consumers and in some instance excludes consumers from protection altogether. For example, s 12(2) of the Unfair Contract Terms Act 1977 states that on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as a consumer. Also, s 5 of the Consumer Protection (Distance Selling) Regulations 2000 excludes auctions from the scope of the regulations, therefore supposedly not offering any protection to consumers buying on online auction sites.[8]

On the other hand, and it is our position, it is possible to affirm that online auction sites such as eBay are not auctioneers in the traditional sense. Indeed, according to s 57 of the Sales of Goods Act 1979, “a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in any customary manner, and until the announcement is made any bidder may retract his bid”. The requirements of such section for an auction sale to be concluded seem to be lacking in the process used on online auction sites such as eBay. First, as the decision of the German Federal Court (Bundesgerichtshof VIII ZR 375/03) of 3 November 2004 affirms, there is no virtual fall of the hammer. It is not an auctioneer that decides when to end the sale, but the seller who selects the length of time he or she wants the auction to run for. Second, the study of auction sites’ terms and conditions reveal that bids cannot be retracted easily. For example, eBay’s terms and conditions state in clause 4: “(.) Bids are only retractable in exceptional circumstances, such as when the seller materially changes the item’s description after a bid is placed, a clear typographical error is made, or you cannot authenticate the seller’s identity”. In addition and more importantly, in traditional auctions the parties are linked by a contract of agency that seems to be lacking in the relations developed between the auction sites and buyers and sellers. Indeed, as eBay terms and conditions clarify, “eBay is only a venue. eBay is not an auctioneer.” Indeed the observation of the legal relationship developed confirms the absence of agency. For example, eBay does not guarantee the delivery of the goods nor is eBay at any time in actual possession of the goods put up for sale like the real world auctioneer Sotheby’s is. In addition, it is not eBay that will collect the payment for the goods on behalf of the seller, but the seller that pays an intermediary, usually PayPal in the case of eBay, to transfer the money to the buyer directly.

But if online auction sites such as eBay are not to be considered as auctioneers, what is their true legal nature? It is possible to consider online auction sites as Information Society Service Providers. Indeed, those services are defined by reg 2 of the Electronic Commerce (EC Directive) Regulations 2002, as “any service normally provided for remuneration, at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, and at the individual request of a recipient of a service”. The only potentially contentious element in this definition is that the service must be provided for remuneration. On eBay not all participants will actually pay eBay. For example, the buyer will not have to pay to consult offers of auction sales, only the seller will pay a listing fee and a commission on sale. But it may be accepted that this is sufficient – the demonstration of an economic activity rather than an actual payment. In this sense there is no obstacle to the qualification of online auction sites as Information Society Service Providers. This is the legal category that seems to be adopted by the OFT and the DTI and this is not surprising since this unlocks the application of much consumer-focused legislation. Indeed the E-commerce Directive indicated clearly in recital 11 that the rules applicable to Information Society Services were to be applied without prejudice to the level of protection for consumer interest as established by Community acts. Amongst others, this includes the rules relating to unfair terms in consumer contracts, distance contracts and misleading and comparative advertising.

Consumer Protection

We believe that in the current state of play this legislation is not sufficiently applied and enforced to provide adequate protection for consumers. Indeed, the most superficial survey of online auctions web sites reveals many examples of violations. For example, one outright violation provoked by the business model employed is the failure to respect reg 7 of the Consumer Protection (Distance Selling) Regulations 2000, which requires that, prior to the conclusion of the contract, the identity of the provider as well as its physical address be communicated to the consumer. To protect their revenue stream and stop parties concluding sales outside of the site environment (thus avoiding the payment of the seller’s commission), the identity of the parties is kept secret and revealed only after the close of the bidding process and the acceptance by the seller of the highest bid as the wining bid. Of course, reg 7 applies only when the seller is a trader and not when, like the purchaser, he or she is a consumer and, for example, selling unwanted Christmas presents. Nevertheless, transactions caught by the distance selling rules are numerous and the regulations should be applied. But the lack of respect for the legislation in place does not stop there. Another example can be found in the lack of respect for the rules concerning misleading and comparative advertisement as several adjudications from the Advertising Standard Authority demonstrate.[9] In addition unfair terms and conditions are found in abundance on eBay listings and the descriptions given are more often than not lacking in details to the point of not being compliant with reg 8 of the Consumer Protection (Distance Selling) Regulations 2000.

Given the large volume of auction sales taking place every day and the limited resources of the OFT in the UK to enforce legislation in such a large market, coupled with the lack of knowledge by consumers of their rights and of the procedures in place to report violations, it is feared that much of this activity threatening consumer rights will continue unless some liability is imposed on the online auction sites. As it stands unfortunately, the liability of eBay is strictly limited by reg 19 of the Electronic Commerce (EC Directive) Regulations 2002, which offers an effective shield to intermediaries and little recourse to consumers.

Conclusion

In view of the above, we are led to conclude that, while enough legislation is in place to protect consumers, the lack of application and enforcement, as well as the shield offered by the legislation itself, renders consumer protection on online auction sites pretty much illusory. Reassuringly though, consumers can rest on the fact that fraud, despite a large volume, still amounts for less than 1 in 10,000 eBay transactions. In addition, it is clear that the lack of trust would be damaging to the eBay business model and although eBay does not intervene to solve disputes some mechanisms are in place to assist consumers. The best protection against problem sales on eBay so far remains in the insurance systems and credit card company liabilities. This is perhaps satisfactory for the short term, but comes at a cost for the consumer who ultimately bears the cost of the insurance. Failing this, eBay remains averse to bad publicity and in a recent case of unsatisfied consumers reported on BBC Radio 4,[10] eBay agreed to give compensation to the consumers who had bought products from an electronics company based in Hong Kong that disappeared without leaving a trace.

Dr Christine Riefa is a Lecturer at Brunel University: Christine.riefa@brunel.ac.uk . Dr Riefa is about to publish the full results of her research on the protection of consumers on online auctions sites as well as the results of her research in the field of electronic communications and consumers.