Regulating Online Businesses and Strengthening Consumer Protection Online

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Starting from 1 July 2013, all online businesses have to comply with the new requirements set out in the Consumer Protection (Electronic Trade Transactions) Regulations 2012 (“Regulations”) made by the Ministry of Domestic Trade, Co-operatives and Consumerism (“MDTCC”) under Section 150 of the Consumer Protection Act 1999 (“CPA”).

The Regulations apply to individual person and business that supplies goods or services via a website (for e.g. blog shop, online store) or an online marketplace (for e.g. Groupon, Lelong, eBay, Mudah, Zalora, Lazada)(“Online Business Supplier”), as well as operator of online marketplace (“Online Marketplace Operator”).

An ‘online marketplace’ is defined as a website where goods or services are marketed by third parties for the purpose of trade.

This definition is so wide that arguably it covers websites that charge the Online Business Supplier a fee or commission as well as those that provide such platform for free.

Online Business Supplier

The main objective of the Regulations is to promote transparency through full and frank disclosure. An Online Business Supplier needs to disclose the following information on the website or online marketplace where the business is conducted:

  • the business name (either the name of the owner, business or company);
  • the registration number of the business or company, if applicable;
  • the email address and telephone number, or address of the Online Business Supplier;
  • a description of the main characteristics of the goods or services;
  • the full price of the goods or services, including transportation costs, taxes and any other costs;
  • the method of payment;
  • the terms and conditions of the sale; and
  • the estimated time of delivery of the goods or services to the buyer.

It is an offence if the Online Business Supplier fails to disclose any of the above information, or if he/it provides false or misleading information.

In addition, the Online Business Supplier also needs to provide appropriate means to enable the buyer to rectify any errors prior to the confirmation of the order made by the buyer; and he/it should acknowledge receipt of the order to the buyer without undue delay.

Online Marketplace Operator

As for the Online Marketplace Operator, he/it is required to take reasonable steps to keep and maintain a record of the names, telephone numbers and addresses of the Online Business Suppliers for a period of two years.

Failure to keep and maintain such record is an offence. The intention of this is to make it easier for a buyer to track down the identity of the Online Business Suppliers in the event of loss or fraud.

Privacy, Unfair Contract Terms, False or Misleading Advertisement

In addition, if the Online Marketplace Operator collects and processes personal data of the online buyers and the Online Business Suppliers, he/it must also comply with the Personal Data Protection Act 2010 (which may come into force by the end of 2013).

In this respect, the Online Marketplace Operators are encouraged to have in place privacy policy, privacy statement, notice and consent form on their websites and online marketplaces that are drafted in compliance with the requirements under the Personal Data Protection Act 2010.

It should be noted that there is no “one size fits all” type of privacy policy, privacy statement, notice and consent form.

Online Marketplace Operators must refrain from slavishly copying privacy policy, privacy statement, notice and consent form found in other websites and online marketplaces without having regard to their specific business nature and needs.

Although the Regulations does not define what should be included in the “terms and conditions” of the sale, the terms and conditions must not contain unfair terms, otherwise, the terms and conditions may be declared as unenforceable or void under the CPA.

Any Online Business Supplier or Online Marketplace Operator who put up false or misleading advertisement in relation to their goods or services will also be liable under the CPA.

A Rising Trend in Online Businesses and Online Frauds

Online businesses have been gaining popularity in recent years as they present an alternative choice for shopping for consumers in Malaysia.

The proliferation of the Internet, the wider broadband penetration, the growing prevalence of smartphones as well as the convenience of online shopping are amongst the driving forces behind the growth of online businesses. According to the MDTCC’s statistics, 1.1 million people in Malaysia carried out online transactions with businesses worth more than RM1.8 billion in 2010 and the figure is expected to grow to RM5 billion by 2014.

There are 600 online companies and 16,405 online businesses currently registered with the Companies Commission of Malaysia.

Unfortunately, incidents of online fraud have also been on the rise.

The number of online frauds reported in 2011 rose to 1,879 cases as compared to 511 cases in 2009. It has been reported that online fraud is one of the factors that deter people from actively engaging in online transactions.

Offences and Penalties

Any Online Business Supplier or Online Marketplace Operator who fails to comply with the Regulations will, upon conviction, be fined up to RM50,000 or jail up to 3 years or both, and for a second or subsequent offence the person will be liable to a fine of up to RM100,000 or to imprisonment up to 5 years or both, and for a second or subsequent offence the person will be liable to a fine of up to RM100,000 or to imprisonment up to 5 years or both.

If the offence is committed by a company, it will, upon conviction, be liable to a fine of up to RM100,000, and for a second or subsequent offence a fine of up to RM200,000.

In addition to the criminal penalties, an aggrieved consumer may also lodge a claim with the Tribunal for Consumer Complaints about civil remedies against unscrupulous online traders.

Conclusion

The enactment of the Regulations shows the growing concerns that the Government has towards strengthening consumer protection in online business transactions.

In fact, in conjunction with the Regulations, the MDTCC has also launched an e-commerce guideline for consumers to avoid the pitfalls and traps in carrying out online transactions. It is hoped that the Regulations and the continued efforts by the Government would help to raise the confidence of online consumers in carrying out online transactions while promoting the development and growth of online businesses in Malaysia.

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About the author:
This article was written by Edwin Lee Yong Cieh, Partner of GLT Law – law firm in Kuala Lumpur, Malaysia (+6016 928 6130, [email protected]). Feel free to contact him if you have any queries.
This article was first published in CHIP Magazine Malaysia
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

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