Reproduced with Permission Of Council of Better Business

Reproduced with Permission

Of

Council of Better Business Bureaus, Inc.

And

Thomson Reuters/West

Fifteen Years of ODR Experience:The BBB Online Reliability TrustMark ProgramSteven J. Cole* and Charles I. Underhill**

Synopsis

This paper is based on the Better Business Bureau's 15years of experience in launching and administering a NorthAmerican consumer “trust mark” program, BBBOnLine. Inestablishing this program, the BBB saw — and continue tosee — the important role such programs could play in build-ing the level of consumer trust necessary to engage in cross-border consumer transactions.

The authors note that the thrust of the paper relates torelatively small-dollar-value (and generally high volume)consumer disputes. As a consequence, its observations andrecommendations — particularly with respect to complainthandling and formal arbitration — generally do not apply inthe high-dollar-value (and small volume) world of cross-border commercial (B2B) disputes. In that arena, cross-borderdispute resolution has been working well for years.

The paper:E Encourages the use of e�ective self-regulatory systems

and processes, which the authors believe allow nimbleresponses to a rapidly changing technological and com-

*Steven J. Cole is an attorney. He was elected President and CEOof the Council of Better Business Bureaus in 2005 and served in thatcapacity until his retirement in 2009. Mr. Cole joined the CBBB sta� in1987, and prior to assuming the position of CEO, he was Senior Vice Pres-ident, General Counsel and Corporate Secretary. He also coordinated theCBBB's international activities.

**Charles I. Underhill is the retired Executive Vice President andChief Operating O�cer of the Council of Better Business Bureaus, a posi-tion he assumed in 2005. He currently serves the organization as a SeniorConsultant for Special Projects. Prior to joining the sta� of the Council ofBetter Business Bureaus in 1995, Mr. Underhill served as President of alocal BBB o�ce, headquartered in Bu�alo, New York, from 1977 through1995.

443© 2010 Thomson Reuters E UCC Law Journal E October 2010

mercial environment. Examples from the BBB experi-ence are presented;

E Explores three major reasons why discussions on “choiceof law” and jurisdiction have been largely unable to ad-dress real marketplace problems;

E Discusses standards for cross-border dispute resolutionprograms, which the authors believe must — at a veryminimum — address six key areas;

E Suggests three elements believed essential for a strong,self-regulatory framework in this area; and,

E Discusses the appropriate roles of both industry andgovernments in nurturing and supporting the suggested“trust mark” and companion, cross-border complainthandling and online dispute resolution (ODR) processes.

Table of Contents

Background and IntroductionThe ProblemThe Better Business Bureau's 15-Year ExperienceAlternative Dispute Resolution in the Cross-BorderContextThe Role of GovernmentsSome Lessons LearnedIn Summary

Background and Introduction

CBBB and BBBOnLine.

The Council of Better Business Bureaus (CBBB) is a NorthAmerican, not-for-pro�t organization representing its 122member Better Business Bureaus throughout the UnitedStates and Canada. With over 400,000 local BBB AccreditedBusinesses, and over 200 leading-edge national and multi-national corporate partners, this alliance supports the Bet-ter Business Bureau system and its self-regulation activitiesthrough corporate partnerships with CBBB. CBBB's visionis “An ethical marketplace where buyers and sellers cantrust each other”, while its mission is “To be the leader inadvancing marketplace trust”.

The BBBOnLine Program, discussed extensively in thisdocument, was originally launched as a subsidiary corpora-

Uniform Commercial Code Law Journal [Vol. 43 #1]

444 © 2010 Thomson Reuters E UCC Law Journal E October 2010

tion of CBBB, with its own Board of Directors representingleading technology, consumer product, marketing andcontent-provider companies with a strong interest in thesuccess of ecommerce in a borderless marketplace. In themid-2000's, BBBOnLine ceased to be a separate corporation,and as of 2010 — with over 64,000 participating companiesholding its “trust mark”, it was being integrated into the ba-sic BBB “Accredited Business” program.

Today — almost 15 years after the BBBOnLine programwas �rst conceived — there are still only a limited numberof representative models for successful cross-border, third-party1 consumer dispute resolution mechanisms, since boththe dollar value and number of such business to consumer(B2C or C2C) transactions remain relatively small. However,the BBB provides an excellent, real-world example of a mech-anism that handled almost one million individual consumercomplaints, conducted over 31,000 informal telephone media-tions and conducted over 5,000 formal mediation and arbitra-tion hearings in 2009.

Self-RegulationWhile business self-regulation enjoys a long tradition in

the United States, it is less understood in other parts of theworld. For purposes of this paper, the term “self” in self-regulation should not be construed to mean exclusivelyindustry. Rather, it should be considered as a process drivenby the enlightened self-interest of industry, supported in key

1We note that payment systems' (Visa, MasterCard, American

Express, PayPal, etc.) dispute resolution mechanisms have already becomea major factor in resolving certain types of small-dollar-value consumer/business issues (such as non-delivery or goods not as originally repre-sented; other disputes, such as warranty/product quality/performance is-sues are generally not covered under the payment systems' procedures).The importance of these systems is certainly demonstrated in the UnitedStates (where law and regulation provide a reasonable framework); webelieve, with e�ective enabling legislation in key markets, these willalmost certainly become the second “front line” (after direct consumer/business negotiations) for resolution of many consumer/business disputes.When we refer to “limited representative models”, we are referring tothird-party ODR mechanisms that are independent of buyer, seller and/orpayment mechanism.

Fifteen Years of ODR Experience:


ways by government to the ultimate bene�t of consumers.2

The Better Business Bureau system has signi�cant, highlysuccessful experience with self-regulation in North America.The key elements in the BBB self-regulatory process areperformance and voluntary compliance standards:

E Developed by industry. Industry representativeshave a signi�cant understanding of the depth andbreadth of the problems that must be addressed. In ad-dition, they recognize the need for speed, �exibility andcommitment as well as the need to responsibly dealwith public concerns. Finally, industry standards maybe able to gain better voluntary acceptance, achievesubstantial compliance faster and more rapidly respondto changing market conditions.

E Recognized and complemented by government.By providing incentives for industry to develop goodprocedures,3 oversight to ensure that industry is vigi-lant in managing the self-regulatory process and takingvigorous and visible action when necessary to supportthe process.4

E Credible to the public. Industry representatives andself-regulatory organizations must understand that aself-regulatory process that lacks substance or fails todeal �rmly and openly with conduct at variance withthe voluntary guidelines will not be perceived as

2An excellent discussion of self-regulation in the context of

e-commerce (“Observations on the State of Self-Regulation of theInternet”), prepared by the Internet Law and Policy Forum for an October1998 OECD Ottawa conference can be found at: http://www.ilpf.org/events/selfreg/.

3The U.S. Congress provided an incentive for industry to implement

informal dispute resolution programs by providing that warranties mayinclude a provision requiring customers to try to resolve warranty disputesby means of an informal dispute resolution mechanism before going tocourt, provided the mechanism meets certain performance standardsestablished by the FTC (For details, see note 26). State “lemon laws” fornew vehicle warranties contain similar incentives. As an example, Califor-nia encourages manufacturers to establish dispute mechanisms “certi�ed”by the state, in essence providing that consumers may be entitled to“double damages” in a successful court proceeding if the manufacturerdoes not negotiate in “good faith”. Evidence of “good faith” is that amanufacturer operates a “certi�ed” mechanism.

4For representative samples in the advertising self-regulatory arena,

see many of the CBBB news releases at http://www.narcpartners.org/



meaningful by the consuming public. That, in turn, willlead to enactment of precisely the type of often sweep-ing regulation that can strangle innovation and discour-age competition. The BBB experience has establishedthat the synergistic relationship of meaningful industrystandards and e�ective and supportive government ac-tions will result in public con�dence that will, in turn,positively reinforce industry's willingness to continue todevelop meaningful standards.

Informal Dispute ResolutionConciliation, mediation and arbitration of various types of

disputes enjoy long traditions in many cultures. Arbitration,in particular, has evolved a formal body of national andinternational rules and procedures.

When disputing parties voluntarily enter these processes,and when the agreed-upon rules and procedures are scrupu-lously observed, a fast, fair and inexpensive resolution ofeven a major, complex dispute is probable. While a numberof well-known organizations have experience with interna-tional commercial arbitration, there are only a few represen-tative models of successful cross-border consumer disputeresolution mechanisms, since both the dollar value andnumber of such transactions currently remain relativelysmall, when compared with the much more robust world ofinternational commercial transactions.

The Cross-Border, Consumer ContextThis paper5 discusses transactions consummated entirely

online, deals exclusively with “consumer” disputes (thoseinvolving a product or service normally used for personal,family or household use) and covers transactions that crossinternational borders. Many of the rules and norms thathave grown up around consumer transactions are fundamen-

5Originally presented at a September 2000 session of the Internet

Law and Policy Forum's session on Global Networks/Local Rules, thispaper — authored by Steven J. Cole and Charles I. Underhill for theCouncil of Better Business Bureaus and its Internet subsidiary, BBBOn-Line, Inc. — was entitled Protecting Consumers in Cross-BorderTransactions: A Comprehensive Model for Alternative Dispute Resolution.While this version of the paper has been updated in a number of respects,the authors believe most of the issues discussed have continued relevancea decade later.



tally very di�erent than those applicable to commercial(B2B) commerce.

Accordingly, there are some important limitations to thediscussion in this paper:

E The framework is that of electronic commerce; thus, thepaper deals with transactions consummated entirelyonline.

E The paper deals exclusively with “consumer” disputes— those involving a product or service normally usedfor personal, family or household purposes. These canbe products and services sold by a traditional businessto a classic consumer (B2C transactions) or — with theadvent of online auctions — may easily include aconsumer “seller” marketing to a consumer “buyer” (aC2C transaction).

E The consumer transactions that are the subject of thepaper must cross international borders. Where thetransaction involves parties within the same country,the paper assumes that the country's laws, regulationsand formal/informal dispute resolution mechanisms willgovern.

Drawing on experience in the United States and Canada,the paper's authors identify three major reasons why discus-sions on “choice of law” and jurisdiction have been largelyunable to address real marketplace problems: 1) Consumersdo not utilize their rights to judicial redress for mostproblems they encounter in the marketplace; 2) Solving crossborder jurisdictional and enforcement-related issues in theabsence of a common legal framework will require a stan-dardized set of meaningful consumer protections; and, 3)Were issues of jurisdictional and common standards to besatisfactorily resolved, consumers would still require a con-venient way to select from among many alternatives thosereliable companies with which to do business.

The authors discuss the BBB's distinguished and widelyrecognized role in resolving advertising, privacy, warrantyand general consumer disputes, citing speci�c examples fromthe BBB's nearly 100 years of experience in establishingindustry codes of practice. The paper notes the methods theBBB employs to assist consumers in identifying reliablevendors of consumer products and services.

The paper discusses standards for cross-border consumerdispute resolution programs, which the authors believe must



— at a very minimum — address six key areas of fairness,visibility, accessibility, timeliness, �nality and enforcement.It also raises issues of special interest in building an onlinemechanism.

The paper makes the following recommendations:E A self-regulatory framework provides the best model for

consumer protection in the global ecommerceenvironment. That framework includes: 1) a strongCode for online consumer protection; 2) a consumerdispute resolution mechanism that is fast, fair and ac-cessible; 3) a “trust mark” to enable consumers to recog-nize merchants that have made commitments to theCode and to e�ective dispute resolution.

E Governments play a vital role in the proposed BBBframework by: 1) Adopting principles that complementand/or encourage the development of private Codes; 2)Establishing �exible standards for dispute resolutionprograms; 3) Establishing methods of certifying “trustmark” programs and auditing their performance; 4)Taking action under existing legislation/regulationwhen companies fail to honor commitments.

E Industry plays a pivotal role in: 1) Encouraging thedevelopment of meaningful standards for online com-merce; 2) Funding the development of the technologyinfrastructure that will be necessary to ensure disputeresolution mechanisms are both cost-e�ective and canbe made available at little or no cost to consumers; 3)Ensuring that opportunities exist which encourage ef-fective partnering among various countries' consumergroups, dispute resolution programs and self-regulatoryorganizations; 4) Developing private sector funding fornew programs.

E Online dispute resolution models must be developed totake advantage of new technologies while not sacri�c-ing traditional fairness principles.

Finally, the authors discuss several observations and fur-ther thoughts regarding some of the paper's originalassumptions.

The ProblemMany of the early discussions regarding consumer protec-

tion in the global, cross-border context centered on so-called“choice of law” and jurisdiction issues. Fifteen years after



the creation of the BBBOnLine Reliability Program, itremains clear that these ongoing discussions, while neces-sary and promising, are only beginning to o�er realisticsolutions. Further, even if the many “choice of law” issueswere resolved, BBB experience in North America suggeststhat judicial resolution alone would not o�er a true, completesolution for cross border consumer disputes. We believe thereare three major explanations for this:

E First, our experience in the North America is thatconsumers do not utilize their rights to judicialredress for most problems they encounter in themarketplace. There are many reasons for this reluc-tance to use the many available formal elements of theredress system:

† the high cost of litigation in relation to the relativelysmall amount of the claim;

† the frequent small dollar value to high emotionaland convenience value disputes;

† varying education levels;† fear of the many unfamiliar and complex elements

of the legal process; and,† the weakness of consumers' strictly “legal” posi-

tions and remedies compared to the perceivedharms or inconveniences su�ered.

These barriers, coupled with others uniquely attribut-able to international transactions, surely are allincreased signi�cantly with respect to disputes arisingcross borders.E�ective out-of-court remedies that are accessible, fairand cost e�cient are needed. In the United States, theseare provided by the private sector through a variety oftechniques, such as third party dispute settlementmechanisms (e.g., the BBB), sophisticated internalcompany administered consumer service and complaintresolution procedures, and, in some jurisdictions,government-sponsored mediation programs. Smallclaims court procedures where they exist also providee�ective redress where traditional court remedies areine�ective or underutilized, and government enforce-ment in cases of substantial law violations and signi�-cant consumer injury can be helpful. Globally, consumerneeds are likely to be at least as great, while the non-judicial remedies remain, overall, less available at the



present time, and are likely to remain so for the fore-seeable future.In short, while it is important to encourage businessesand consumers to participate in ecommerce through thedevelopment of governmental rules and procedures thatprovide predictability and fairness, it is equally impor-tant to recognize the limitations of these rules as e�ec-tive redress mechanisms for most consumers.We believe that alternative dispute resolution programswill almost certainly prove to be extremely e�ectiveself-regulatory tools through which most cross-border,online consumer disputes will be e�ciently and ef-fectively resolved.

E Second, solving cross border jurisdictional andenforcement-related issues, while important, maymake it even more essential that consumers andbusiness can look to a standardized frameworkfor minimum consumer protections.Without minimum standards, dispute resolvers(whether they represent formal or informal mecha-nisms) have few, if any, common benchmarks againstwhich to measure adherence or deviation in a giventransaction. Furthermore, formal “choice of law” andjurisdictional rules that otherwise appear reasonablemay fail to gain widespread acceptance in the publicsector and consumer communities. A reasonable fearthat a “lowest common denominator” legal frameworkwill prevail that could impede support for otherwisereasonable proposals. Former U. S. Secretary of Com-merce William M. Daley summed this up neatly whenhe expressed his suspicion that:

“. . . consumer protection o�cials all over the world willbe very reluctant to say that their consumers are notprotected by local law . . . They will need a great deal ofcertainty that e�ective protections are available, beforethey would even think about limiting the scope of theirlocal laws.”6

In the United States, we have learned much in our own“regulatory laboratory” about the costs and burdensthat can result from widely varying consumer protec-tion regimes. Lemon laws, retail advertising laws and

6In a 1999 California speech to the Amdahl's Good Government

Series.



environmental protections are three examples of legisla-tive approaches that di�er substantially within the U.S.from jurisdiction to jurisdiction. As a consequence,companies that operate across jurisdictional boundariesincur increased compliance costs, a problem that hassubstantially increased as the number of competingjurisdictions has expanded across the global market.The BBB believes that — at the least — some sort ofuniform, minimum standards of truthful advertisingand fair business practices are essential, so consumerswill have trust in the online medium and businessesthat voluntarily adopt those minimum standards canachieve compliance at reasonable cost. Such minimumstandards are theoretically possible to devise throughgovernmental treaties. Unfortunately, however timeconsuming and di�cult it may prove to be to establishsuch standards within any single country, the di�cultyincreases a hundred fold when establishing standardswhich rely on acceptance across national boundaries.Harmonizing con�icting standards has proven di�cultto accomplish within meaningful timeframes. On theother hand, timely and e�ective voluntary standardsare very possible to develop through private sector ef-forts, especially if governments, working cooperatively,provide incentives for those e�orts.

E Finally, were issues of jurisdiction and commonstandards to be satisfactorily resolved, a thirdcrucial need would remain. How can a consumerconveniently select — from among so many alter-natives -a reliable company with which to do busi-ness, in order to minimize future disputes?A dominant characteristic of the online market is thelow entry barriers for new competitors. Some of thesenew competitors take liberties with the legal rules andessential honesty. Many others, however, put consum-ers at risk not with any deliberate intent to commitfraud or deception, but through their inexperience andmisjudgment(s) about how to advertise accurately,deliver on promises made and ful�ll orders as promisedand on a timely basis — particularly when transactionsoccur across borders, involving di�ering laws andconsumer expectations, not to mention nuances oflanguage and custom.



The array of information available online can beoverwhelming. While this provides consumers with un-precedented opportunities to equalize the imbalance ofknowledge that has traditionally existed between buy-ers and sellers, it also creates new di�culties. Drown-ing in new sources of information (often of questionablevalue and occasionally intentionally misleading ordeceptive), how can most consumers determine whichbusinesses, products and services are worthy of trust?In the “brick and mortar” world, the construction of achain of retail outlets is a time-consuming �nancial bar-rier to entry into the traditional business world; as aconsequence, it is also one visible measure of thestrength of any business that can sustain such anetwork of locations. In e-commerce, electronic “store-front” web sites are inexpensive to produce, a major,positive factor ensuring ease of market entry. However,absent most of the traditional cues available in thephysical marketplace (not only substantial facilities,but such other important resources as the relationshipwith store personnel, the type of media placements foradvertising, the touch and feel of the merchandise, etc.),consumers lack some important traditional “cues” forgood decision making before entering into onlinetransactions.The same can be said of online direct marketing. Thecosts entailed in traditional mass marketing (e.g. televi-sion advertising and the costs of printing and mailingcatalogs and other promotional materials), often — andusually correctly — led consumers to conclude that thevery existence of the company's substantial massmarketing program provided evidence of that company's�nancial substance and reliability. The minimal costs ofonline marketing provide consumers with no such reli-ability “touchstone”.Arguments over “choice of law” and jurisdictional rulesfocus only on managing disputes after the fact, withoutaddressing the underlying cause of many disputes —lack of adequate information before completing anonline transaction. A reliable system that would allowconsumers to identify companies pledged to a set of com-mon standards of online commerce and e�ective disputeresolution would foster the growth of e-commerce for



both businesses and consumers. Ideally, it would alsominimize the number of online disputes.

The Better Business Bureau's 15-Year Experience:Three Key Elements In The Self-Regulatory Frame-

workThe Better Business Bureau system, through activities of

the BBBs in local communities, and through the nationaland, more recently, international activities of the CBBB(with respect to online and o�ine transactions), together of-fer a working model for others to emulate. Here's how theBBB has addressed the problems identi�ed above.

E First, the BBB system is one of the largest andmost experienced providers of informal consumerdispute settlement services in the North America,trusted widely by both business and consumers.BBB has handled nearly three million cases in itsmediation and arbitration programs since the early1980's, not to mention the additional multi-millions ofinformal complaint-handling cases undertaken in itshistory. BBB mediation and arbitration programs arealmost always free to consumers, and serve as widelyrecognized models of speed, convenience, due process,�exibility and competence. BBB cases, in areas as di-verse as the automobile industry,7 national advertising8

and privacy,9 are decided using a variety of di�erenttechniques applicable to the particular situation, includ-ing both equity-based decisions and those based uponthe application of legal principles. Trained subject mat-ter professionals and trained volunteers, as appropri-ate, are used with considerable success.

E Second, the BBB system has a nearly 100-year tra-dition of working with the business community toset or administer uniform standards of fair adver-tising and business practice.In October of 2000, following an extensive consultativeprocess, BBBOnLine released its Code of Online Busi-

7See: http://www.bbb.org/us/auto-line/us-process/

8See: http://www.bbb.org/us/About-National-Advertising-Division/

9See: http://www.bbb.org/us/european-union-dispute-resolution/



ness Practices.10 The Code provided guidance for allbusinesses, but BBBOnLine-participating companieswere contractually committed to its provisions, whichcovered not only advertising, and but also “transaction”issues.This Online Code activity was an outgrowth of therenowned BBB Code of Advertising,11 which evolvedover many years, is regularly consulted by the retailindustry and has formed the basis for numerous localgovernment advertising codes as well as the importantFederal Trade Commission Guides Against DeceptivePricing.12 CBBB's national advertising program, admin-istered by CBBB's National Advertising Division(NAD)13 under policies established by the NationalAdvertising Review Council, an alliance of several ma-jor advertising trade associations,14 has been called byformer Federal Trade Commission Chairman RobertPitofsky the best example of self-regulation he has seen.The CBBB's Children's Advertising Review Unit(CARU) has been a leader in setting advertising stan-dards15 applicable to the unique needs and cognitiveabilities of children, and, like NAD, enjoys an outstand-ing level of voluntary compliance by industry. Morerecently, the CBBB has implemented self-regulatoryprograms for electronic retailing16 and the children'sfood and beverage industry17 and is now working in col-laboration with other industry groups in developing anonline behavioral advertising (“OBA”) self-regulation

10Not currently available on the BBB site; most elements of the origi-

nal Code were subsequently incorporated into other BBB standards. For acopy of the original (in English, French, German and/or Spanish), see:http://tinyurl.com/2g3umxt

11See: http://www.bbb.org/us/code-of-advertising/

12See: http://www.ftc.gov/bcp/guides/decptprc.htm

13See: http://www.bbb.org/us/Advertising-Review-Services/

14See: http://www.narcpartners.org/about/partners.aspx

15See: http://www.bbb.org/us/children-advertising-review-unit-guideli

nes/16

See: http://www.bbb.org/us/electronic-retailing-self-regulation-program/

17See: http://www.bbb.org/us/children-food-beverage-advertising-initia

tive/



process. As a �rst step, major OBA Principles werereleased in July 2009.18

Separate from the advertising industry, the BBB WiseGiving Alliance (WGA) brings the BBB experience inbusiness self-regulation to the U.S. charitable com-munity, setting, implementing and reporting upon (atboth national and local levels) widely observed fundraising, governance and accountability standards19 forsoliciting organizations.BBB standard-setting activities work for three essentialreasons. First, they are developed and implemented“with” industry, and are not done “to” industry. Theyare examples of self-regulation at its best. Second, theBBB corporate partners (and supporters) understandthat the self-regulation programs will not serve them ifthese programs do not e�ectively and transparentlyserve their customers.Consequently, while BBB standards and implementa-tion activities are practical and reasonable from a busi-ness perspective, they are fair and responsive toconsumers.Finally, since BBB self-regulation must not only be ef-fective, but must be seen to be e�ective, businesses —from the largest multi-national companies to the small-est local �rms — understand that BBB advertising self-regulation, complaint handling and local dispute resolu-tion programs must be transparent and publiclyaccountable.

E Third, BBB's most widely recognized function ishelping consumers �nd companies in which theycan place their trust.To begin with, BBB Accredited Businesses must meetminimum requirements20 that speak to truthful adver-tising and good faith resolution of consumer complaints,among other things. Those businesses that are BBB Ac-credited may display a BBB Accredited Business mark(in their stores, on their Web sites and in other loca-

18See: http://www.bbb.org/us/article/principles-on-collection-and-use-o

f-behavioral-advertising-data-released-1128719

See: http://www.bbb.org/us/Standards-Charity/20

See: http://www.bbb.org/us/bbb-accreditation-standards/



tions) and identify themselves as “BBB Accredited” inother forms of advertising.All BBBs assist consumers in pre-purchase research byproviding “BBB Business Reviews” — BBB reports onmembers and non-members alike — describing the busi-ness' marketplace record. These reviews are availableonline at: http://www.bbb.org/us/Find-Business-Reviews/.Today, not only can consumers quickly identify BBBAccredited Businesses that meet BBB standards andparticipate in BBB dispute resolution, but such BBB in-formation is nearly universally accessible through smartphone and web browser applications, major Internetsearch engines and through automated telephone voiceresponse systems maintained by most local BBB o�ces.

Alternative Dispute Resolution In The Cross-Border Context

In the context of global e-commerce, disputes involvingonline transactions are likely to run the gamut from verysmall dollar value con�icts involving two individuals (forexample, collectibles sold through online auction sites), tomulti-million dollar business-to-business (B2B) transactions.

While the complexity of the B2B disputes may be signi�-cantly greater, that very complexity and the high dollarvalue help ensure:

E that there will be fewer disputes arising out of thesetransactions; and,

E that the parties to these transactions are much morelikely to have incorporated sophisticated, tailoreddispute resolution mechanisms, by mutual and informedconsent, into their underlying contracts.

By contrast, the sheer volume of consumer transactions,coupled with the relative lack of sophistication on the part ofthe parties, easily has the potential to generate a signi�-cantly large caseload. At the same time, the parties will beless likely to be familiar with any form of alternative disputeresolution.

This presents a daunting challenge for the design of aconsumer dispute resolution system.

While this paper is intended to focuses on disputes whereconsumers, sellers and various transaction “facilitators”



(credit card issuers, banks, delivery systems, ISPs, etc.)reside in di�erent nations and, therefore, di�erent legaljurisdictions, we believe the existence of readily accessiblemechanisms will help facilitate informal dispute resolutionwithin jurisdictions, augmenting laws within individualnational borders.

Certainly, within any given country, informal dispute res-olution systems should be encouraged as quick, informalways to obtain redress. In 1985, in an e�ort to extendconsumer protection protocols throughout the global com-munity, the United Nations approved it's Guidelines forConsumer Protection. The Guidelines (as expanded in 1999to include issues involving sustainable consumption)21 aredesigned “. . . to assist countries in achieving or maintain-ing adequate consumer protection for their population asconsumers”. Of the several needs these Guidelines areintended to address, one is to ensure the “availability of ef-fective consumer redress”. Similarly, the OECD “Guidelinesfor Consumer Protection in the Context of Electronic Com-merce” (1999)22 and the OECD “Cross-Border Fraud Guide-lines” (2003).23 Both documents contain signi�cant refer-ences to the need for both e�ective, informal disputeresolution mechanisms and cross-border recognition ofresolutions (whether decisions or recommendations) achievedthrough such systems. Finally, in 2007, the OECD issued itsConsumer Dispute Resolution and Redress Recommenda-tion,24 speci�cally addressing the issues. The InternationalStandards Organization (ISO) has also issued guidelinesboth for internal company complaint handling (ISO 10002)25

and for external dispute resolution processes (ISO 10003).26

Since it is clear that governmental and extra-governmental

21See: http://www.un.org/esa/sustdev/publications/consumption�e

n.pdf22

See: http://www.oecd.org/dataoecd/18/13/34023235.pdf. In 2009,OECD launched a review of the Guidelines in light of the rapidly chang-ing ecommerce environment (http://www.oecd.org/dataoecd/32/10/45061590.pdf)

23See: http://www.oecd.org/dataoecd/24/33/2956464.pdf

24See: http://www.oecd.org/dataoecd/43/50/38960101.pdf

25See: http://www.iso.org/iso/iso�catalogue/catalogue�tc/catalogue�

detail.htm?csnumber=3553926

See: http://www.iso.org/iso/catalogue�detail.htm?csnumber=38449



systems (some nascent, some enjoying long traditions) existin many countries, nothing in this paper is intended to sup-plant those systems. Where consumer disputes cross nationalborders and jurisdictions, a special system is required.Consumers and businesses need a reasonable certainty thatredress mechanism(s) will be available and will be utilized.Perhaps most important, there must be positive advantagesto participation and negative consequences for failing tohonor commitments made during the dispute resolutionprocess. Finally, the cost to the parties (both in time andmoney) to participate and to gain adherence to decisionsmade through the process must be proportional; they cannotbe so signi�cant (with respect to the amount of the transac-tion) that the process is e�ectively rendered moot.

There are a number of key issues that should be addressedin any cross-border consumer dispute resolution mechanism.We consider six to be essential. These are:

E Fairness. Consumer dispute mechanisms must havestructure, rules and procedures that ensure that allparties' rights are protected and that every aspect ofthe mechanism operates with regard to the parties'rights to due process.

E Visibility. Consumers must be fully aware of the exis-tence of any mechanism. While it is desirable thatconsumers have this knowledge prior to entering into atransaction, it is critical that this information be avail-able at the time a dispute arises.

E Accessibility. The mechanism must be readily acces-sible by consumers when a dispute arises. Accessibilitynot only means that the mechanism can be called uponwhen needed, but that there are no unreasonable barri-ers to access (including unreasonable costs).

E Timeliness. There is an old adage that “justice delayedis justice denied”; it applies particularly to consumerdispute resolution. Disputes should be resolved asquickly as possible, taking into account the need for theparties to provide (or the mechanism to collect) suf-�cient information upon which to base a resolution.

E Finality. The mechanism should, to the greatest extentpossible, ensure that decisions fully and �nally resolveindividual consumer disputes. The BBB o�ers a numberof models that achieve this end including bindingarbitration, conditionally binding dispute resolution,



non-binding informal dispute settlement and non-binding measurements against performance standards.

E Enforceability. The mechanism should ensure thatdecisions it renders are quickly and completely honored.

Each of these guidelines interconnects with the others;together, they form an excellent framework under which todiscuss cross-border, online dispute resolution.

Fairness.Perhaps no one element of a consumer dispute resolution

process is of greater importance than the essential fairnessof the mechanism. Parties to any dispute have a right toexpect that the process will operate in a completely impartialmanner.

The Federal Trade Commission, in proposing InformalDispute Resolution Rules27 under the Magnuson-Moss Prod-uct Warranty Act28 in 1975, set forth detailed requirementsgiving signi�cant speci�city to the Warranty Act’s statedintention to encourage warrantors to develop fast, fair,informal procedures for the resolution of warranty disputes.

In 1999, the European Commission, after signi�cantconsultations among its members, established a set of basicprinciples for out-of-court settlement of consumer disputes.29

These seven principles (which mirror, in many respects, theFTC Rule 703 “standards”) deal directly with the followingbroad policy areas:

E The “independence” of the mechanism and decision mak-er(s);

E The “transparency” of the procedure(s);E The “adversarial process”, allowing for arguments and

cross-examination by both parties and/or their represen-tatives;

27See: http://www.bbb.org/us/auto-line/ftc-dispute/

28See: http://en.wikipedia.org/wiki/Magnuson%E2%80%93Moss�War

ranty�Act29

The European Commission, Health and Consumer Protection,“Commission Recommendation on the principles applicable to the bodiesresponsible for out-of-court settlement of consumer disputes” (1999) at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:51998IR0441:EN:NOT. The Global Business Dialogue on e-Society (GBDe), incooperation with Consumers International, also released ADR guidelinesfor consumer disputes in 2003 (see: http://www.gbd-e.org/pubs/ADR�Guideline.pdf).



E The “e�ectiveness” of the process;E The “legality” of the process;E “Liberty” within the process (process may be binding

only if parties were informed in advance and speci�-cally consented;

E “Representation” in the process;As the leading consumer dispute settlement organization

in North American, the Better Business Bureau's rules andprocedures have long embodied these fairness principles, ashave those of commercial dispute resolution mechanisms,such as the American Arbitration Association.30 In theconsumer context, BBB has long maintained that thesefundamental fairness principles should include:

E Ready access to meaningful information about thedispute resolution process;

E Neutral, independent program administration anddispute resolvers possessing su�cient knowledge andskills to perform their duties responsibly;

E Dispute resolution services provided at no cost or at alow cost when measured against the value of the trans-action in dispute;

E The absence of geographic, linguistic or other barriersto the fullest practical participation in the entire disputeresolution process;

E Time frames that ensure a quick resolution of thedispute, taking into account various aspects of thenature of the transaction;

E A right to have adequate representation during theprocess.

The principles outlined in these various protocols (with afew limited exceptions) all form a solid framework withinwhich to address concerns about the fairness of the process.

Visibility.Regardless of the fairness of a program's rules and

procedures, a dispute resolution mechanism that is invisibleis useless.

The Federal Trade Commission recognized the critical

30The American Arbitration Association, A Due Process Protocol for

Mediation and Arbitration of Consumer Disputes, April 17, 1998. See: http://www.adr.org/sp.asp?id=22019.



importance of the visibility of a dispute mechanism in prod-uct warranty disputes in the United States. The FTCrequires a warrantor under its Rule 703 (See note 26) tomake basic disclosures about the availability of a complyingdispute resolution mechanism (including the name, addressand toll-free telephone number of the mechanism) on theface of the consumer warranty. Further, the FTC requiresthat warrantors take a number of additional steps to informconsumers about the availability of the mechanism at thetime a warranty dispute arises.

In the United States and Canada, Better Business Bureaushave high public name recognition. In a 2004 PrincetonResearch Survey, eight in 10 members of the general public(81%) said they had seen, heard or read something about theBBB, and two-thirds of adults said they had a “favorableview of the organization”. Speci�cally germane to disputeresolution, when asked to name organizations or agenciesthat received, investigated and helped resolve consumercomplaints about businesses, nearly half of the public (49%)in the same survey volunteered the BBB as a resource —nearly four times the next most frequently mentionedresource.

As a consequence of that high recognition and regard,consumers often �nd their way into BBB dispute resolutionprograms without speci�c knowledge that an individualcompany has “precommitted” to dispute resolution. This ex-perience may be true for other public and private agencies inother jurisdictions.

While this “public recognition quotient” may be one criti-cal key to success, it is also important that information abouta mechanism be clearly available at the point of thetransaction. For this reason, information about the BBB Ac-creditation Standards, including a link to BBB dispute reso-lution services, is available on BBB Business Reviews of in-dividual companies. This can be found whenever a consumereither obtains a report directly from the BBB or clicks on theBBB Accreditation mark (displayed on the company's Website) to con�rm the company's Accreditation.

Accessibility.A mechanism that is not visible could hardly be considered

accessible. However, there are many other proven barriers toaccess that must be considered. First among these may be



cost. Costs imposed on a consumer for using a dispute reso-lution mechanism, will increasingly hinder consumer accessas the cost of the dispute resolution approaches the value ofthe issue(s) in dispute. In the United States, there have beenseveral examples (generally in the context of “pre-dispute”,binding arbitration clauses incorporated into consumercontracts) where courts have held that the costs and �lingfees of the arbitration process were unconscionable whenmeasured against the cost of the product.

The Better Business Bureau believes that consumerdispute resolution services should be provided at low or nocost to consumers. Otherwise, given the relatively low dollarvalue of issues in dispute, fees would prove a signi�cant bar-rier to meaningful redress.

It is important to note that “low or no cost to the consumer”does not mean that a dispute resolution mechanism iswithout cost. A mechanism must be adequately funded at alevel su�cient to ensure that it is capable of fully meetingits obligations to the parties. As recognized by the U.S.Federal Trade Commission in its warranty regulations, thatalmost invariably necessitates business funding. Accord-ingly, some key steps must be taken to ensure impartialityof the mechanism, both in fact and in appearance, or elsefree/low cost quality consumer dispute resolution processesare unlikely to exist — to everyone's detriment.

In addition to cost, there may be a number of other barri-ers to access. These would include such issues (among oth-ers) as cumbersome case �ling procedures, slow (or no) re-sponse to consumer inquiries and timeliness in the handlingof cases after �ling (see below). To these, in the globalcontext, there are additional barriers that must be addressedand overcome. These include language, custom and timezone di�erences.

Timeliness.At a time when courts in the United States can have multi-

year waiting lists before cases even appear on a docket, oneof the major advantages of alternative dispute resolution inthe consumer context has been its potential to handle casestimely. However, if a dispute resolution mechanism, bydesign or through mismanagement, routinely delays theultimate resolution of cases, consumers will becomediscouraged. Either the issue in dispute is no longer mate-



rial (e.g. the buyer has disposed of the product or — themost extreme case -is deceased) or the consumer becomesdiscouraged and withdraws from the process.

BBB Rules of Binding Arbitration provide that cases willbe concluded within 60 days from the date of initial �ling tothe date of �nal resolution/decision; the BBB AUTO LINERules provide for case handling within 40 days. This shortertime frame is consistent with the FTC's Rule 703, whichrequires that warranty dispute mechanisms in the UnitedStates issue a decision on a case within 40 calendar days ofthe date that the claim was formally �led with the war-rantor's mechanism. While 40 calendar days may be consid-ered speedy in the “brick and mortar” world, given the muchmore instantaneous nature of e-commerce, we believeconsumers today will have an expectation of faster case-handling times in the future. This will require that onlinedispute resolution programs make signi�cant investments intechnology to meet user expectations under Internet timeframes.

Finality.A dispute resolution process that holds out the promise of

“resolution” must deliver on that promise. This means theparties (both consumer and business) have a right to expectthat — if all other techniques fail — the process will formally“decide” the issues that have been submitted. Mechanismsshould be encouraged to facilitate direct contact betweendisputing parties in the early stages of a dispute and toencourage mediation; however, those which merely facilitatewithout ultimately making a formal recommendation or de-cision available to the parties perform no service if one ofthe parties proves recalcitrant. There are many ways toensure �nality in the consumer dispute resolution process.The BBB provides several di�erent models:

E Binding Arbitration. Both parties enter the disputeresolution process and agree to be legally bound by thedecision.

E Conditionally-Binding Arbitration. The business“pre-agrees” to arbitrate disputes at the consumer'srequest. The arbitrator's decision is not binding on ei-ther party unless the consumer formally accepts thedecision. Once accepted, the decision becomes bindingon both the company and the consumer.



E Informal Dispute Settlement. The parties enter anon-binding process that provides a settlementrecommendation. Neither party is bound by this recom-mendation, but the company must act in good faith indetermining whether and to what extent to honor it.

E “Trust mark” Programs. The “trust mark” holderagrees to a set of standards and a dispute resolutionprocess to resolve disputes relating to adherence tothose standards. The decision of the process is notlegally binding on the company, but failure to honor thedecision may result in a revocation of the “trust mark”and/or other sanctions (e.g. “name and shame” publicexposure).

In all these models, the disputants have a right to expecta timely decision free from ambiguity.

Enforcement.Closely connected to, but separate from, the issue of “�nal-

ity” is the issue of “enforcement”. A clear, unambiguousdispute mechanism decision that is not followed weakens theparties' faith in all dispute resolution mechanisms. Thereare a number of di�erent enforcement techniques:

E Easy enforcement in court. Arbitration statutes inthe U.S. and elsewhere recognize disputants' right tovoluntarily submit disputes to binding arbitration. Ifkey “due process” requirements are met during thearbitration process, courts will con�rm arbitrators' deci-sions without rehearing the issues in dispute.

E Recognition of dispute resolution processes incourt. Certain Better Business Bureau arbitrationagreements contain provisions that non-binding deci-sions of an “informal dispute resolution” process may beintroduced in evidence in subsequent court proceedings.U.S. Federal Trade Commission warranty dispute rulescontain similar provisions. In the global cross-bordercontext, however, enforcement takes on greater signi�-cance, yet traditional judicial “enforcement” may proveelusive. While enforcement of arbitration awards inmulti-million dollar international commercial disputesis quite likely under existing treaties, the costs of legalenforcement of consumer dispute mechanism decisionsmay be as impractical as the costs of litigating them.We believe that other non-judicial remedies may



ultimately provide equal — and perhaps better — as-surance of enforcement than formal legal “con�rmation”procedures. Here are some examples from the BBB'sexperience:

† Withdrawal of BBB Accreditation. Section 6Cof the BBB Code of Business Practices (also knownas BBB Accreditation Standards)31 requires acompany to “. . . comply with any settlements,agreements or decisions reached as an outcome of aBBB dispute resolution process.” Failure to honor aduly rendered recommendation or arbitrator's deci-sion will result in a formal proceeding to publiclyrevoke a �rm's BBB Accreditation. Notice of thatrevocation is incorporated into the company's BBBreport, which is given to consumers who call theBBB to make a pre-purchase inquiry on the compa-ny's reliability.

† Withdrawal of the BBB “trust mark”. If thecompany's BBB Accreditation is formally revoked,the company's license to display the BBB trustmark will be revoked.

† Public Reporting of Non-Compliance. Failureto honor recommendations/decisions is also reportedin the company's “BBB Business Review (publiclyavailable BBB report on the company's marketplacereputation, as assessed by BBB), and it will havean impact on the company's BBB Rating (a lettergrade assigned to each company, based upon anumber of factors relating to the consumer/businessrelationship). In a similar vein, the CBBB's Na-tional Advertising Division publicly reports failuresto cooperate with the self-regulatory process in bothpress releases and on its Web site(s).

E Government Back Up. As noted earlier, the FTC hasinvestigated and taken action against advertisers whenadvertisers have failed to honor decisions emanatingfrom the self-regulatory process. We believe that ifconsumers are encouraged to conduct e-commerce onsites which o�er “certi�ed” dispute resolution programs,and if those certi�cation procedures require thatprograms remove from participation those “trust mark”

31See: http://www.bbb.org/us/bbb-accreditation-standards/



holders that fail to abide by a decision, there may begreater incentives to comply (or disincentives for non-compliance) than might exist through the normal legalprocesses of any individual jurisdiction.

“O� line” Local to Online Global — Unique Issuesfor Discussion. None of the problems and solutions outlinedthus far is unique to the online environment; they arefundamental issues that are applicable to any consumerdispute resolution mechanism. However, as has been repeat-edly proven, the Internet continues to reshape commercewith lightning-like speed.

We note that there have been a number of experimentswith online dispute resolution, and there are new onlinemechanisms, non-pro�t and for-pro�t, o�ering to put the lat-est Internet technologies at the service of disputing parties.These have generally focused on more complex commercialtransactions and disputes where the “cost/bene�t” of usingthese technologies is obvious. As we noted earlier,32 paymentsystems (Visa, MasterCard, American Express, PayPal, etc.),with a �nancial interest in the seamless (and uneventful) ex-ecution of millions of separate smaller transactions, havebecome major players. There have been (and continue to be)a variety of initiatives experimenting with the use of Webtechnology for smaller consumer and commercial disputes.In our view, as we previously noted, while there are a grow-ing number of successful commercial ODR models — and anumber of current experiments in cross-border, small-dollar-value consumer dispute resolution — there remain few trulyrepresentative models of successful online consumer disputeresolution programs.

In addition to its generic consumer complaint form33 (inuse for the past 13 years), BBBs use other, special purposeonline consumer complaint forms — notably for the BBBAUTO LINE program,34 for wireless/cell phone complaints,35

for complaints regarding publicly-soliciting charitable organi-

32See footnote 1.

33See: https://odr.bbb.org/odrweb/public/getstarted.aspx; note that

“special purpose” complaint forms can be accessed o� this entry page,depending on the consumer's answers to speci�c “gateway” questions.

34See: https://odr.bbb.org/odrweb/public/ComplaintRedirect.aspx

35See: https://odr.bbb.org/odrweb/public/NewComplaint.aspx?Complai

ntTypeID=1&countryid=1



zations36 and for complaints regarding national advertisingdirected at children.37 In 2000, BBB estimated that some-where between 20 to 30 percent of its basic consumer com-plaint activity was being �led on one of the BBB family ofWeb sites (the balance being �led by mail, either on a BBBcomplaint form or in a letter to a BBB o�ce, or over thetelephone in some BBB o�ces). Today, based on a 2010 anal-ysis of BBB complaints, an average of roughly 80% of allBBB complaints were �led by consumers using the BBBonline complaint form. In some individual BBB o�ces, thatnumber is even higher (90 to 95%). Although the incrementalgrowth in the percentage of BBB online complaint �lings hasslowed (as the percentage approaches 100%), the shift frompaper to online was initially quite dramatic. BBB noted that— on an average month during 1999, roughly 24% of allBBB complaints were �led online. By January 2000, thesingle-month percentage had increased to between 36% and40%. This presents a number of unique issues that willultimately need to be addressed. However, from our experi-ence, coupled with our growing understanding of a numberof related issues, we believe the following issues — many ofwhich are tightly linked — will need to be addressedimmediately:

E Volume. Most dispute resolution mechanisms, includ-ing the courts, rely on a system of barriers (howeverbenign) to retard entry and encourage resolution atlower levels. If one assumes that an online, globalconsumer dispute resolution mechanism exists, that itmeets the requirements for accessibility and visibility,that it is fair, impartial and trusted by consumers andthat online merchants have pre-agreed to use such amechanism, then the Internet eliminates most tradi-tional barriers. It may be di�cult and time consumingfor a consumer to go down to a small claims court, paya �ling fee and receive a date upon which to return andargue a case. However, for the investment of a fewminutes of time online, a consumer can initiate a BBBdispute resolution process without ever leaving home,for no �ling fee. Given the explosive growth of onlinecommerce, the potential consumer complaint volumes

36See: http://charityreports.bbb.org/public/complaint/complaint.aspx

37See: http://www.caru.org/complaint/index.aspx



— and attendant costs — have become a major factorwith which dispute resolution mechanisms must ef-fectively deal.

E Speed. As we previously noted, a 40-calendar-day timeframe (from complaint �ling through decision) may beconsidered quite fast in the “brick and mortar” world,but it may seem extraordinarily slow in a world where“excellent customer service” may mean responding to aconsumer request in minutes or hours, rather than daysor weeks. Dispute resolution mechanisms will need toadapt to Internet time frames or consumers andmerchants will �nd them unsatisfactory.

E Technology. The major solution to both concerns aboutvolume and speed lies in adapting Internet technologiesto consumer dispute resolution. Unfortunately, the lowdollar value of consumer disputes, coupled with thedesire to provide dispute services at relatively low or nocost, gives little incentive for entrepreneurialinvestment. At the same time, the potential volume ofconsumer cases will require a larger investment inrobust technology that can be rapidly scaled up to meetdemand. We believe that a variety of di�erent types ofpartnerships among governments, non-pro�t founda-tions, academic institutions and the private sector willbe necessary to ensure that the technological infrastruc-ture will be (and remain) in place.

E Language and Cultural Issues. As online commercetranscends national borders, it crosses major languageand cultural barriers as well. Without speaking anotherlanguage well (or perhaps at all), a consumer from onecountry may be able to navigate through a well-constructed web site in another country well enough toplace an online order, particularly now that “on the �y”translation services38 can make many Web sites readilyunderstandable — even if the translation is not perfectlynuanced. That said, it is quite another matter for thatsame customer to try and explain the complexities ofhis or her dissatisfaction to the foreign company or to athird party using only his or her native language.Similarly, it may be di�cult for a company or thirdparty to understand a speci�c cultural context within

38An example is Google Translate; see: http://translate.google.com/



which lies a foreign customer's dissatisfaction with aproduct or service. Treating these cross-lingual andcultural issues in the consumer dispute context will bean early challenge for the construction of e�ectivedispute resolution programs.

E Credibility Issues. The classic fact-�nder often relieson ascertaining the veracity of witnesses by the appear-ance and demeanor of the parties and their witnesses— “looking them in the eye”. Such visual cues may beabsent from a dispute resolution process where the par-ties and the neutral may be separated by severalthousand miles. In any event, such cues might actuallybe quite misleading, since they are set in a culturalcontext. For example, a witness who looks anotherperson in the eye may be considered to be truthful inone culture, while giving great o�ense in another.Dispute resolution processes will certainly need to takethese issues into account and may need to modifyprocedures or �nd new and di�erent methods to dealwith these issues.

E Production of Evidence. In the “brick and mortar”world, the parties produce evidence or witnesses bybringing the documents or the witnesses with them to ahearing. In the electronic world, where documents crosscontinents in a nanosecond via email, it is simple tobelieve that evidence will be produced the same way.While that expectation may be valid in major com-mercial disputes, it is unreasonable to assume thatevery consumer with Internet access is also a documentimaging specialist. Accordingly, thought needs to begiven to the means through which the average consumermay submit evidence to the mechanism (certainly notruling out ordinary mail) and how a mechanism mayobtain credible testimony from witnesses (including howand when electronic “witnesses” may be questioned).

E Inspections. In the BBB's consumer programs, arbitra-tors often conduct “on site” inspections of a product orservice that is the subject of a dispute. Such inspectionsmight prove pivotal in determining whether a fault ex-ists and, if so, where that fault lies. What types of pro-visions might an online mechanism make for the equiv-alent of such inspections?

E Compelling Consumer Participation. There is onesigni�cant policy issue not previously addressed in this



document. Companies in the United States have a longhistory of incorporating binding arbitration provisionsinto commercial and union/management contracts.Courts have recognized the validity of these pre-disputeagreements and have upheld them routinely.Over the past two decades in the U.S., however, therehad been a growing movement toward incorporatingsuch clauses in consumer contracts. This became ahighly charged, controversial issue.The European principles (under its category of “liberty”within a binding dispute resolution process) address theissue of the voluntary nature of arbitration, attemptingto ensure that the consumer has knowingly and freelychosen to elect to bind him/herself to a mechanism'sdecision. Under the European Principle, a consumer'selection to arbitrate may not be the result of a commit-ment prior to the actual disputing arising.39

In a similar context, the Better Business Bureau systemestablished a Policy for Voluntary Consumer/BusinessArbitration in Contractual Commitments.40 In 1998,recognizing that courts in the U.S. had generally up-held these clauses, with certain restrictions, the BBBpolicy established guidelines under which a businesscould name the BBB in one of these clauses.In 2003, the Global Business Dialogue on e-Society(GBDe), a world-wide, business-driven forum dealingwith electronic commerce issues, issued a set of ADRGuidelines in collaboration with Consumers Interna-tional, a global federation of 220 consumer groupsoperating in 115 countries. While those guidelines covera broad range of consumer dispute resolution issues,they speak speci�cally to the issue of compulsoryarbitration of consumer disputes. The guidelines state:“Merchants should generally avoid using arbitration

39A good, technical explanation of the issues involved, with a

European perspective, can be found in a 2008 paper by Christine Riefa(see: http://papers.ssrn.com/sol3/papers.cfm?abstract�id=1354590).

40Council of Better Business Bureaus, Inc., Policy for Voluntary

Consumer/Business Arbitration in Contractual Commitments, March 25,1998. The American Arbitration Association did likewise, with itsConsumer Due Process Protocols, also in 1998 (see: http://www.adr.org/sp.asp?id=22019).



that is binding on consumers because it may impairconsumer con�dence in electronic commerce.”41

The use of these clauses has lost considerable favor inthe U.S., following the Minnesota Attorney General'sJuly 2009 settlement with the largest U.S. pre-disputearbitration provider, National Arbitration Forums(NAF),42 which provided arbitration services to many ofthe largest business users of pre-dispute clauses (e.g.�rms within the �nancial services sector). In the periodsince that announced settlement (and NAF's agreementto discontinue providing these services), a number of itsbusiness clients announced they were discontinuing theuse of pre-dispute clauses entirely.43 Finally, in additionto the recently enacted �nancial reform act44 severalbills have been introduced in the U.S. Congress thatwould further restrict the use of such clauses in variousspeci�c circumstances.While this remains a controversial issue in the UnitedStates, we believe that pre-dispute clauses in cross-border consumer contracts may ultimately be an issueof little practical signi�cance. As with many otheraspects already discussed in this paper, legal enforce-ment of such contract clauses may likely prove imprac-tical in the global, cross-border context. The generallysmall dollar value of consumer transactions, coupledwith the di�culty and cost of attempting to enforce apre-dispute clause in some international forum, willlikely make the issue moot in practice.

The Role Of GovernmentsAt the beginning of this paper, in discussing the role of

self-regulation, we observed that it facilitates consumer self-

41For complete text, see: http://www.gbd-e.org/pubs/ADR�Guideline.

pdf,42

See: http://www.ag.state.mn.us/consumer/pressrelease/090720nationalarbitrationagremnt.asp

43See: http://www.creditcards.com/credit-card-news/credit-card-bindin

g-arbitration-going-away-1282.php44

Known as the Dodd-Frank Wall Street Reform and ConsumerProtection Act, it was signed into law in July, 2010 (see: http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank�Wall�Street�Reform�and�Consumer�Protection�Act).



reliance, encourages industry innovation and provides a true“safety net” for consumers and responsible industrymembers. We noted the important role we believe alterna-tive dispute resolution can play. Finally, and perhaps ofgreatest importance, we voiced our conviction that thought-ful government oversight and enforcement provides a neces-sary fertile medium in which self-regulation can �ourish.

We believe that the role of governments, in the frameworkof cross-border consumer protection, should be:

E To agree upon a set of international “standards” forconsumer dispute resolution programs;

E To give some formal “standing” to programs which meetthese standards. The US/EU “Safe Harbor” frameworkfor resolving privacy disputes is certainly one exampleof how governments can create positive incentives forself-regulation;

E To provide reciprocal, uniform audit mechanisms toensure citizens of their respective jurisdictions that“trust mark” programs live up to their commitments.For consumers, �nding reliable “trust mark” programswill be as important as �nding reliable companies. Thiswill be particularly true where trust mark organiza-tions are new and not recognized by consumers andbusinesses;

E To use the force of local laws and regulation to aggres-sively pursue those companies that fail to live up totheir commitments, abuse the system or engage infraudulent or deceptive acts or practices. (For example,a company that either falsely claims to hold a reputa-tional “trust mark” (counterfeiting the mark on its Website) or actually holds such a mark but demonstrablyfails to honor its commitments, might be found to haveengaged in fraudulent or deceptive business practicesunder local law/regulation.)

Some Lessons LearnedOver the past 15 years, BBB has learned a number of les-

sons relating to cross-border consumer/business issues. Insome cases, assumptions made proved incorrect; lessonslearned, course corrections (and programmatic changesmade) have been re�ected in this paper. However, some keyissues undoubtedly deserve to be highlighted.

E Larger forces intrude on the best plans. As the late-



2008 collapse of the global �nancial markets impactedeconomies and business plans in myriad ways, so toodid the bursting of the “dot com” bubble impact thelaunch and growth of trust mark and cross-borderconsumer dispute resolution programs. Many organiza-tions' assumptions about the continued “boom” ofInternet-based retailing were proven dramaticallywrong when tech-heavy NASDAQ lost nearly 10% of itsvalue in mid-March, 2001. By itself, that collapseseverely impacted the planning and execution of many(including �edgling trust mark programs) in thetechnology sector. Coupled with the terrorist attacks ofSeptember 11th (which themselves had both a signi�-cant and immediate impact on global economies andgenerated longer-term, ripple e�ects on all areas ofcross-border trade), interest in — and growth of — trustmark programs signi�cantly slowed or halted.

E Consumer dispute resolution and consumer trust markprograms may be more di�cult to replicate and growthan BBB (and others) had originally foreseen. The BBB— with its nearly 100 year history of self-regulatoryprograms in the United States and Canada — was al-ready providing many core services (as part of itsinstitutional mandate) that would become an essentialpart of any “trust mark” program. In addition to theestablished BBB brand — extremely well-recognized inNorth America — BBB was already reviewing compa-nies (its prospective and current members) against aset of standards, handling consumer complaints againstboth member and non-member businesses, and trans-parently providing its “reputational” reports on 2 — 4million retail/service businesses. Under those circum-stances, building the BBBOnLine Reliability Program— while requiring signi�cant time, energy and start-upinvestment — involved modifying and updating alreadyexisting programs and services for the new, onlineenvironment. Organizations seeking to launch a disputeresolution or trust mark service without having thebene�t of the BBB's existing infrastructure found sig-ni�cant �nancial and institutional challenges, as didnew, “start up” services. While there are now quite anumber of “reputational” trust mark programs, particu-larly in Europe and Asia, most have experienced



relatively slow growth; none has approached theparticipation level of the BBB trust mark program.45

E The excellent is the enemy of the good. BBB has notedthe propensity of some groups to unnecessarily compli-cate the dispute resolution process. This happens as aconsequence of a focus on the latter stages of disputeresolution — formal mediation and arbitration (or someother decision-rendering mechanism). Consumer dis-putes can (and should) move through a resolution hier-archy — from the least to the most complex (andexpensive) method. In BBB's experience, most consumerdisputes involve relatively small dollar value items anda very signi�cant percentage (generally between 60%and 95%, depending on the industry category46) aresettled in the initial “conciliation” phase of the disputeresolution process — the back and forth between thecustomer and a responsible o�cial at the company,facilitated through the BBB. When a higher valuedispute has proven di�cult or impossible to resolve atless formal levels, great attention must, of course, bepaid to all the “due process” protocols (program rules,forms, noti�cations, administrative procedures, etc.).However, a consumer dispute program could — in the-ory — dispense with formal mediation and arbitrationphases of the dispute resolution process, and still behighly successful (if success is measured by numbers ofusers gaining resolution at the “conciliation” level).

E Sometimes a cigar is just a cigar. Some elements of thedispute resolution process are proving to be not quitethe barriers the author's imagined. We based certainassumptions and concerns on our prior consumer expe-rience with in-person or telephone mediation andarbitration; however, some are not proving to be thebarriers we initially expected. For example:

† Language and cultural issues. Where the parties to

45Over 67,000 participating companies in North America, as of

August, 2010.46

BBB 2009 complaint statistics — publicly available on the BBB website — re�ect “settlement” percentages (cases where the BBB determinedthe complaint was entirely or largely settled to the customers satisfactionor the company's o�er was reasonable when considering the circumstancesof the case) for each industry category. See: http://www.bbb.org/us/storage/16/documents/stats%20pdf/us�canada�industry1.pdf.



a dispute intend to have some ongoing relationship(many B2B disputes would fall into this category),where the parties have had a lengthy history (ahome remodeling project taking many months tocomplete), where the issues in dispute are multipleand/or complex, di�erent languages and culturalbackgrounds can be serious impediments toresolution.47 However, as noted earlier, most gardenvariety consumer disputes arising from onlinepurchases (and particularly those in cross-bordercommerce) result from a single transaction, be-tween parties that do not have any relationshipapart from that online transaction, and usuallyinvolve one, simple request — �x the problem orrefund the monies paid (the request can be takenat face value; nuances of language and culture maynot be so critically important with the largestnumber of disputes that may present themselves atthe earliest stages of the dispute resolution process).

† Credibility Issues. Again, in the earliest stages ofsmall dollar value consumer transaction disputes,where the buyer and seller have never met (andundoubtedly never will), the likelihood that a casewill turn on the credible appearance of either partyis almost non-existent. In most cases, a few keypieces of documentation (the web site itself, thepurchase con�rmation, email exchanges betweenthe parties, etc.) will prove compelling.

† Inspections. In the authors' experience with con-sumer mediation and arbitrations in North Amer-ica — particularly with large dollar value purchasessuch as an automobile or a major home repair — adispute resolver's ability to actually view the prod-uct or service in dispute often proved persuasive.We expressed a concern an inability to view some-thing (a broken item, the damaged packaging, etc.)might be a serious limitation. Over the past 15years — with photo capabilities now built into

47Mary Hiscock, Emeritus Professor of Law at Australia's Bond

University, presented some of these issues as part of her remarks at anUNCITRAL Colloquium on Online Dispute Resolution in March, 2010.For additional information, see: http://www.pace.edu/lawschool/�les/iicl/odr/Hiscock.ppt.



practically every mobile telephone and consumerspassing images almost as readily as they exchangeemail — this is less of a concern.

We note these examples not to suggest that the underly-ing issues are unimportant, but rather to suggest thatonline dispute resolution programs not over-think andover-engineer” in an e�ort to build compensatingcapabilities into ODR platforms. In our opinion, a verysigni�cant number of all consumer cases coming into anODR pipeline will not require much of thissophistication. The ODR platforms will undoubtedlyneed to provide the capacity to resolve all of theseconcerns at the “recommendation” or “decision” phasesof the process. However, introducing them into the earlyphases of the process may make the entire platformcumbersome and unfriendly for the majority of userswho will never need these functionalities.

In SummaryBBB believes that a self-regulatory framework may

provide the best (and most readily available) model forconsumer protection in the global e-commerce environment.That framework must include, at an absolute minimum: 1)A strong set of standards for online consumer protection —one which can provide benchmarks against which actualcompany performance may be measured; 2) An onlineconsumer dispute resolution mechanism that is fast, fair andaccessible; and, 3) A dynamically delivered “trust mark”, en-abling consumers to identify merchants that have made com-mitments to the standards and to e�ective dispute resolution.

Governments play a vital role by: 1) Adopting principlesthat complement and/or encourage the development ofprivate codes; 2) Establishing �exible standards for disputeresolution programs; 3) Establishing various methods ofcertifying “trust mark” programs and auditing their perfor-mance; 4) Taking action under existing legislation/regulationwhen companies fail to honor commitments.

The private sector can play a pivotal role by: 1) Encourag-ing the development of standards for online commerce; 2)Funding the development of the technology infrastructurethat will be necessary to ensure dispute resolution mecha-nisms are both cost-e�ective and can be made available atlittle or no cost to consumers; 3) Ensuring that opportunities



exist which encourage e�ective partnering among variouscountries' consumer groups, dispute resolution programsand self-regulatory organizations; 4) Developing private sec-tor funding for new programs.

We continue to believe that sustained e�orts by allinterested groups to build alliances and relationships will beabsolutely essential as civil society works toward the goal offostering global online commerce to the bene�t of consumersand merchants in every country. BBB has demonstrated thepractical value of a commitment to that ideal.



Reproduced with Permission Of Council of Better Business

Documents

Transcript of Reproduced with Permission Of Council of Better Business