California Consumer Protection Laws Extend to Internet Vendors

The explosive growth of the Internet as a venue for commerce has led to increased legislative interest in protecting consumers who purchase goods and services online. Internet entrepreneurs should be aware of recent California legislation which imposes certain information disclosure requirements on Internet businesses, in addition to explicitly extending some existing consumer protection laws to online business activities.

Internet entrepreneurs should also be aware of another California statute targeted at "electronic commerce" which may apply to certain Internet activities. Both California statutes could affect all businesses which interact with California consumers, regardless of whether the businesses are located in the state.

Complicated New Disclosure Requirements Imposed on Internet Vendors with Severe Penalties for Noncompliance

In 1996, the California legislature amended Section 17538 of the California Business and Professions Code to impose certain disclosure requirements on Internet businesses. The requirements of this statute apply to vendors of "goods" (including, possibly, information goods) and "services."

Some of the following obligations are required only when a California consumer is involved. However, because of the difficulties in knowing the location of web visitors, and the penalties for non-compliance, it is recommended that all vendors conducting business through the Internet take the following steps to meet the requirements of Section 17538:

Before Accepting Payment

Before accepting any payment for goods or services, an Internet vendor must disclose to the buyer:

  1. the vendor's return and refund policy;
  2. the legal name under which the business is conducted; and
  3. the complete street address from which the business is actually conducted.

These disclosures can be made by on-screen notice, by e-mail or in writing. The statute requires no specific format for the return and refund policy notice, and thus a reasonably conspicuous link to a particular web page which contains this policy should suffice.

Name and Address Disclosures

If the legal name and address disclosures are made by on-screen notice, the notice must appear on either the first screen displayed when the vendor's site is accessed, on the screen on which goods or services are first offered, on the screen on which a buyer may place the order for goods or services, or on the screen on which the buyer may enter payment information. The disclosure of name and address "shall not be structured to be smaller or less legible than the text of the offer of the goods or services."

The disclosure of the legal name and address information must be "accompanied by an adjacent statement describing how the buyer may receive the information at the buyer's email address." The "rationale" behind this requirement was that a buyer should be afforded the opportunity to receive a message in their own mailbox confirming the disclosure information, and that such a message would be more reliable and useful to the recipient than a potentially ephemeral URL. Upon request, the vendor must supply such information to the buyer by e-mail within five days. For convenience, it is recommended that the legal name and address information be a hypertext link to an email auto-responder that automatically generates the information.

Disclosures Must Remain Available to Public

During any period where any order for goods and services is outstanding (that is, during the period after payment has been accepted and before goods or services have been received by the buyer), all of the required disclosure information (legal name, physical address, and return and refund policy) must continue to be made available to the public. Therefore, if vendors desire to change their pages, they must ensure the new pages comply. In addition, vendors must archive, and continue to make available, superseded information.

Consumer Protection Extended to Mail-Order Sales

Section 17538 also extends certain existing consumer protection measures applicable to mail-order sales to cover transactions entered into over the Internet. Generally, vendors must meet certain notice requirements when ordered goods or services are delayed, and must meet a series of obligations when goods or services are substituted to fulfill an order. Vendors who believe they may be affected by these provisions should consult the statute itself or an attorney.

The amended law provides that violations are a misdemeanor punishable by up to six months imprisonment and/or by a fine of up to $1,000. In addition, violations are statutorily defined as acts of "unfair competition." As a result, violators are subject not only to actions brought by public prosecutors, but may also be subject to suits by private litigants who can make claims for injunctive and restitutionary relief, as well as attorney's fees, under California's "private attorney general" statutes.

The "Electronic Commerce Act of 1984" Also Imposes Information Disclosure Requirements on Certain Internet Businesses

California Civil Code Section 1789 et. seq., also known as the Electronic Commerce Act of 1984, imposes certain disclosure requirements on providers of "electronic commercial services," which are defined as "electronic shopping systems" designed "to conduct the purchase of goods and services via a telecommunications network." The law applies only to providers of tangible goods and physical services (or tickets or vouchers for such tangible items or physical service), and does not apply to businesses providing information products or services delivered online or in a printout.

Required Information

Electronic commercial services are required to provide to consumers "with which it contracts to provide the service" the following information, both at the time of contracting and annually, on or before June 30 of each year thereafter:

  • The name, address and telephone number of the provider of the service;
  • Any charges to the consumer imposed by the provider for the use of the service; and
  • The procedures a consumer may follow in order to resolve a complaint regarding the service or to receive further information regarding use of the service, including the telephone number and address of the Complaint Assistance Unit of the Division of Consumer Services of the Department of Consumer Affairs.

The scope of the application of this law in the Internet context is unclear, which is not surprising given its date of enactment. This law may be enforced only by public prosecutors, and civil penalties and fines of up to $5,000 may be imposed for each violation.

What You Can Do

The Business and Professions Code Section 17538 and the Electronic Commerce Act of 1984 impose significant administrative duties on companies trying to do business on the Internet-in the face of severe penalties-without providing the intended benefits to consumers. If you are a California vendor interested in working to advocate sensible, technology-aware consumer protection legislation to amend or replace the existing legislation, you should contact your state legislators.