Retail Bulletin - November 2009

A sea-change afoot for online retail?

Baroness Massey's Online Purchasing of Goods and Services (Age Verification) Bill which calls for the increased protection of children with Internet access went through its second reading in the House of Commons in May 2009. Whilst establishing a system of determining whether or not a person (child) purchasing products such as knives meets a minimum age makes perfect sense to protect children, the cost and legal implications for online retailers is significant.

The Bill calls for retailers to take positive steps to ensure compliance. While it may never become law in its current form, the issue of under-age purchases, both on and off-line, is experiencing an increasingly high profile in the media. With the media keen to expose any ‘wrong doers', to be exposed as a site that sells restricted goods to children is bad PR. Taking action now should impede that, as well as make the business ready and able to cope with future changes in law. Like it or hate it, a sea change in online retail is afoot.

As support builds for this Bill, online retailers should be reviewing how they can make changes now. Thousands of businesses that start thinking now about changing their practices and investing in new systems may gain a significant advantage over those businesses that are slow to adopt more stringent measures.

Creating boundaries

The Internet is omnipresent in the lives of children today. While, however, it is as much an offence to sell age-restricted goods to children online as it is over the counter, the element of anonymity between purchaser and seller makes it more difficult for online retailers to be sure that they are complying with the law. This often makes what is out of bounds in shops readily available to children online – a frightening prospect for retailers who want to ensure that they remain on the right side of the law.

In the initial House of Commons debate on the Bill, an example was used of a child who successfully used a debit card to purchase age-restricted goods. This exposed retailers that did not have procedures or software in place to prevent the online sale of such goods to children. Indeed, many retailers just ask customers to confirm their age by ticking a box, taking no other measures which verify their real age.

The flip-side of the coin is that in the long-term a new law may add more complexity and cost for retailers through ‘knock-on' effects such as the data protection issues of holding age-related details. There is also the question of how this complex situation might be effectively policed. The argument from those supporters of the Bill is that the status quo of self-regulation has failed and that enforcing authorities should visit online retailers to ask questions and review the steps they have in place to ensure compliance.

An act to follow

With this Bill still in proposal stage, it leaves a lot of unanswered questions for online retailers that want to ensure they have done everything to comply with both the current law, as well as be ready for any future, more rigorous changes.

For those online businesses that want to grasp the nettle now and protect their business, the answer might be to review the 2005 Gambling Act. The gambling industry has experienced similar issues and its codes of practice set out detailed procedures to prevent under age gambling. It could offer a useful template for those online retailers wanting to make changes now.

The Gambling Commission's Licence Conditions and Codes of Practice 2008 has a ‘social responsibility code provision' and shows many parallels with the issues that online retailers of age-restricted goods will face. The code states that “remote licensees must have and put into effect, policies and procedures designed to prevent underage gambling, and monitor the effectiveness of these.

Such provisions must include:

a) warning potential customers that underage gambling is an offence;

b) requiring customers to affirm that they are of legal age;

c) regularly reviewing their age verification systems and implementing all reasonable improvements that may be made as technology advances and as information improves;

d) ensuring that relevant staff are properly trained in the use of age verification procedures; in particular customer service staff must be appropriately trained in the use of secondary forms of identification when initial verification procedures fail to prove an individual is of legal age;

e) enabling their gambling websites to permit filtering software to be used by adults (such as parents or within schools) in order to restrict access to relevant pages of those sites;

f) in the case of any UK resident customers who deposit money using any type of payment method other than a credit card, and unless the licensee has established that a third party has satisfactorily carried out age verification, the following age verification procedures:

1. - verifying additional information about the customer, such as carrying out searches of credit reference and other databases that list names and addresses of individuals over the age of 18;
2. - carrying out secondary age verification checks in any circumstances which gives the operator reason to suspect the person may be under-age;
3. - not permitting the customer to withdraw any winnings from his or her account until age verification has been satisfactorily completed; and
4. - in the event a requirement that if age verification has not been satisfactorily completed within 72 hours of the customer applying to register to gamble and depositing money:
5. the account will be frozen
6. no further gambling will be permitted until age verification has been successfully completed
7. if on completion of age verification the customer is shown to be under-age, the operator must return to the customer any money paid in respect of the use of gambling facilities, but not winnings shall be paid

g) in the case of any customers who register to gamble and deposit money using a credit card, conducting a programme of random checks of credit card users for compliance with age restrictions.”

Increased complexity

While the Gambling Act might provide a useful template, new complex procedures will, of course, add considerable costs. The key issue for web-based businesses is that they trade successfully on low overheads. While the larger online retailers are more able to absorb this added cost, they will also be the ones thinking about this now as their brand reputation holds enormous equity, so they will want to be seen to do the right thing. However, for the smaller retailer this sets out a huge moral versus cost dilemma.

Those using the Gambling Act as a template for change should bear in mind that it includes a requirement to take ‘all reasonable steps' - a highly subjective term. If similar legislation did come into place within the online retail sector, the retailer's interpretation might differ from the enforcing authority's, which could result in criminal proceedings in cases where the retailer had genuinely attempted to comply.

Grasp the nettle now

The Gambling Act looks like a good rough guide for any future changes to legislation in the online retailing sector. But, whatever the outcome of the Bill, this issue will have an increasingly high profile in the media. A sea change in online retail is afoot and wise retailers will be looking at how they deal with this issue now.

The good news is that the protracted timescales for any legislation coming into force will allow smaller retailers some breathing space and give them time to plan for the investment required. Whatever the size of your business, the best advice would be to start reviewing policies and procedures now and get one step ahead of both your competitors and the legislators.

Joshy Thomas is an Associate and Daniel Byrne is a Barrister at Thomas Eggar LLP, a UK law firm providing commercial services to UK and international clients, including those in the technology and retail sector.