Germans button down on Internet fraud

Germany has introduced a new law to clamp down on Internet subscription fraud. But some say the law on 'subscription traps' could make e-commerce harder for small business. Michael Amos - a cook in Düsseldorf - could hardly believe his eyes. An Internet company had sent him an invoice for a subscription to a recipe service he had never agreed to buy. "I had the night off and wanted to make a cocktail, so I surfed the Internet to check out a bunch of websites for some recipes," Amos recalls. "Then a couple of weeks later, I got an invoice for a one-year subscription, costing 12.99 euros ($16) a month." Amos' initial shock quickly turned to rage when the online company told him he had overlooked a section in the small print notifying users that if they proceed to the next page, they automatically agree to a subscription. In Germany, they are known as subscription traps – "Abofallen." "I couldn't recall seeing any information about a subscription, and I certainly didn't sign anything," says Amos. Gathering key data Market researcher Infas reports about 5.4 million Germans have fallen into such subscription traps on the Internet in the past three years. Often the trap is set at the point at which users are asked to register with a name and address - vital information for writing and delivering invoices. The Federation of German Consumer Organizations (VZBV) says about 20,000 users file complaints every month. In its reports, the VZBV cites one Internet company that sent out 170,000 invoices for 96 euros each in just one week. It also refers to a lawyer in Munich who forced consumers to pay invoices worth 2.2 million euros. "For some reason, Germany and the German-speaking regions of Europe have the highest rate of Internet subscription fraud in Europe, and we really don't know why," says the VZBV's Jutta Gurkmann. "Are there more organized criminal groups here? Do we feel more obliged to pay?" Visible changes With its new law in effect from August 1, Germany has become the first country to enact European Union legislation to protect online consumers against fraud. German Justice Minister Sabine Leutheusser-Schnarrenberger says the legislation will also help create greater trust in Internet commerce. One of the visible changes of the law is the introduction of an order button that will inform users of their obligation to pay for a promoted product or service. From today, prices for goods and services will have to appear before the button. Gurkmann says Germany was instrumental in ensuring the "button law" became part of the EU's directive on consumer rights. "Initially, Germany wanted to pass its own law to curb Internet subscription fraud, but because it's a cross-border issue, Brussels needed to get involved," says Gurkmann. "So, Germany pushed to have its button law integrated in the EU consumer rights directive." Smartphone issues The other 26 EU member states have until the end of 2013 to comply. Smartphones and tablet computers are covered by the law. They far outnumber PCs in industrialized regions such as Europe. They also include "easy" features such as WAP billing that have been used to trap consumers. The mobile billing application allows Internet companies to use a user's mobile number - instead of their name and address - to process invoices. It is a legitimate and important billing mechanism but one that has been abused, says Gurkmann. "We know of cases of people clicking a banner ad or some other information box and later seeing a subscription appear on their monthly telephone bill," says Gurkmann. "Of course, you can inform your service provider to deactivate WAP billing, but then you won't be able to purchase other products and services legitimately." Added costs Not everyone is happy about the new button rule. Ivo Ivanov of ECO, a German Internet industry association, applauds the move to protect consumers but believes the new law will generate unnecessary additional processes and costs for law-abiding e-commerce companies, especially smaller firms. "The new rule goes too far," says Ivanov. "It should really focus on the criminal players and not include the serious e-commerce companies that already guide users 'Amazon-style' through a number of steps before they confirm their purchase." Ivanov warns there could also be a flurry of lawsuits against companies that fail to comply with the new ruling in time. Dominik Boecker, an information technology lawyer in Cologne, goes a step further. Boecker sees a potential for competitors to go after each other. "I'm sure this will happen," says Boecker. "If a company is not obeying consumer protection laws and gets an unfair advantage by not complying, it can be taken to court by a competitor." Lawyers at the Federation of German Consumer Organizations and at other consumer groups begin monitoring websites from today.