Consumer protection

AI and consumer protection

AI has the potential to be a powerful tool for safeguarding consumer interests, but in certain cases, distinguishing the positive and negative impacts of AI on consumer protection can be challenging.

What are the benefits of AI?

One notable area where AI excels is fraud detection. By relying on advanced algorithms, AI can swiftly analyse patterns, behaviours, and transaction data to identify potentially fraudulent activities. Through continuous monitoring, AI can help detect suspicious transactions, prevent account takeovers, and, ultimately, safeguard consumers from financial loss.

Furthermore, AI-powered chatbot systems may provide efficient and personalised customer support. They handle common inquiries, offer personalised recommendations, and assist consumers, enhancing their overall experience. The ability of AI to analyse consumer behaviour, preferences, and purchase history is also leveraged to offer personalised product recommendations. Additionally, AI algorithms for content filtering contribute to creating safer online environments, by identifying and blocking harmful or inappropriate content. This protection not only benefits consumers but also promotes a safer and more inclusive digital space, particularly for children and vulnerable communities.

What are the challenges?

Considering the amount and diversity of data collected and the possibility of sharing such data with third parties, risks associated with hyper-targeted marketing, profiling, micro-targeting, and manipulation increase significantly. The utilisation of AI targeting also raises concerns of commercial exploitation, manipulation of individuals’ views, and the forecasting and influence of their future behaviour. More importantly, vulnerable groups such as children are particularly susceptible to these techniques.

Major economies are requiring transparency and accountability by Big Tech in this realm. For instance, China has implemented an algorithm law prohibiting AI-based recommendations capable of manipulating people’s thoughts, with additional safeguards in place to protect children. In the EU, the Digital Markets Act (DMA) strengthens consumer rights through provisions that contribute to increasing interoperability in the market. The law prevents gatekeepers from using children’s personal data to directly target or profile them. The Digital Services Act and the AI Act offer further safeguards. In the USA, the Federal Trade Commission is strengthening rules to ensure greater accuracy, fairness, and equity in companies’ use of AI.

Learn more on AI Governance

Consumer protection in the digital economy

Consumer trust is one of the main preconditions for the success of e-commerce. E-commerce is still relatively new and consumers are not as confident with it as with real-world shopping. Consumer protection is an important legal method for developing trust in e-commerce. E-commerce regulation should protect customers in a number of areas, such as online handling of payment card information; misleading advertising; delivery of defective products.

A new idiosyncrasy of e-commerce is the internationalisation of consumer protection, which is not a vital issue in traditional commerce. In the past, consumers rarely needed international protection. Consumers were buying locally and therefore needed local customer protection. With e-commerce, an increasing number of transactions take place across international borders.

Jurisdiction is a significant issue surrounding consumer protection. It involves two main approaches. The first favours the seller (mainly e-business) and is a country-of-origin/prescribed-by-seller approach. In this scenario, e-commerce companies have the advantage of relying on a predictable and well-known legal environment. The other approach, which favours the customer, is a country-of-destination approach.

The main disadvantage for e-commerce companies is the potential for exposure to a wide variety of legal jurisdictions. One possible solution to this dilemma is a more intensive harmonisation of consumer protection rules, making the question of jurisdiction less relevant. As with other e-commerce issues, the OECD assumed the lead by adopting the 1999 Guidelines for Consumer Protection in the Context of E-commerce and the 2003 Guidelines for Protecting Consumers from Fraudulent and Deceptive Commercial Practices Across Borders. The main principles established by the OECD are still valid and have been adopted by other business associations, including the International Chamber of Commerce and the Council of Better Business Bureaus.

The EU offers a high level of e-commerce consumer protection and promotes awareness campaigns on online shopping issues. The problem of jurisdiction has been solved via the Brussels I Regulation, which stipulates that consumers will always have recourse to local legal protection. The recast Brussels I Regulation, applicable as of January 2015, further harmonises the rules of jurisdiction by extending the situations under which individuals not domiciled in the EU can be sued by consumers in the courts of EU member states.

More than half of EU consumers (53%) made at least one purchase online in the 12 months to September 2012, almost doubling since 2006. Yet just 15% purchased online from vendors outside their own country. This is reflected in the confidence rating: while 53% feel comfortable purchasing from online domestic retailers, only 36% feel comfortable buying online from another EU country.

At global level, no apposite international legal instruments have been established. One of the most apt, the 1980 UN Convention on Contracts for the International Sale of Goods, does not cover consumer contracts and consumer protection.

A number of private associations and non-governmental organisations also focus on consumer e-commerce protection, including Consumers International, the International Consumer Protection and Enforcement Network, and Consumer Reports WebWatch.

The future development of e-commerce will require either the harmonisation of national laws or a new international regime for e-commerce customer protection.