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Parliamentary Committee flags predatory pricing, consumers’ data privacy in new report

Predatory pricing by e-commerce giants may wipe out competition and harm consumer choice in the long run. Consumers’ data privacy and security are of paramount importance. These are some of issues that a Parliamentary Committee raised around the Ministry of Consumer Affairs’ Consumer Protection (E-Commerce) Rules, 2020.

The Committee on Subordinate Legislation, headed by Congress MP Partap Singh Bajwa, tabled its report on the Rules in Parliament on March 24.

Drafted under the Consumer Protection Act, 2019, and notified in July 2020, the Rules require e-commerce marketplaces to mandatorily display country of origin on their products, with penal action for non-compliance. Players have to display the total price of goods and services along with a cost breakup; they also have to display details on return, refund, warranty, shipment and so on. The Rules prohibit manipulation of prices and imposing cancellation charges on consumers, among other things.

We have reproduced the Commitee’s key recommendations on the Rules below.

Committee’s Recommendations

1. Privacy and Personal data

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  1. User privacy and data security are of the “utmost importance” and right to be forgotten is paramount. The provision for mandatory recording of explicit consumer consent (for purchase of products) is appreciated, but is insufficient to protect users’ personal data, which should be categorised per the sensitivity levels with adequate protections for each level.
  2. A secured and robust payment gateway system should be available to customers so that their transaction-related data is not compromised.
  3. The Rules itself should have a provision stating that personal data of users on an e-commerce marketplace will be protected under the Personal Data Protection Bill, 2019.

The Committee asked the Ministry of Consumer Affairs about the safety of transaction/payment related data, to which the Ministry said the IT Act and Rules under it are applicable to such issues. Further, the Central Consumer Protection Authority (CCPA)  has been set up under the Consumer Protection Act 2019, whose mandate includes inquiry into leakages of data privacy and recommending penal action, the Ministry said.

The Committee noted that the Consumer Protection Act per se does not address data breaches and resultant compromise of consumers’ data privacy, which is ultimately used to manipulate product ratings. The CCPA cannot address this since its focus is consumer rights. The Committee suggested an umbrella structure for personal data under other acts/regulators, such as Personal Data Protection Bill, or even RERA and the Competition Commission of India.

2. Data centres

  1. All major e-commerce marketplaces should establish their data centres in India so that consumer data is not stored beyond India’s borders where it could be misused by an enemy.
  2. India should innovate on new economic models that promote setting up of global hyperscale data centres.

3. Predatory Pricing

Predatory pricing can wipe out competition and be detrimental to consumers in the long run, but it is very hard to substantiate allegations of predatory pricing allegations against e-commerce giants, the Committee noted.

  1. There needs to be a clearer definition of what constitutes unfair trade practices; legal remedies to tackle such circumventions by e-commerce companies are needed.
  2. Exclusive tie-ups of sellers and marketplaces are becoming common and are either exclusively online or totally exclusive. They reduce consumer choice, create monopolies, and raise competition concerns when used as an “exclusionary tactic to foreclose competition to rivals”. Such practices need to be discouraged, the Committee noted.

The Consumer Affairs Secretary said the Ministry has tried to define “unfair trade practices” in the Consumer Protection Act, 2019, and that the Competition Act also deals with unfair pricing. Further, the government’s FDI policy for ecommerce requires that an e-commerce entity cannot influence prices on its marketplace. The Secretary assured the Ministry that will incorporate lessons from implementing the Act and will come out with explanations on what constitutes unfair practices.

4. Many MNCs and offshore companies are involved in market e-commerce entity model. Sufficient protections need to be given to local/small vendors to ensure that they aren’t wiped out. The Committee said the Ministry was unable to give a satisfactory response on how it will strike a balance between dominant marketplaces and the local vendors.

5. Unfair trade practices

Corrective measures to discourage deceptive tactics, including manipulation of algorithms, fake product reviews & ratings, are needed to protect consumer interest. The Committee said it disagrees with the Ministry of Consumer Affairs’ clarifications on the legal provisions to deter deceptive practices by merchants, given that cases of fake reviews and unfair favoritism are increasing every day.

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The Ministry assured the Committee that the CCPA will have an investigation wing headed by the Director General of Investigation to look into such matters, adding that the CCPA will also ensure class action against an e-commerce entity that has posted fake reviews or tinkered with algorithms.

6. Drip Pricing 

The Ministry should clearly define drip pricing in the Rules and include penal provisions for its violation in the Rules to protect consumer interest. Drip pricing is when a headline price displayed at the beginning of the purchase later increase after additional fees, taxes, of charges. The Committee said this was misleading and breaches consumer rights.

  • The Ministry told the Committee that the Rules require all additional charges to be mentioned on the platform upfront, so that it is not added later on without the customer’s knowledge. It did not clarify how it will keep a check on such practices and the penalty imposed for non-compliance.

7. Click farms are used to click on a merchant’s ad without any intention of purchasing the product, done to inflate traffic to a product. The Ministry should take strict action against such farms which distort market practices.

8. Customer Care Services 

  1. Duties and responsibilities of customer care services provided by the marketplace should be clearly spelt out in the Rules. In addition, they should explicitly mention different levels of grievance redressal available to the customer.
  2. The Ministry should also direct marketplaces to provide dedicated customer service numbers and direct entities to create a mechanism to monitor the time take to resolve an issue.

9. Delivery charges

According to the Committee, the Ministry should issue broad guidelines for fixing delivery charges by marketplaces, charges for peak hours should also be capped. The Ministry reiterated an earlier point, which is that the Rules require disclosure of all additional charges upfront.

Read more 

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