It now appears inevitable that regulation is coming to e-commerce.
In the last week alone, the E-Commerce Times has run across four different issues that will involve some type of government regulation: Taxation, prescription drug regulation, potential FTC sanctions for violating mail order rules, and online insurance sales regulation.
Department of Internet Taxation
Taxation has always been a matter of when, not if, despite the rhetoric that floats around the political process. The real issue, which is rarely discussed, is that the Internet gives federal and state tax authorities the opportunity to create a tax engine of unbelievable efficiency, effectiveness and comparative fairness.
Since the postal code of the purchaser and amount of the purchase are, or can be, known for almost every online transaction, it would be fairly easy to set up a federal organization — call it the Department of Internet Taxation (DIT) — that would set a tax rate subject to U.S. Congressional approval, collect the taxes electronically as part of the transaction, and then distribute those taxes to appropriate state and local governments.
While we might oppose taxation, it is difficult to dispute that such a system could be set up to operate with comparative ease, especially since almost every purchase flows through a credit card clearinghouse that could route the taxes to the new DIT, along with the postal code of the cardholder.
What about international orders? If an order is to be shipped internationally, that is not taxed. Computers can make the distinction easily.
The real issues here, however, will be fought on the fields of politics, not on the fields of technical possibility or efficiency. Here’s to hoping that our politicians do not botch the job.
Feds Will Regulate Prescription Drugs
In addition to taxation, we will soon see the Food and Drug Administration (FDA) impose regulation on the sale of prescription drugs online. While President Clinton merely proposed such control yesterday by saying that he will soon introduce legislation, it is hard to imagine serious opposition.
How many politicians will oppose regulating the sale of drugs on the Internet? Anyone who voted against such a bill would be open to being blamed for the horror stories that are now coming to light from abuses caused when unscrupulous doctors virtually give away prescription drugs to anyone who asks for them.
Closer FTC Scrutiny Will Soon Be Next
Since the Federal Trade Commission (FTC) is already involved in protecting consumers from e-scams and privacy law violations, our recent story of possible violations of the FTC’s Mail Order Rule because of failures to notify consumers about missed deliveries during the holiday season will likely attract additional FTC scrutiny, if not direct intervention.
Some enterprising go-getter at the FTC is bound to try to make a name for his or herself in this arena, especially since the Internet should be an area where such notifications of late deliveries are a strong suit of customer service, not a weak sister.
Since everyone in the process has e-mail, e-tailers should be able to bake into their order tracking systems the positive step of sending an e-mail to a customer when an order is not shipped within the time period required to comply with FTC rules.
All it might take to get some of the leading e-commerce sites to agree to add this type of feature is the quiet threat of a public FTC investigation into Mail Order Rule violations. Highly visible consent decrees might soon follow, especially since the companies in question will likely add such features anyway as part of their efforts to improve service.
On To Insurance Regulation
Last, but not least, is insurance regulation. The online sale of insurance policies is now a trickle. It could soon become a flood as consumers discover that they can get better rates without reduced claims adjusting services, which is not handled by the sales agents in most companies, despite the public image that many brick-and-mortar insurance companies want to portray.
In short, the image of getting inferior insurance services if you do not know your sales agent by name is most likely just an image. Enterprising online companies will automate the sales process and then focus upon using the same technologies to make the claims adjustment process faster and more effective as well.
These new companies will sell by emphasizing both improved sales convenience and claims adjustment. A titanic battle will then take place on which type of sales process puts consumers in the best hands.
Online insurance sales will be closely scrutinized and controlled by U.S. state insurance regulators. The chances are virtually slim to none that companies that sell insurance online will somehow avoid such regulation.
Most, if not all, online insurance agencies will likely submit to online regulation willingly, including agencies that sell so-called surplus lines of insurance from companies that are not licensed by a specific state. Even if the agencies are not licensed, the online surplus brokers will be licensed.