Private investment firm Comvest Partners acquires the financially troubled e-retailer, which filed for Chapter 11 bankruptcy protection in March.
She doesn’t twirl a nightstick, dress in blue or help herself to free apples from street-side produce stands. But make no mistake: Jodie Bernstein, the director of the Federal Trade Commission’s bureau of consumer protection, is walking her beat in the Internet community.
When it comes to being an Internet cop, Bernstein believes a helping hand is as important as a firm hand. “Internet commerce has potential for tremendous benefits for consumers,” Bernstein says. “I am optimistic that the more we’re able to let people know how to keep out of trouble, the more successful retailing will be.” To back that, the FTC has a toll-free phone number and web site where retailers can have questions about federal rules and laws answered. “We try very hard to be as helpful as we can,” she says.
But where prevention fails, enforcement is at the ready. “We have the capacity, and it’s one of my principal priorities, to be ready to move and move quickly,” she says of her bureau’s enforcement capabilities. And the enforcement arena is familiar turf to Bernstein. From 1970 to 1976 she served a tour of duty at the FTC as assistant to the director, as deputy director and then as acting director of the bureau of consumer protection. She served as general counsel for and also ran the U.S. Environmental Protection Agency’s enforcement division. Bernstein returned to the FTC as bureau director in 1995, at which time she brought the agency into the electronic commerce era.
Her bureau has worked to implement the new Children’s Online Privacy Protection Act, has cracked down on pyramid schemes and has worked with auction sites to ensure online consumers have the same protection as do offline consumers. And in an effort dubbed “Project TooLate.com,” the bureau went after seven e-retailers for mail-order fraud regarding late deliveries during the 1999 Christmas season. Those retailers settled out of court for $1.5 million.
Not a local matter
Bernstein got her introduction to the Internet shortly after returning to the FTC. In 1995, several incidents of garden-variety fraud on the Internet caught the FTC’s attention, many involving work-at-home scams. The question then was were these cases too small and too local for federal involvement, she says. There were also questions of who had jurisdiction over this new thing-the Internet. Because of the Internet’s far-reaching capabilities, “it was my assessment this was not a local matter,” she says. “It was my instinct as much as anything else that this new market had the potential to be a huge market.” And far-reaching, nationwide markets traditionally fall under the FTC’s jurisdiction. “My view was we better step up to the plate,” she says. “To me the Internet was just another new marketplace.” However, she adds, in 1995, she had no idea how big or important this new marketplace would become.
The bureau learned through published reports of the problems that led to Project TooLate.com. This holiday season, Internet retailers can expect to be under the FTC’s watchful eye. “We will focus on the special promotions on the Internet, particularly, are retailers going to be ready to meet the requirements in order to deliver the stuff when they say they’re going to deliver it,” Bernstein says. This year there will be more focus on the Internet than in 1999. Consumer complaints are another quick way to perk up the bureau’s ears. “Complaints are a very good source of something (wrong) going on at a company,” she says.
But the bureau does more than react to complaints and published problems. The bureau holds surf days, where many bureau employees surf the web looking for specific violations. “The first one we did was on pyramid schemes,” she says. “We had people all over the country, and some in other countries, all at one time looking for fraudulent pyramid schemes.” The bureau then sent letters telling those it suspected of the believed violation and that the bureau would return. In 30 days the bureau revisited those sites to see if they were shut down or if corrections had been made.
It also developed rapid response capabilities that let staff slice across organizational lines. This system allows cases to move from investigation to court in about 30 days. Previously, it took a year to bring a case to court. “That’s pretty amazing in terms of this agency,” she says.
Looking on the horizon, Bernstein says she believes privacy will be the next big issue to confront e-retailers. “There really aren’t any rules governing privacy,” she says. “Some speculate that in the next Congress there will be serious consideration of federal privacy legislation.” The children’s privacy issue went through Congress in three months, which could mean Congress is prepared to act quickly on this issue. Aside from fraud, invasion of privacy is the most common threat the Internet poses to the safe operation of the marketplace, she says. Most surveys show that people’s concern about fraud and privacy may keep them from using the web.
Avoiding the web
Bernstein says the FTC works with retailers looking to avoid being tangled in a regulatory cobweb. The bureau published informational material and posted all its retailing regulations on its web site (www.ftc.gov). Bernstein and her staff also speak at conferences to reach retailers that may not have been in business before the advent of the Internet. “We have substantially increased the resources for education,” she says.
Congress is the biggest reason those educational resources increased. “Congressional support for consumer protection has given us an increase in resources for the first time in several years,” she says. Congress put up the money for the toll-free number and Consumer.gov, an award-winning web site that brings together information about consumer protection from other government agencies.
Will the bureau’s activity increase as Internet sales increase? “I hope we won’t have a greater caseload,” she says. “I hope our education efforts will result in preventing these things from occurring.”