Key Points of the Revised Japanese Specified Commercial Transactions Law Against 'Fraudulent Subscription Practices in Internet Shopping

The proliferation of the internet has made it easy for anyone to purchase goods and services. However, at the same time, there has been an increase in damages caused by malicious business practices using the internet, with troubles related to regular purchases in particular on the rise.

According to data from the Japanese Consumer Affairs Agency, the number of consultations regarding “regular purchases” in mail-order sales was 56,302 in 2020 (Gregorian calendar year), an increase of about 26% compared to the previous year, and a sharp increase of about 14 times compared to 2015. Furthermore, over 90% of these were consultations regarding internet mail-order sales.

Especially for regular purchases of food and cosmetics, many consultations have been received about problems such as being required to pay a large amount of money when trying to cancel after applying for attractive advertisements such as “trial” and “monitor”, or not being able to proceed with the cancellation process because they cannot contact the seller.

In response to this issue, the “Study Committee on the Status of the Japanese Act on Specified Commercial Transactions and the Deposit Law” was held six times from February 2020 (Gregorian calendar year) under the leadership of the Consumer Affairs Agency. In these meetings, strong words such as “fraudulent regular purchase business practices” were used for certain sales methods. What conclusion was reached?

In this article, we will explain in detail the points of amendment to the “Japanese Act on Specified Commercial Transactions (Specified Commercial Law)” against the “fraudulent regular purchase business practices” pointed out in the report of the study committee.

Five Key Policies for Strengthening Regulations Against “Fraudulent Subscription Business Practices”

On August 19, 2020 (Reiwa 2), the “Study Committee on the Future of the Specific Commercial Transactions Law and the Deposit Law” published a report outlining five key policies for strengthening regulations against “fraudulent subscription business practices”.

1. Enhance the effectiveness of regulations by making malicious acts independent prohibited actions under the Japanese Specific Commercial Transactions Law
2. Incorporate the prohibition of unfair interference with cancellation/termination into the Japanese Specific Commercial Transactions Law
3. Establish civil rules for the right to cancel and similar rights
4. Conduct monitoring of sites that may be in violation and strengthen law enforcement
5. Realize an early review of guidelines related to “acts that attempt to make contract applications against one’s will” in internet shopping

Current Scope of the Japanese Specified Commercial Transactions Law

Under Article 14, Paragraph 1, Item 2 of the Japanese Specified Commercial Transactions Law, it is stipulated that if a sales business attempts to make a contract application against the customer’s will, potentially harming the customer’s interests, the Minister in charge can instruct the correction of such actions. Furthermore, the contents of the prohibited actions are defined by the Ministerial Ordinance, and are specifically explained in the guidelines.

Ministerial Ordinance by the Ministry of International Trade and Industry (currently the Ministry of Economy, Trade and Industry)

In the guidelines for the “Enforcement Regulations of the Law Concerning Specified Commercial Transactions”, a ministerial ordinance issued by the then Ministry of International Trade and Industry in 1976 (Showa 51), the prohibited actions in mail-order sales are explained as follows:

Enforcement Regulations No. 1: Display of Application

In the case of online shopping, if it is not clearly displayed in a way that consumers can easily recognize that clicking a certain button will result in a paid application

<Possible examples>

• When the display of the final application button is not “Purchase/Order/Application” but “Send”, and it is not clearly displayed elsewhere on the screen that clicking that button will result in an “application”
• When there is a display such as “Gift” near the final application button, which may lead to a misunderstanding that it is not an application for a paid contract

<Possible actions in mail-order sales>

• When all the main contents of the regular purchase contract, such as the contract period, monthly fee, and cancellation method, are not displayed on the screen at the final stage of the application
• When some of the main contents of the regular purchase contract are displayed in a distant place such as the bottom of the screen at the final stage of the application, making it difficult to easily recognize all the contents

Enforcement Regulations No. 2: Provision of Confirmation/Correction Opportunities

In the case of online shopping, if measures are not taken to allow consumers to easily check and correct the contents of the application when applying

<Possible examples>

• When the contents of the application are not displayed on the screen at the final stage of the application, and there is no means to check this (such as a “Check Order Contents” button)
• When there is no means to correct (such as a “Change” button) on the screen at the final stage of the application
• When it is set to apply for multiple same items unless the applicant changes it in advance, and unless very careful, the applicant may apply without correctly recognizing the contents of the application

Amendments to the Japanese Act on Specified Commercial Transactions

Among the three major points for strengthening regulations against “fraudulent subscription sales methods,” there are two points related to the amendments to the Japanese Act on Specified Commercial Transactions (特商法). These play a crucial role in supplementing the current Act in the context of mail-order sales, where internet transactions are the norm.

Adding a prohibition against unfair obstruction of cancellation/termination

As mentioned at the beginning, it is necessary to prohibit actions that obstruct cancellation or termination when it is discovered that what was thought to be a single purchase or a free sample application is actually a subscription. Such actions include:

• Sellers displaying false names, addresses, phone numbers, etc., making it impossible to contact them for cancellation
• Unfairly demanding payment of the remaining balance when a cancellation request is made

Establishing civil rules for cancellation rights, etc.

The right of consumers to cancel contracts (cooling-off) recognized under the Japanese Act on Specified Commercial Transactions is applicable to telephone solicitation sales and door-to-door sales, but not to mail-order sales. Also, returns in mail-order sales regulated by the Act are possible within eight days from the date of receipt of the product, but if there is a special agreement that the application cannot be withdrawn, returns are not possible.

Therefore, to protect consumers from fraudulent subscription sales methods, it is necessary to establish a right of cancellation for mail-order sales as well.

Future Challenges

It is not feasible to amend the law within a few months. However, considering that the basic provisions are broken down into a three-tier structure of the Specified Commercial Transactions Law (Japanese Specified Commercial Transactions Law) → Ordinance → Guidelines, it is possible to expand the scope of application based on the ordinance by changing the guidelines, and early realization is required.

In addition, it is necessary to consider measures against violations in affiliate advertising, such as unfair display of affiliate advertisements and the legal positioning of Affiliate Service Providers (ASPs), as well as expanding the scope of injunction requests by qualified consumer groups based on the Consumer Contract Law (Japanese Consumer Contract Law) in mail-order sales.

Summary

We have discussed the five major policies for strengthening regulations against “fraudulent subscription business practices”, the current scope of the Japanese Specified Commercial Transactions Law, points of amendment to the Specified Commercial Transactions Law, and future challenges.

The role of the Specified Commercial Transactions Law is to dispel consumer anxieties in new consumption styles as digitalization progresses, and to ensure the safety of transactions. However, even if the Specified Commercial Transactions Law is amended, it is not possible to judge the illegality of transactions without considering various circumstances.

If there is a malicious transaction, it is recommended to consult with a law firm with professional legal knowledge and extensive experience without making a judgment on your own, and to receive advice on what kind of response methods are available.

For those who want to know more about the “Points to note when offering a first-time discount for supplement subscriptions” from the seller’s perspective, please refer to the following article.