E-Commerce and Consumer Protection in Malaysia

By: Sonny Zulhuda *

The internet hits us like the storm and its implosion is truly phenomenal. It’s a forum to retrieve, communicate and disseminate information. Last but not least, it’s the best place to advertise goods without being restrained by conventional/traditional modes of transaction and costly advertisements.

What is Electronic Commerce?

Electronic commerce (e-commerce) means all forms of commercial activities that are carried out through electronic networks including the promotion, marketing, supply, order or delivery of goods or services. Internet is the most common medium used for e-commerce worldwide.

The advantages of e-commerce are among others the following:

  1. Cost saving
  2. Increase in productivity
  3. Increase in profitability
  4. Accessibility to customers anywhere at any time.
  5. Accessibility  to a huge market (there are approximately. 420 million net users)

E-commerce is conducted between various entities namely:

  1. Business-to-business (B2B)
  2. Business-to-consumers (B2C)
  3. Government-to-business (G2B)
  4. Government-to-consumers (G2C)

Recent worldwide figures show that e-commerce is experiencing rapid growth. More services and products are offered online, in turn, more individuals find it irresistible to shop online. MATRADE in 2001 reports that 80% of US internet users have purchased online at least once. Furthermore, one third of European internet users transacted online, most commonly purchasing books, magazines, music and travel-related products and services.

In Hong Kong there is a 40%  increase in commercial websites visitors, 4% of  such visitors subsequently purchased online. Although the percentage seems minute it should be noted that the number of sales is increasing. Similar  growth is noted in other parts of Asia such as Taiwan (5% of internet users purchase online), Singapore (9%), South Korea (12%), Australia  and New Zealand (14%).

E-Commerce in Malaysia

The launch of MSC requires a reinvention of trade practices vis a vis e-commerce. There is a plethora of Malaysian information and business websites. However, surprisingly not many Malaysian internet users purchase online. Malaysia has approximately 1.6 million internet subscribers. Electronic business to consumers (B2C) is modest, with an estimated 50,000 subscribers making online purchases. As at June 2002, only 3% of  Malaysian netizens/consumers shopped online in 2002 in contrast with 4% in 2001.  This means that a significant number of our netizens/consumers felt that making transaction in brick and mortar world is much safer than that made in cyberspace. Why this reluctance?  Online consumers are beset by legal concerns which are the following:

Consumer Concerns on E-Commerce

Here is the summarized note on common consumer concerns relating to many aspects of e-commerce:

On contractual aspect:

  • Does a website advertisement legally constitute an offer?
  • How are the offer and acceptance effected and confirmed?
  • What would be the mechanism of payment? And to what extent is it safe?
  • What would be the mode of delivery of  the goods ordered?
  • What would be the mechanism to lodge complaints?
  • How accurate is the information on business identity and activities provided online?
  • What if a fraud is committed? (e.g. online ‘get-rich’ scheme; ‘Nigerian’ advance-fee scam)
  • In the event of dispute, which law and court will determine the online transaction?

On privacy issue:

  • What is the privacy policy adopted by an e-commerce site? How is it brought to the notice of any website visitor?
  • Does the privacy policy comply with the existing law on data protection?
  • What kind of personal data are collected for a website?  What is the purpose of such data collection?
  • Does a data subject i.e. the online consumer  have the rights to access, update, and remove his/her data?

On unsolicited commercial emails:

  • Does the e-commerce site install ‘cookies’? How well is it being informed to the consumer?
  • Does a consumer have the right to opt out from receiving the commercial messages?
  • Is there any proper mechanism to stop the receipt of such unsolicited commercial e-mails?

On banking aspect:

  • What are the privacy policies adhered by a provider of Internet banking service?
  • Is the customer being adequately informed in regard to these policies?
  • What would be the policy of notice in case of variation of any terms or conditions?
  • How secure is the Internet banking service for the customers?

Survey on E-Commerce Websites

It is noted that over 700 international e-commerce web sites were examined by The International Marketing Supervision Network (IMSN), an organization consisting  trade practices law enforcement authorities of 25 countries). The outcome of the research is the following:

  • More than half businesses failed to outline their payment security mechanisms
  • 62% provided no refund or exchange policies
  • 75% had no privacy policy
  • 78% failed to explain how to lodge a complaint
  • 90% failed to advise customers which law is applied in their transactions
  • 25% showed no physical address

Legal and Regulatory Framework

It must be noted that there are two approaches available  in protecting online consumers namely:

  • Legislative Approach: By drafting and enacting the comprehensive legislation on consumer protection in the electronic commerce.
  • Self-Regulatory Approach: By drafting a model code or guidelines on e-commerce consumer protection to be adopted by e-commerce entities and consumer associations.


The OECD adopted Guidelines for Consumer Protection in the Context of Electronic Commerce on 9 December 1999.It provides basic principles for consumers as they determine what fair business practices to expect online. This guideline is intended for both the private sector as it develops self-regulatory schemes as well as governments as they formulate and implement consumer protections for electronic commerce.


The European Union e-commerce legislation, known as ‘the Brussels I regulation’, is enforced within the EU territories in March 2001. This new law requires traders to conform to the laws of all member states of the EU when they go online. It allows cross-border disputes between consumers and online retailers to be settled in the courts of the consumer’s country. This means that a European consumer who orders goods or services via the Internet from a vendor can sue the vendor in his/her own national courts if the transaction reaches a difficulty or deadlock.

It is noteworthy to highlight that the Australian government has adopted in 2000 a guideline entitled: “Building Consumer Sovereignty in Electronic Commerce: A Best Practice May Model for Business”. Furthermore, New Zealand adopted in October 2000 the “Model Code for Consumer Protection in Electronic Commerce”. On the other hand, Singapore, which has yet to develop a comprehensive law or code concerning consumers nevertheless covers pertinent legal aspects in its very own  Electronic Transactions Act 1998.

The Position in Malaysia

The Consumer Protection Act 1999 does not apply to any trade transactions by electronic means (CPA section 2(g)). [note: this position has changed in 2009]. At the time the Act was being debated the Multimedia Commission Act 1999 was not yet in place and  the Ministry presumed erroneously that electronic commerce will be regulated by that agency and consequently excluded it from Consumer Protection Act 1999.  Only some aspects of legal protection for online consumers are found in some scattered pieces of legislation. The existing Malaysian Cyberlaws do not comprehensively deal with the protection of online consumers. Personal data protection is to be covered by the present Personal Data Protection Bill, but is  yet to be tabled in parliament. The Contracts Act 1950 may be referred by consumers on issues of formation of contract, but the Act is too general and does not specifically address the special characteristics of e-commerce. Furthermore, there is so far no law to govern the issue of unsolicited commercial e-mails. Last but not least, Bank Negara provides minimum guidelines on consumer protection in  Internet banking. However this is not comprehensive enough to address related issues. To add salt to wound,  compliance by commercial banks is notably poor.

Urgent Need for Online Consumer Protection Law

In conclusion it is urged that there need to be a specific legislation protecting online consumers and time is a luxury in which legislators could ill afford. It is pertinent to quote YAB Datuk Seri Dr. Mahathir Mohamad on Economists Roundtable in Electronic Communities in Asia, KL, January 1998 who eloquently remarked that “The development in Information and Communication Technology without parallel development of laws (ICT Laws) can result in destructive abuses. Cyberlaws should address the issues of assignment of liability of those involved in e-commerce transactions, consumer protection, and consumer privacy..”

*) This brief note was prepared and provided for the 7th National Seminar of Malaysian Consumer and Family Economics Association (MACFEA) hosted by UITM, 18 February 2003, Shah Alam, Malaysia, jointly with Ms. Yasmin Bahari. The law as stated in this note was valid at that presentation time. Readers are advised to update for any amendments.


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