FTC's Mail or Telephone Order Merchandise Rule.
The Internet is the fastest growing source of mail order sales. If you are an online merchant selling goods or services via the Internet, you should be aware of the Federal Trade Commission's Mail or Telephone Order Merchandise Rule (the "Rule"), which sets forth the ground rules for making promises about shipments, notifying consumers about unexpected delays, and refunding a customer's money. Enforced by the FTC, the Rule applies to all orders placed by phone, fax and the Internet. Compliance is mandatory and the remainder of this article sets forth the Rule's provisions.
Merchant Shipping Policies.
By law, a merchant must have a reasonable basis for stating that a product can be shipped within a specified time. If the merchant's advertising does not clearly and prominently provide a shipment period (e.g., your product will be shipped and delivered within 15 days), the merchant must have a reasonable basis for believing that s/he can ship the advertised product(s) within 30 days of receipt of a "completed order."
A "Completed Order" occurs when the merchant receives the information necessary to ship a product to a customer and full or partial payment (whichever the merchant accepts). It is irrelevant when the merchant posts or deposits a payment, when a check clears, or when the merchant's bank credits the account; the clock begins to run when the merchant receives a completed order. However, if a customer's check is returned, or if a customer is refused credit, the Rule stops the shipment clock and the 30-day clock does not begin to run until the customer gives the merchant cash, the customer's check is honored, or the merchant receives notice that the customer has qualified for credit. At that point, the merchant may take the amount of time originally stated, or 30-days if no time was stated, to fulfill the completed order.
Notice Of A Delay Is Required.
If the merchant cannot ship the order within the promised time (or within 30 days, if the merchant made no promise), the merchant must notify the customer of the delay, provide a revised shipment date, and explain the customer's right to cancel and get a full and prompt refund.
For definite delays of up to 30 days, the merchant may treat the customer's silence (failure to respond to a notice) as agreeing to the delay.
Prompt Refund May Also Be Required.
But for delays that exceed 30 days, or second and subsequent delays, the merchant must get the customer's affirmative consent to the delay. If the customer does not give his or her express consent (preferably in writing or via email), the merchant must promptly refund any and all monies paid by the customer (even if the customer does not so request).
Merchant's Right To Cancel.
The merchant has the right to cancel completed orders that it cannot fill in a timely manner, but the merchant must promptly notify the customer of its decision to cancel and make a prompt refund. A merchant must cancel an order and promptly refund the customers' payment if any of the following occur:
- the customer exercises any option to cancel before the merchant ships the merchandise;
- the customer does not respond to your notice of a definite revised shipment date exceeding 30 days (or your notice that you are unable to provide a definite revised shipment date) and you have not shipped the merchandise within 30 days of the original shipment date;
- the customer does not respond to your second notice of a definite revised shipment date of 30 days or less and the merchant has not shipped the merchandise or received the customer's consent to the additional delay;
- the merchant fails to ship, or provide the required delay notices, to the customer on time; or
- the merchant determines that s/he will never be able to ship the ordered merchandise.
If the Rule requires the merchant to make a prompt refund, the merchant cannot substitute credit toward future purchases, or provide credit vouchers. If the customer paid by cash, check, or money order, the merchant must refund the correct amount by first class mail within seven working days after the order is canceled. If the customer paid by credit or PayPal, the merchant must credit the customer's account, or notify the customer that the account will not be charged, within one customer's billing cycle, after the order is canceled.
The Rule Does Not Apply To:
- magazine subscriptions (and similar serial deliveries), except for the first shipment;
- sales of seeds and growing plants;
- orders made on a collect-on-delivery basis (C.O.D.);
- transactions covered by the FTC's Negative Option Rule (such as book and music clubs); and
- services, such as mail order photo-finishing.
Penalties For Non-Compliance.
Merchants who violate the Rule can be sued by the FTC for injunctive relief, civil penalties of up to $10,000 per violation, and consumer redress for up to three years from the placement of a completed order.