Wednesday, October 05, 2011

FTC RFC :: Mail or Telephone Order Merchandise Rule :: AKA "Where's My Stuff?!?!?"

1999 was the year that ecommerce broke. It is also the year where ecommerce became the Grinch that stole Christmas. In 1998, ecommerce proved itself as a viable and compelling concept. As won-over companies scrambled to set up their online ventures in 1999, "mistakes were made." Online purchases by consumers who sought to avoid the Eight Ring of Hell - shopping malls - exploded. Some dot-coms were pleasantly surprised. Some were unpleasantly surprised. As automated orders poured in, it became apparent that cyber-Santa might not just be able to slide down the chimney on time - if at all. And while many of their webpages promised delivery by the time chestnuts were roasting on an open fire, it didn't happen. Some companies failed to tell their customers that there was not a snowball chance that they could deliver. Some companies continued to take orders even though they knew they had no inventory or knew they could not timely deliver. 

Failing to deliver on time for the holidays is one of those industry blunders that makes obsolete the theology of self-regulation. The FTC created a list, checked it twice, and made clear in a blizzard of terms that this was not to happen again. In one action, the FTC hit seven online retails with $1.5 million in fines for their failures to deliver products during the 1999 holiday season. 

There is a simple rule that the FTC wants online retails to understand: taking orders and not delivering is bad. Online sales, mail orders, or catalogue sales - it's all the same. The FTC described its Mail or Telephone Order Merchandise Rule [16 C.F.R. § 435.1] as follows:
The Rule requires that when you advertise merchandise, you must have a reasonable basis for stating or implying that you can ship within a certain time. If you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days. That is why direct marketers sometimes call this the "30-day Rule."
If, after taking the customer’s order, you learn that you cannot ship within the time you stated or within 30 days, you must seek the customer’s consent to the delayed shipment. If you cannot obtain the customer’s consent to the delay -- either because it is not a situation in which you are permitted to treat the customer’s silence as consent and the customer has not expressly consented to the delay, or because the customer has expressly refused to consent -- you must, without being asked, promptly refund all the money the customer paid you for the unshipped merchandise.
That was over a decade ago.  A lot has changed, and the FTC believes it would be prudent to revisit and revise the rules. In the notice requesting comments on the proposed new rules, the FTC stated,
In 2007, the FTC sought public comment on how the Rule could be amended to address changes in technology and commercial practices. Based on a review of comments received, the FTC has concluded that the Rule continues to benefit consumers and will be retained. In addition, the Commission proposes the following amendments to the Rule:
  • Clarify that the Rule covers all orders placed over the Internet;
  • Revise the Rule to allow sellers to provide refunds and refund notices to buyers by any means at least as fast and reliable as first-class mail;
  • Clarify sellers’ obligations when buyers use payment methods not spelled out in the Rule, such as debit cards or prepaid gift cards;
  • Require that refunds be made within seven working days for purchases that were made using third-party credit, such as Visa or MasterCard cards. For credit sales where the seller is the creditor (such as merchants using their own store charge cards) the refund deadline would remain one billing cycle.
Comments must be received by December 14, 2011.  See the Federal Register Notice. for further information and instructions on how to file comments.
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