FTC Updates Its Mail Order Rule

The FTC's "Mail Order Rule" is now the "Mail, Internet, or Telephone Order Merchandise Rule" (16 CFR Part 435).

The Rule prohibits sellers from soliciting mail, Internet, or telephone order sales unless they reasonably expect that they can ship the ordered merchandise within the time stated on the solicitation or, if no time is stated, within 30 days. The Rule also requires a seller to seek the buyer's consent to the delayed shipment when the seller learns that it cannot ship within the time stated or, if no time is stated, within 30 days. If the buyer does not consent, the seller must promptly refund all money paid for the unshipped merchandise. The Rule includes specific requirements regarding how refunds must be provided and when.

The FTC recently amended the Rule in four ways:

1. The FTC changed the name of the rule to clarify that the Rule applies to merchandise ordered over the Internet, including merchandise ordered using shopping apps, as well as merchandise ordered by phone or by mail. The Rule does not cover face-to-face transactions in which a seller's representative merely receives product or inventory information through the Internet; in such instances, buyers do not order merchandise via the Internet. The Rule does cover merchandise orders placed via the Internet even when the buyer is in the seller's store at the time the buyer places the order. For example, the Rule covers a purchase where a buyer orders merchandise using a smartphone while in the seller's store.
2. The amended Rule allows sellers the flexibility to use methods other than first class mail to deliver refunds and refund notices as long as those methods are at least as fast and reliable as first class mail. The Rule does not identify specific permissible methods, but the Notice of Proposed Rulemaking mentioned electronic transfers and private couriers (such as Fed Ex) as delivery methods that are typically as fast and reliable as first class mail.
3. The old Rule described sellers' refund obligations when buyers paid by cash, check, money order, or credit (the enumerated payment methods); it did not provide similar obligations when buyers paid with any other method, such as debit cards, payroll cards or gift cards (the non-enumerated payment methods). The amended Rule clarifies sellers' obligations for orders using non-enumerated payment methods: (1) sellers can provide refunds in the form of cash, check or money order, or (2) sellers can provide refunds using the same method that the buyer used. When a buyer uses a non-enumerated payment method, sellers must provide refunds within 7 working days after a buyer's right to a refund vests.
4. The amended Rule also addresses the timing of refunds for third-party credit transactions (for example, Visa or MasterCard). The old Rule allowed sellers one billing cycle in which to provide a refund for third-party credit transactions; the amended Rule requires such refunds to be provided within 7 working days. For credit sales where the seller is the creditor (such as merchants using their own store charge cards) the refund deadline is still one billing cycle.

The Rule's many requirements relating to a seller's obligation to ship promptly, notify customers of expected delays, and obtain consent for delayed shipping remain unchanged.

This client alert is a publication of Loeb & Loeb LLP and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.