2014
FTC Updates Mail Order Rule for Internet Age
For decades, direct marketers have been subject to the Federal Trade Commission’s Mail Order Merchandise Rule, 16 C.F.R. 435, sometimes referred to informally as the “30 Day Rule.” Generally speaking, the Rule prohibits sellers from soliciting mail, Internet or telephone order sales unless they have a reasonable expectation that they will be able to ship the merchandise by their promised shipping time, or within 30 days of the order if no delivery estimate is provided. If, after a customer has placed an order, the seller learns that it will not be able to ship within the time promised (or within 30 days), the seller must request the buyer’s consent to a delayed shipment; if the buyer does not consent, the seller must provide a full refund. Depending on the circumstances, the customer may be required to consent affirmatively to the delay. The Rule was originally promulgated by the FTC in 1975, and applied to mail-order shipments. In 1993, the FTC amended to the rule to cover merchandise ordered by telephone (including internet orders using internet connections provided over phone lines). Over the past several years, the FTC has been in the process of updating and amending the rule to eliminate ambiguity and better reflect the realities of internet commerce, which has experienced explosive growth since the rule was last updated in 1993. The FTC’s final rule was published in the Federal Register on September 17, 2014, and will take effect on December 8, 2014. The Amended “Mail, Internet, or Telephone Order Merchandise Rule” includes the following amendments
- Explicit reference to the Internet. As described above, the scope of the rule was previously expanded from mail order sales to mail and phone order sales in 1993, a time when internet access was provided over phone lines using dial-up modems. The FTC has explained that it intended for the rule to apply to all internet sales, as well as phone and mail order sales. The new rule now makes explicit that it applies to all internet orders, regardless of whether internet access is provided by telephone, cable or wireless broadband, or other technology. 16 C.F.R. 435.1(a)
- Clarification of “prompt refund.” The rule had previously defined “prompt refund” as “a refund sent to the buyer by first class mail within seven working days of the date on which the buyer’s right to refund vests.” 16 C.F.R. 435.1(b)The amended rule permits the refund to be provided by “any means at least as fast and reliable as first class mail,” permitting sellers flexibility to make refunds by alternate means, rather than requiring a check in the mail. The rule is further amended to clarify that, for a credit sale where the creditor is a third-party (such as a credit card) the refund must be issued to the third-party creditor within 7 days. Where seller is itself the creditor, the refund must be issued within one billing cycle from the date on which the buyer’s right to refund vests.
- Clarification of “receipt of a properly completed order.” The time period within which a seller must ship an order, notify its customer of shipment delays, offer to cancel orders or make refunds begins upon the “receipt of a properly completed order.” 16 CFR 435.1(c) provides that a properly completed order is received when the seller received payment and an order from the buyer containing all of the information needed by the seller to process and ship the order. The amendments make clear that payment can be made in the form of “cash, check, or money order; authorization from the buyer to charge an existing charge account; or other payment methods,” recognizing the increasing use of alternate forms of payment, including pre-paid gift cards and debit cards.
- Clarification of “refund.” The method of refund is defined in 16 C.F.R. 435.1(d). For purchases made with cash, check or money order, a refund must be provided by cash, check or money order. For credit sales, a credit memorandum should be sent to the buyer (if the seller is the creditor) or to the third-party creditor (for credit card purchases or other third-party credit purchases). The amendments clarify the requirements when payment was made using an alternate method of payment, such as a pre-paid gift card or debit card. In such cases, a seller may make the refund in the form tendered (e.g. refund a gift card purchase by issuing a gift card), or by sending cash, check or money order to the buyer.
These amendments are reasonable updates reflecting the reality of internet commerce. This update is a valuable reminder for all direct marketers of the requirements of the FTC’s Mail, Internet or Phone Order Merchandise.
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