The Importance of Timely Fulfillment and Issuance of Cash Refunds

Before selling a product, marketers must keep in mind the importance of timely fulfillment and issuance of refunds.   A recent enforcement action against the popular fashion ecommerce marketer, Fashion Nova, serves as a strong reminder that the Federal Trade Commission’s Mail, Internet, or Telephone Order Merchandise Rule remains relevant for today’s online marketing practices.    

The Mail, Internet, or Telephone Order Merchandise Rule (commonly known as the Mail Order Sales Rule) pre-dates the Internet, as it was initially enacted in 1975.   Compliance, however, is equally important today. The Rule prohibits solicitations of “any order for the sale of merchandise to be ordered by the buyer through the mail, via the Internet, or by telephone unless, at the time of the solicitation, the seller has a reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer (i) [w]ithin that time clearly and conspicuously stated in any such solicitation; or (ii) [i]f no time is clearly and conspicuously stated, within thirty (30) days after receipt of a properly completed order from the buyer.” The Rule does have some flexibility in that it lays out sequential “if-then” steps sellers must take to ensure consumer interests are considered if shipping is delayed.  Similar timing requirements are in effect for issuing refunds promptly.  In addition to FTC enforcement, many states have implemented analogous laws.

The Rule continues to be enforced as reflected in the recent FTC action against Fashion Nova.  In its complaint, the FTC alleged that Fashion Nova made various representations about the speed of its shipping in its solicitations, including on the Fashion Nova website. For example, the complaint alleged that the home page of the Fashion Nova website displayed shipping related claims such as “Free 2 Day Shipping on all U.S. Orders $75 and Up,” “Fast Canada Shipping Only $10,” and “Fast International 6-10 Shipping Only $15.” Further, the FTC asserted that Fashion Nova made statements related to the speed of its shipping on other pages of the Fashion Nova website, including on the Shipping and FAQ pages where it stated that it could take up to 24 hours (excluding weekends and holidays) to process an order.

According to the FTC, in numerous instances after consumers submitted orders, Fashion Nova failed to ship one or more of the items ordered by a consumer, or Fashion Nova shipped merchandise that was materially different to the items that a customer ordered. For example, in some cases, Fashion Nova shipped merchandise in a different size or the merchandise was damaged or used.

In addition to failing to meet its shipping obligations, the FTC alleged that in numerous instances in which Fashion Nova did not ship one or more ordered items, it failed to cancel the order and provide a prompt refund. Instead, the retailer issued affected consumers a gift card for the amount of the unshipped merchandise that could only be redeemed on the Fashion Nova website.

To resolve the FTC action, Fashion Nova has entered into a proposed Stipulated Order.  Under the Order, Fashion Nova will be required to pay a total of approximately $9.3 million to be used to refund harmed consumers. In addition, the Stipulated Order prohibits Fashion Nova from any further violations of the Rule and requires the retailer to ship ordered merchandise within one day after receipt of an order when a shipping date is not specified, a requirement that goes well beyond the standards under the Rule.   In addition, the company must cease its policy of offering gift cards rather than refunds for unshipped merchandise.

 Take away: Before selling a product, marketers must have a reasonable basis for a shipping representation.  If an issue later arises that will impact fulfillment, be sure to follow the requirements of the Rule and notify consumers of the revised shipment date and cancellation options.  While businesses are struggling and wish to conserve cash, a gift card is not a satisfactory refund option if a company is unable to ship on times.

[1]These materials have been prepared for informational purposes only. This information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in your state.

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