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A Business Guide
to the Federal Trade Commission’s
MAIL OR TELEPHONE ORDER MERCHANDISE RULE
Produced in Cooperation with the Direct Marketing
Association
January 2002
TABLE OF
CONTENTS
INTRODUCTION
HOW TO COMPLY WITH THE RULE
QUESTIONS AND ANSWERS ABOUT THE RULE
WHERE TO GO FOR HELP
THE FTC’S MAIL OR TELEPHONE ORDER
MERCHANDISE RULE
Introduction
To help you plan and
operate your business, the Federal Trade Commission ("FTC")
staff in cooperation with the Direct Marketing Association (DMA)
has prepared this booklet about the FTC’s Mail or Telephone
Order Merchandise Trade Regulation Rule (the "Rule").
The Rule’s requirements are explained in plain English. This
discussion is followed by a question and answer section. The Rule
itself is reprinted at the end of this booklet.
What Does the Rule
Cover?
It applies to most goods a customer orders from the seller by
mail, telephone, fax, or on the Internet.
It does not matter
how the merchandise is advertised, how the customer pays, or who
initiates the contact.
What is the Mail
or Telephone Order Rule?
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.
How to Comply With the Rule
The following
information will help you comply with the Rule.
What You Should
Know Before You Make a Shipment Representation
When you offer to sell merchandise, you must have a "reasonable
basis" for:
- any express or implied
shipment representation, or
- believing you can ship within
30 days of receipt of an order -- if you make no
shipment representation or if the shipment representation
is not clear and conspicuous.
Whenever you change the shipment
date by providing a delay notice, you must have a "reasonable
basis" for:
- the new shipment date, or
- any representation that you
do not know when you can ship the merchandise.
When you take orders by telephone,
you may choose to provide prospective customers with updated
shipment information. This may differ from what you said or
implied about the shipment time in your advertising. The updated
shipment information you provide on the telephone supersedes any
shipment representation you made in the advertising. You also
must have a reasonable basis for the updated shipment
representation.
"Reasonable basis"
means that the merchant has, at the time of making the
representation, such information as would under the circumstances
satisfy a reasonable and prudent businessperson, acting in good
faith, that the representation is true.
The evidence you need to
demonstrate the reasonableness of your shipment representations
varies with circumstances. The following, however, is important:
- Anticipated demand. Is the
demand for each advertised item reasonably anticipated?
- Supply. For each advertised
item, is there a sufficient inventory on hand or adequate
sources of supply to meet the anticipated demand for the
product?
- Fulfillment system. For all
promotions in the relevant sales seasons, can the
fulfillment system handle the cumulative anticipated
demand for all products?
- Recordkeeping. Are adequate
records kept of the key events (see section headed "Why
You Should Keep Records" for a list of key events)
in each individual transaction to ensure that items can
be shipped within the applicable time, as established by
the Rule?
Remember: Whether you make a
shipment representation or rely on the 30-day rule, your
advertising should be unambiguous about when you will ship.
What You Must Know Before
Making Shipment Representations in Sales Involving Credit
Applications
If your customers apply to you to establish an in-house new
credit account or increase an existing credit line to pay for the
merchandise they order, the Rule provides the following:
- If you make no shipment
representation when you solicit the order, you are
allowed 50 (instead of 30) days to ship the order. The
extra 20 days is to enable you to process the credit
application. If you wish to use this provision of the
Rule, you must have a reasonable basis to believe you can
ship in 50 days.
- If you do make a shipment
representation when you solicit the order, you must have
a reasonable basis for being able to ship in that time,
regardless of whether the order is accompanied by an
application for credit or extension of a credit line. You
are presumed to have factored in the time needed to
process the credit application or to have qualified your
shipment representation appropriately.
When Your Fulfillment Or Other
Obligations Begin ("Properly Completed" Orders)
The "clock" on your obligation to ship or take
other action under the Rule begins as soon as you receive a
"properly completed" order. An order is properly
completed when you receive the correct full or partial (in
whatever form you accept) payment, accompanied by all the
information you need to fill the order. Payment may be by cash,
check, money order, the customer’s authorization to charge
an existing account (including one you have created for the
customer), the customer’s application to you for credit to
pay for the order, or any substitute for these transactions that
you accept.
It is irrelevant when you post or
deposit payment, when checks clear, or when your bank credits
your account. The clock begins to run when you receive a
properly completed order.
Note, however, that if a customer’s
check is returned or a customer is refused credit, the Rule stops
the shipment clock. It is reset at day one when the customer
gives you cash, the customer’s check is honored, or you
receive notice that the customer qualifies for credit. At this
point, you may take the amount of time you originally stated to
fulfill the order.
What You Must Do If You Learn
You Cannot Ship on Time
When you learn that you cannot ship on time, you must decide
whether you will ever be able to ship the order. If you decide
that you cannot, you must promptly cancel the order and make a
full refund.
If you decide you can ship the
order later, you must seek the customer’s consent to the
delay. You may use whatever means you wish to do this -- such as
the telephone, fax, mail, or email -- as long as you notify the
customer of the delay reasonably quickly. The customer must have
sufficient advance notification to make a meaningful decision to
consent to the delay or cancel the order.
Some businesses adopt internal
deadlines that are earlier than those set by the Rule to ensure
that their delay notices give all customers a meaningful
opportunity to consent to the delay. If businesses fail to ship
or give delay notifications by their internal deadlines, they
automatically cancel the orders and make refunds.
In any event, no notification to
the customer can take longer than the time you originally
promised or, if no time was promised, 30 days. If you cannot ship
the order or provide the notice within this time, you must cancel
the order and make a prompt refund.
What a First Delay Option
Notice Must Say
In seeking your customer’s consent to delay, the first
delay notice you provide to the customer (the "delay option"
notice) must include:
- a definite revised shipment
date or, if unknown, a statement that you are unable to
provide a revised shipment date;
- a statement that, if the
customer chooses not to wait, the customer can cancel the
order and obtain a full and prompt refund; and
- some means for the customer
to choose to cancel at your expense (e.g., by providing a
postage prepaid reply card or toll-free telephone number).
- the following information
when you cannot provide a revised shipping date:
- the reason for the delay,
and
- a statement that, if the
customer agrees to the indefinite delay, the customer
may cancel the order any time until you ship the
merchandise.
If your first delay option
notice provides a definite revised shipping date of 30 days or
less, you must inform customers that their non-response will be
treated as a consent to the delay.
Thus, your delay option notice
might look something like this:
We will be unable to
ship the merchandise listed above until [date 30 days or less
later than original promised time]. If you don’t want to
wait, you may cancel your order and receive a prompt refund
by calling our toll-free customer service number, (800) 555-1234.
If we do not hear from you before we ship the merchandise to
you, we will assume that you have agreed to this shipment
delay.
(Many merchants add
clarifying language such as "Remember, if you want
the merchandise, don’t
call.")
If your first delay option
notice provides a definite revised shipping date of more than 30
days or states that you do not know when you will be able to
ship, you must tell your customers that if they do not respond,
the order will be cancelled automatically within the originally
promised time plus 30 days.
For example, suppose you have a
reasonable basis for being able to ship in 30 days and you have
chosen to make no shipment representation in your advertising.
Within the 30 day period after you receive the customer’s
properly completed order you learn that you cannot ship in time
and, although you believe you will be able to ship at some point,
you don’t know when. Your delay option notice to the
customer might look something like this:
Because [explanation of
backorder problem], we are unable to ship the merchandise
listed above. We don’t know when we will be able to ship
it.
If you don’t want
to wait, you may cancel your order and receive a prompt
refund by calling our toll-free customer service number, (800)
555-1234. If we do not hear from you and we have not shipped
by [date 30 days later than original promised shipment time
-- in this example, 60 days after receipt of the properly
completed order], your order will be cancelled automatically
and your money will be refunded.
If you do not want your
order automatically cancelled on [date 30 days later than
original promised shipment time], you may request that we
keep your order and fill it later. If you do request that we
keep your order and fill it later, you still have the right
to cancel the order at any time before we ship it to you. You
may use our toll-free number, (800) 555-1234, either to
request that we fill your order later or to cancel it.
Remember: You are required
to explain the nature of the backorder problem only if you
provide an indefinite revised shipment date. This
explanation should be detailed enough to permit the customer to
judge what the possible length of the delay might be.
You also have the option of
seeking your customer’s affirmative agreement to the delay.
In any event, you must indicate what will happen if the customer
does not respond.
What Later Notices Must Say
If you cannot ship the merchandise by the definite
revised shipment date included in your most recent delay option
notice, before that date you must seek the consent of your
customers to any further delay. You must do this by providing
customers a "renewed" delay option notice. A renewed
delay option notice is similar in many ways to the first delay
option notice. One important difference: the customer’s
silence may not be treated as a consent to delay.
A renewed delay option notice must
include:
- a new definite revised
shipment date or, if unknown, a statement that you are
unable to provide any date;
- a statement that, if the
customer chooses not to wait, the customer can cancel the
order immediately and obtain a full and prompt refund;
- a statement that, unless you
receive notice that the customer agrees to wait beyond
the most recent definite revised shipment date and you
have not shipped by then, the customer’s order
automatically will be cancelled and a prompt refund will
be provided; and
- some means for the customer
to inform you at your expense (e.g., by providing
a postage prepaid reply card or toll-free telephone
number) whether the customer agrees to the delay or is
canceling the order.
- the following information
when you cannot provide a new definite revised shipping
date:
- the reason for the delay,
and
- a statement that, if the
customer agrees to the indefinite delay, the customer
may cancel the order any time until you ship.
If you have provided an
appropriate and timely delay option notice and the customer
agrees to an indefinite revised shipment date, no
additional delay notices are required.
When You May Cancel an Order
Instead of seeking the customer’s consent to delay, you
can always cancel the order and send a refund. In that case, you
must notify the customer and send the refund within the time you
would have sent any delay notice required by the Rule.
When You Must Cancel an Order
You must cancel an order and provide a prompt refund
when:
- the customer exercises any
option to cancel before you ship the merchandise;
- the customer does not respond
to your first notice of a definite revised shipment date
of 30 days or less and you have not shipped the
merchandise or received the customer’s consent to a
further delay by the definite revised shipment date;
- the customer does not respond
to your notice of a definite revised shipment date of
more than 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 consents to a
definite delay and you have not shipped or obtained the
customer’s consent to any additional delay by the
shipment time the customer consented to;
- you have not shipped or
provided the required delay or renewed option notices on
time; or
- you determine that you will
never be able to ship the merchandise.
The following is one example of
a delayed order scenario:
- You have a reasonable basis
to be able to ship the merchandise in 30 days. That being
the case, you make no shipment representation in your
advertising. When your prospective customer calls to
place the order on July 1, nothing has happened to change
your belief that you can ship in 30 days, so in accepting
the order you provide no updated shipment information.
You plan to ship the order by July 31.
- On July 10, you realize you
cannot ship by July 31. Within a few days (reasonably
quickly so the customer has time to make a decision), you
send a delay notice with a revised shipment date. Based
on information such as customer demand for the
merchandise and information you recently received from
your suppliers, you reasonably believe that you will be
able to ship 30 days from the original shipment date. The
revised shipping date you provide in the delay notice is
August 30, i.e., 30 days from July 31. Your delay notice
explains that, unless the customer tells you otherwise,
you will assume that the customer is willing to wait for
the merchandise until then.
- Having heard nothing from the
customer, on August 10 you realize that you will not be
able to ship by August 30, so reasonably promptly you
send a second delay option notice saying when you now
reasonably believe you will be able to ship. The notice
tells the customer that the order will be cancelled
automatically on August 30 unless you have already
shipped by then or the customer expressly tells you not
to cancel.
How Quickly You Must Make a
Refund
When you must make a Rule-required refund, the following
applies:
- If the customer paid by cash,
check, or money order, you must refund the correct amount
by first class mail within seven working days after the
order is cancelled.
- If the customer paid by
credit, you 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 cancelled.
How Much You Must Refund
If you cannot ship any of the merchandise ordered by
the customer, you must refund the entire amount the customer
"tendered," including any shipping, handling,
insurance, or other costs. If you ship some, but not all, of the
merchandise ordered, you must refund the difference between the
total amount paid and the amount the customer would have paid,
according to your ordering instructions, for the shipped items
only.
For example, if you charge a flat
fee for shipping and handling regardless of the total number or
cost of the items ordered, you need not refund any shipping and
handling charges if you ship some items. On the other
hand, if your shipping and handling charges are indexed to the
number of items or the dollar amount of the order, you can keep
only those shipping and handling charges that are appropriate to
the number or dollar amount of the items actually shipped.
When making Rule-required
refunds, you cannot substitute credit toward future purchases,
credit vouchers, or scrip.
When the order is paid for in
whole or in part by proofs of purchase, coupons, or other
promotional devices, you must provide "reasonable
compensation" to the customer for the proofs of purchase
plus any shipping, handling, or other charges the customer paid.
(The circumstances of each promotion may affect what is deemed to
be reasonable.)
Why You Should Keep Records
Although you are not required to keep records, an accurate,
up-to-date recordkeeping system can help show that you are
complying with the Rule. This is especially important because, in
any action to enforce the Rule, if you cannot document your use
of systems and procedures for complying, the Rule provides that
you bear the burden of proving you do comply. Your documentation
should provide answers to the following questions.
- Substantiation for shipment
representations. How is demand anticipated? How is
inventory monitored? How is inventory acquisition
coordinated with customer demand and order cancellation?
How are demand needs communicated to and met by buyers/suppliers/drop
shippers?
- Fulfillment system. How is
the fulfillment system designed to meet the requirements
of the Rule? Are the delay option notices in compliance?
Does the customer’s active or passive exercise of
any cancellation option result in a prompt refund
response?
- Recordkeeping. Are adequate
records kept for each individual order demonstrating the
date you received the order; the contents of and date you
provided any delay option notice; the date you received
any exercise of a cancellation option; the date of any
shipment and the merchandise shipped; the date of any
refund and the merchandise for which the refund was made?
If you provide delay option
notices by telephone, you may want to keep accurate records of
the scripts you use. To help document your compliance with the
Rule, you may find it useful to maintain a chronological record
of all calls you make, including the number from which the call
is made, the called number, the party contacted, and the duration
of the contact.
Businesses often ask how long they
should keep their records relating to Rule compliance. The
statute of limitations on actions to enforce the Rule is three
years for consumer redress and five years for civil penalties.
State statutes of limitations for individual customer or state
actions are sometimes longer. Check the state laws where you plan
to do business.
What the Rule Does Not Cover
The following sales are exempt from the Rule:
- 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.); and,
- transactions covered by the
FTC’s Negative Option Rule (such as book and music
clubs).
The Rule also does not cover services,
such as mail order photo-finishing. In the question and answer
section that follows, you will notice other circumstances in
which mail or telephone order merchandise may not be covered by
the Rule.
Why You Should Comply with the
Rule
Merchants who violate the Rule can be sued by the FTC for
injunctive relief, monetary civil penalties of up to $11,000 per
violation (any time during the five years preceding the filing of
the complaint), and consumer redress (any time during the three
years preceding the filing of the complaint). When the mails are
involved, the Postal Service also has authority to take action
for problems such as non-delivery. State law enforcement agencies
can take action for violating state consumer protection laws.
Apart from this, your failure to
ship on time, or your failure to notify your customers promptly
about delays and to obtain their consent to the delays, or your
failure to make full and prompt refunds when your customers do
not consent to delayed shipment, can adversely affect your
business by discouraging repeat purchases. Accordingly, most
businesses regard compliance with the Rule as simply good
business practice.
Questions and Answers About the Rule
The FTC staff receives questions from mail or telephone order
merchants who want to know how to comply with the Rule in certain
circumstances. Provided below are commonly-asked questions and
staff responses.
Using a Fulfillment House or
Drop-Shipper
Q: Who is liable for Rule violations caused by a fulfillment
house or drop shipper?
A: The seller is. This is
because the person soliciting the order, not the agent fulfilling
it, is the seller under the Rule. The person soliciting the order
can control -- among other things -- the shipment representations
made in soliciting the sale and the choice of fulfillment houses.
The seller can adjust the shipment representations to include the
time needed to transmit orders to a fulfillment house and for the
fulfillment house to respond.
However, staff considers the
following circumstances when deciding whether to recommend an
enforcement action:
- whether the merchant made all
reasonable efforts to prevent violations, including, e.g.,
- contracting with the
fulfillment house to require it to comply with
the Rule (or, at least, require it to promptly
inform the merchant of any problems that could
involve the Rule);
- "seeding"
orders with the fulfillment house to monitor its
fulfillment time; and
- monitoring customer
complaints for unusual surges.
- whether the violations were
genuinely unforeseeable and beyond the merchant’s
control to prevent;
- whether the merchant, from
all objective circumstances, did not know and did not
have reason to know of the violations when they occurred;
and,
- whether the merchant promptly
took all reasonable steps to remedy the fulfillment,
notification, or refund systems failures as soon as it
discovered them, and to remedy any resulting customer
injury.
"Bill-me" Orders;
Sales On Approval
Q: We offer to ship merchandise ordered by mail or telephone
and to bill the customer later. Are we covered by the Rule?
A: Whether the transaction
is covered by the Rule depends on whether you bill as part of a
credit arrangement made with the customer. For example, suppose
you ship the merchandise under an arrangement where the customer
has an open account or a charge account you have provided, and
the customer authorizes you to charge the account. This is a
credit sale and is covered by the Rule. The customer’s
authorization to place a charge on the customer’s account
meets the Rule’s test for coverage that the order is prepaid
and thus properly completed when received by the merchant.
On the other hand, suppose you
ship the merchandise along with an invoice payable upon receipt.
This is not a credit or prepaid sale and is not covered by the
Rule. Of course, if you are unreasonably slow in shipping the
merchandise or do not ship in the time you promised, you could
violate the FTC Act’s general prohibition against unfair or
deceptive practices. In addition, in some instances, the customer
may have the right under state law to refuse to accept the
merchandise.
Q: Does the Rule cover
sales on approval?
A: No. Sales on approval
permit the prospective customer to return merchandise, usually
after a "no obligation" or "free trial"
period, even though it is exactly as represented in the merchant’s
advertising. These sales do not require the customer to pay for
the order until the merchandise is received and approved. Because
the order is not prepaid with cash, check, money order, or
charge, it cannot be treated as the "receipt of a properly
completed order" -- which would trigger the Rule’s
requirements.
Unordered Merchandise
Whether or not the Rule is involved, in any approval or
other sale you must obtain the customer’s prior express
agreement to receive the merchandise. Otherwise the
merchandise may be treated as unordered merchandise. It is
unlawful to:
- Send any merchandise by
any means without the express request of the
recipient (unless the merchandise is clearly identified
as a gift, free sample, or the like); or,
- Try to obtain payment for or
the return of the unordered merchandise.
Merchants who ship unordered
merchandise with knowledge that it is unlawful to do so can be
subject to civil penalties of up to $11,000 per violation.
Moreover, customers who receive unordered merchandise are legally
entitled to treat the merchandise as a gift. Using the U.S. mails
to ship unordered merchandise also violates the Postal laws.
Insurance Charges
Q: What are our responsibilities if we charge to insure
delivery?
A: Instead of directing
customers to make claims against the common carriers who may be
responsible for losing merchandise, most merchants reship for the
sake of customer satisfaction. To pay for these reshipment
policies, some merchants ask customers to buy "insurance"
or provide it as an option. By offering insurance, the merchant
implicitly represents that it will honor any claim of nondelivery
by providing prompt reshipment or, if reshipment is impossible, a
prompt refund. It would be improper to collect fees from
customers for reshipment insurance and not respond promptly and
appropriately to their bona fide claims of loss.
Substitutions
Q: If a customer orders an item which is backordered, can we
substitute an item of similar or better quality without the
customer’s consent?
A: For backorders, the Rule
provides only two ways of responding to a properly completed
order for mail or telephone order merchandise: obtain the
customer’s agreement to delayed shipment or provide a full
and prompt refund. Unless the customer expressly agrees to the
substitution beforehand, you do not have the option of
substituting merchandise that is materially different from your
advertised merchandise. The term "materially different"
means that the merchandise differs in some manner that is likely
to affect the customer’s choice of, or conduct regarding,
the merchandise. Any product feature would be deemed material if
it is expressly mentioned or depicted in advertising. Differences
in design, style, color, fabric, or promoted end use also would
be deemed material.
Dry-testing
Q: We want to sell by mail or telephone a product that is not
yet available. Does the Rule apply?
A: It depends. In an
advisory opinion, the FTC told a publishing company that it could
"dry-test" its merchandise as long as the following
conditions were met:
- In promoting the merchandise,
the merchant can make no suggestion that the merchandise
will be shipped or that customers expressing an interest
in it will receive it.
- In all promotional materials,
the merchant must disclose all material aspects of the
promotion, including the fact that the merchandise is
only planned and may not be shipped.
- If any part of the promotion
is later dropped, the merchant must notify subscribers of
the fact within a reasonable time after soliciting their
subscriptions.
- If, within a reasonable time
after soliciting their subscriptions, the merchant has
made no decision to ship the merchandise, it must notify
subscribers of this fact and give them the opportunity to
cancel and, where payment has been made, make a prompt
refund.
- The merchant can make no
substitutions of any merchandise for that ordered.
If these conditions are not met,
the Rule applies.
Making Fast Shipment
Representations
Q: We represent that we ship in 48 hours. In case of delay,
when are we required to provide notification of delay?
A: Within 48 hours of
receipt of the order.
Q: Can we say 48 hours
"most of the time?"
A: If you represent that
you ship in 48 hours most of the time, you will be required to
ship or provide notification of delay in 48 hours all
the time. The Rule requires you to ship in the time you say. If
you say you ship in 48 hours "most of the time,"
reasonable consumers will infer that you will ship their
orders in 48 hours. Similarly, if you represent, "in-stock
items ship immediately," unless you tell consumer when they
order that the item is not in stock, you will be
required to ship, provide notification of delay, or cancel the
order immediately.
Notice by Posting and E-Mail
Q: Can we send the delay option notice to the customer’s
e-mail address?
A: Yes.
Q: Can we provide a delay
option notice by posting it on the customer’s "order-status"
page of our website?
A: If you provide a delay
option notice, you must choose a way that is reasonably likely to
provide all the required information within the time period
required by the Rule. If the consumer doesn’t visit the
order-status page until after she misses her order, you haven’t
complied with the Rule’s requirements that the delay option
notice be provided within the promised shipment time. Of course,
posting on the customer’s order-status page can be an
excellent way to back up notification by another means.
Qualifying 30-day or Other
Shipment Representations
Q: In soliciting telephone orders we make no shipment
representation, so the 30-day rule applies. In taking the order,
the sales representative tells the customer that the merchandise
will be shipped in 72 hours. Then we discover that the
merchandise cannot be shipped in 72 hours, but can be shipped
within 30 days. Do we have to get the customer’s agreement
to a delay?
A: Yes. The shipment
representation you make in negotiating the sale during the
telephone call supersedes any express shipment representation you
made in soliciting the order or, if you made no express shipment
representation, the 30-day shipment time. Your compliance with
the Mail or Telephone Order Merchandise Rule will be determined
based upon the 72-hour shipment representation.
WHERE
TO GO FOR HELP
For more information about the Mail or Telephone Order
Merchandise Rule, call the Federal Trade Commission toll-free: 1-877-FTC-HELP;
write: Federal Trade Commission, Consumer Response Center, 600
Pennsylvania Avenue, N.W., Washington, DC 20580; or visit: www.ftc.gov.
You also may want to contact
relevant trade associations, such as the Direct Marketing
Association. Contact the DMA’s Washington, DC office at: 202-955-5030;
write: 1111 19th Street, N.W., Suite 1100, Washington, DC 20036-3603;
or visit: www.the-dma.org.
Your local U.S. Postal Service or
consumer protection agency may offer additional assistance. State
and local governments also may have requirements with which you
must comply. You should consult appropriate state agencies for
information about laws that affect your business.
YOUR OPPORTUNITY TO COMMENT
The National Small Business Ombudsman and 10 Regional Fairness
Boards collect comments from small businesses about federal
compliance and enforcement activities. Each year, the Ombudsman
evaluates the conduct of these activities and rates each agency's
responsiveness to small businesses. Small businesses can comment
to the Ombudsman without fear of reprisal. To comment, call toll-free
1-888-REGFAIR (1-888-734-3247) or go to www.sba.gov/ombudsman.
PART 435 -- MAIL OR TELEPHONE ORDER
MERCHANDISE RULE
Sec.
435.1 The Rule.
435.2 Definitions.
435.3 Limited applicability.
435.4 Effective date.
Sec.
435.1 The Rule.
In connection with mail or telephone-order sales in or affecting
commerce, as "commerce" is defined in the Federal Trade
Commission Act, it constitutes an unfair method of competition,
and an unfair or deceptive act or practice for a seller:
(a)(1) To solicit any order for
the sale of merchandise to be ordered by the buyer through the
mails 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) Within that time
clearly and conspicuously stated in any such
solicitation, or
(ii) if no time is clearly
and conspicuously stated, within thirty (30) days after
receipt of a properly completed order from the buyer. Provided,
however, Where, at the time the merchandise is
ordered the buyer applies to the seller for credit to pay
for the merchandise in whole or in part, the seller shall
have 50 days, rather than 30 days, to perform the actions
required in § 435.1 (a)(1)(ii) of this part.
(2) To provide any buyer with
any revised shipping date, as provided in paragraph (b) of
this section, unless, at the time any such revised shipping
date is provided, the seller has a reasonable basis for
making such representation regarding a definite revised
shipping date.
(3) To inform any buyer that
it is unable to make any representation regarding the length
of any delay unless
(i) the seller has a
reasonable basis for so informing the buyer and
(ii) the seller informs
the buyer of the reason or reasons for the delay.
(4) In any action brought by
the Federal Trade Commission alleging a violation of this
part, the failure of a respondent-seller to have records or
other documentary proof establishing its use of systems and
procedures which assure the shipment of merchandise in the
ordinary course of business within any applicable time set
forth in this part will create a rebuttable presumption that
the seller lacked a reasonable basis for any expectation of
shipment within said applicable time.
(b)(1) Where a seller is unable to
ship merchandise within the applicable time set forth in
paragraph (a)(1) of this section, to fail to offer to the buyer,
clearly and conspicuously and without prior demand, an option
either to consent to a delay in shipping or to cancel the buyer’s
order and receive a prompt refund. Said offer shall be made
within a reasonable time after the seller first becomes aware of
its inability to ship within the applicable time set forth in
paragraph (a)(1) of this section, but in no event later than said
applicable time.
(i) Any offer to the buyer
of such an option shall fully inform the buyer regarding
the buyer’s right to cancel the order and to obtain
a prompt refund and shall provide a definite revised
shipping date, but where the seller lacks a reasonable
basis for providing a definite revised shipping date the
notice shall inform the buyer that the seller is unable
to make any representation regarding the length of the
delay.
(ii) Where the seller has
provided a definite revised shipping date which is thirty
(30) days or less later than the applicable time set
forth in paragraph (a)(1) of this section, the offer of
said option shall expressly inform the buyer that, unless
the seller receives, prior to shipment and prior to the
expiration of the definite revised shipping date, a
response from the buyer rejecting the delay and
cancelling the order, the buyer will be deemed to have
consented to a delayed shipment on or before the definite
revised shipping date.
(iii) Where the seller has
provided a definite revised shipping date which is more
than thirty (30) days later than the applicable time set
forth in paragraph (a)(1) of this section or where the
seller is unable to provide a definite revised shipping
date and therefore informs the buyer that it is unable to
make any representation regarding the length of the
delay, the offer of said option shall also expressly
inform the buyer that the buyer’s order will
automatically be deemed to have been cancelled unless:
(A) the seller has
shipped the merchandise within thirty (30) days of
the applicable time set forth in paragraph (a)(1) of
this section, and has received no cancellation prior
to shipment, or
(B) the seller has
received from the buyer within thirty (30) days of
said applicable time, a response specifically
consenting to said shipping delay. Where the seller
informs the buyer that it is unable to make any
representation regarding the length of the delay, the
buyer shall be expressly informed that, should the
buyer consent to an indefinite delay, the buyer will
have a continuing right to cancel the buyer’s
order at any time after the applicable time set forth
in paragraph (a)(1) of this section by so notifying
the seller prior to actual shipment.
(iv) Nothing in this
paragraph shall prohibit a seller who furnishes a
definite revised shipping date pursuant to paragraph (b)(1)(i)
of this section, from requesting, simultaneously with or
at any time subsequent to the offer of an option pursuant
to paragraph (b)(1) of this section, the buyer’s
express consent to a further unanticipated delay beyond
the definite revised shipping date in the form of a
response from the buyer specifically consenting to said
further delay. Provided, however, That where the
seller solicits consent to an unanticipated indefinite
delay the solicitation shall expressly inform the buyer
that, should the buyer so consent to an indefinite delay,
the buyer shall have a continuing right to cancel the
buyer’s order at any time after the definite revised
shipping date by so notifying the seller prior to actual
shipment.
(2) Where a seller is unable
to ship merchandise on or before the definite revised
shipping date provided under paragraph (b)(1)(i) of this
section and consented to by the buyer pursuant to paragraph (b)(1)(ii)
or (iii) of this section, to fail to offer to the buyer,
clearly and conspicuously and without prior demand, a renewed
option either to consent to a further delay or to cancel the
order and to receive a prompt refund. Said offer shall be
made within a reasonable time after the seller first becomes
aware of its inability to ship before the said definite
revised date, but in no event later than the expiration of
the definite revised shipping date:
Provided, however, That
where the seller previously has obtained the buyer’s
express consent to an unanticipated delay until a specific
date beyond the definite revised shipping date, pursuant to
paragraph (b)(1)(iv) of this section or to a further delay
until a specific date beyond the definite revised shipping
date pursuant to paragraph (b)(2) of this section, that date
to which the buyer has expressly consented shall supersede
the definite revised shipping date for purposes of paragraph
(b)(2) of this section.
(i) Any offer to the buyer
of said renewed option shall provide the buyer with a new
definite revised shipping date, but where the seller
lacks a reasonable basis for providing a new definite
revised shipping date, the notice shall inform the buyer
that the seller is unable to make any representation
regarding the length of the further delay.
(ii) The offer of a
renewed option shall expressly inform the buyer that,
unless the seller receives, prior to the expiration of
the old definite revised shipping date or any date
superseding the old definite revised shipping date,
notification from the buyer specifically consenting to
the further delay, the buyer will be deemed to have
rejected any further delay, and to have cancelled the
order if the seller is in fact unable to ship prior to
the expiration of the old definite revised shipping date
or any date superseding the old definite revised shipping
date. Provided, however, That where the seller
offers the buyer the option to consent to an indefinite
delay the offer shall expressly inform the buyer that,
should the buyer so consent to an indefinite delay, the
buyer shall have a continuing right to cancel the buyer’s
order at any time after the old definite revised shipping
date or any date superseding the old definite revised
shipping date.
(iii) Paragraph (b)(2) of
this section shall not apply to any situation where a
seller, pursuant to the provisions of paragraph (b)(1)(iv)
of this section, has previously obtained consent from the
buyer to an indefinite extension beyond the first revised
shipping date.
(3) Wherever a buyer has the
right to exercise any option under this part or to cancel an
order by so notifying the seller prior to shipment, to fail
to furnish the buyer with adequate means, at the seller’s
expense, to exercise such option or to notify the seller
regarding cancellation.
Nothing in paragraph (b) of
this section shall prevent a seller, where it is unable to
make shipment within the time set forth in paragraph (a)(1)
of this section or within a delay period consented to by the
buyer, from deciding to consider the order cancelled and
providing the buyer with notice of said decision within a
reasonable time after it becomes aware of said inability to
ship, together with a prompt refund.
(c) To fail to deem an order
cancelled and to make a prompt refund to the buyer whenever:
(1) The seller receives, prior
to the time of shipment, notification from the buyer
cancelling the order pursuant to any option, renewed option
or continuing option under this part;
(2) The seller has, pursuant
to paragraph (b)(1)(iii) of this section, provided the buyer
with a definite revised shipping date which is more than
thirty (30) days later than the applicable time set forth in
paragraph (a)(1) of this section or has notified the buyer
that it is unable to make any representation regarding the
length of the delay and the seller
(i) has not shipped the
merchandise within thirty (30) days of the applicable
time set forth in paragraph (a)(1) of this section, and
(ii) has not received the
buyer’s express consent to said shipping delay
within said thirty (30) days;
(3) The seller is unable to
ship within the applicable time set forth in paragraph (b)(2)
of this section, and has not received, within the said
applicable time, the buyer’s consent to any further
delay;
(4) The seller has notified
the buyer of its inability to make shipment and has indicated
its decision not to ship the merchandise;
(5) The seller fails to offer
the option prescribed in paragraph (b)(1) of this section and
has not shipped the merchandise within the applicable time
set forth in paragraph (a)(1) of this section.
(d) In any action brought by the
Federal Trade Commission, alleging a violation of this part, the
failure of a respondent-seller to have records or other
documentary proof establishing its use of systems and procedures
which assure compliance, in the ordinary course of business, with
any requirement of paragraph (b) or (c) of this section will
create a rebuttable presumption that the seller failed to comply
with said requirement.
Sec.
435.2 Definitions.
For purposes of this part:
(a) "Mail or telephone order
sales" shall mean sales in which the buyer has ordered
merchandise from the seller by mail or telephone, regardless of
the method of payment or the method used to solicit the order.
(b) "Telephone" refers
to any direct or indirect use of the telephone to order
merchandise, regardless of whether the telephone is activated by,
or the language used is that of human beings, machines, or both.
(c) "Shipment" shall
mean the act by which the merchandise is physically placed in the
possession of the carrier.
(d) "Receipt of a properly
completed order" shall mean, where the buyer tenders full or
partial payment in the proper amount in the form of cash, check,
money order, or authorization from the buyer to charge an
existing charge account, the time at which the seller receives
both said payment and an order from the buyer containing all of
the information needed by the seller to process and ship the
order.
Provided, however, That
where the seller receives notice that the check or money order
tendered by the buyer has been dishonored or that the buyer does
not qualify for a credit sale, "receipt of a properly
completed order" shall mean the time at which:
(i) the seller receives
notice that a check or money order for the proper amount
tendered by the buyer has been honored,
(ii) the buyer tenders
cash in the proper amount or
(iii) the seller receives
notice that the buyer qualifies for a credit sale.
(e) "Refund" shall mean:
(1) Where the buyer tendered
full payment for the unshipped merchandise in the form of
cash, check or money order, a return of the amount tendered
in the form of cash, check or money order;
(2) Where there is a credit
sale:
(i) And the seller is a
creditor, a copy of a credit memorandum or the like or an
account statement reflecting the removal or absence of
any remaining charge incurred as a result of the sale
from the buyer’s account;
(ii) And a third party is
the creditor, a copy of an appropriate credit memorandum
or the like to the third party creditor which will remove
the charge from the buyer’s account or a statement
from the seller acknowledging the cancellation of the
order and representing that it has not taken any action
regarding the order which will result in a charge to the
buyer’s account with the third party;
(iii) And the buyer
tendered partial payment for the unshipped merchandise in
the form of cash, check or money order, a return of the
amount tendered in the form of cash, check or money order.
(f) "Prompt refund"
shall mean:
(1) Where a refund is made
pursuant to paragraph (e)(1) or (2)(iii) of this section, a
refund sent to the buyer by first class mail within seven (7)
working days of the date on which the buyer’s right to
refund vests under the provisions of this part;
(2) Where a refund is made
pursuant to paragraph (e)(2)(i) or (ii) of this section, a
refund sent to the buyer by first class mail within one (1)
billing cycle from the date on which the buyer’s right
to refund vests under the provisions of this part.
(g) The "time of solicitation"
of an order shall mean that time when the seller has:
(1) Mailed or otherwise
disseminated the solicitation to a prospective purchaser,
(2) Made arrangements for an
advertisement containing the solicitation to appear in a
newspaper, magazine or the like or on radio or television
which cannot be changed or cancelled without incurring
substantial expense, or
(3) Made arrangements for the
printing of a catalog, brochure or the like which cannot be
changed without incurring substantial expense, in which the
solicitation in question forms an insubstantial part.
Sec. 435.3 Limited applicability.
(a) This part shall not apply to:
(1) Subscriptions, such as
magazine sales, ordered for serial delivery, after the
initial shipment is made in compliance with this part.
(2) Orders of seeds and
growing plants.
(3) Orders made on a collect-on-delivery
(C.O.D.) basis.
(4) Transactions governed by
the Federal Trade Commission’s Trade Regulation Rule
entitled "Use of Negative Option Plans by Sellers in
Commerce," 16 CFR Part 425.
(b) By taking action in this area:
(1) The Federal Trade
Commission does not intend to preempt action in the same
area, which is not inconsistent with this part, by any State,
municipal, or other local government. This part does not
annul or diminish any rights or remedies provided to
consumers by any State law, municipal ordinance, or other
local regulation, insofar as those rights or remedies are
equal to or greater than those provided by this part. In
addition, this part does not supersede those provisions of
any State law, municipal ordinance, or other local regulation
which impose obligations or liabilities upon sellers, when
sellers subject to this part are not in compliance therewith.
(2) This part does supersede
those provisions of any State law, municipal ordinance, or
other local regulation which are inconsistent with this part
to the extent that those provisions do not provide a buyer
with rights which are equal to or greater than those rights
granted a buyer by this part. This part also supersedes those
provisions of any State law, municipal ordinance, or other
local regulation requiring that a buyer be notified of a
right which is the same as a right provided by this part but
requiring that a buyer be given notice of this right in a
language, form, or manner which is different in any way from
that required by this part. In those instances where any
State law, municipal ordinance, or other local regulation
contains provisions, some but not all of which are partially
or completely superseded by this part, the provisions or
portions of those provisions which have not been superseded
retain their full force and effect.
(c) If any provision of this part,
or its application to any person, partnership, corporation, act
or practice is held invalid, the remainder of this part or the
application of the provision to any other person, partnership,
corporation, act or practice shall not be affected thereby.
Sec. 435.4 Effective date of the rule.
The original rule, which became
effective 100 days after its promulgation on October 22, 1975,
remains in effect. The amended rule, as set forth in this part,
becomes effective March 1, 1994.
Authority: 15 U.S.C. 57a; 5 U.S.C.
552.
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