Tuesday, November 26, 2013

Mail Order Merchandise Rule: Are Your Business Processes up to Snuff?

This is the first in a series of blog posts highlighting the major legal and regulatory issues that are specific to the multichannel merchant. The Mail Order Merchandise Rule, promulgated by the Federal Trade Commission, is intended to ensure that mail order customers actually receive the items that they order from catalog or online merchants. The Rule requires that when a seller advertises merchandise, it must have a reasonable basis for stating or implying that it can ship the merchandise within a certain time. If the business makes no shipment statement, it must have a reasonable basis for believing that it can ship within 30 days. That is why direct marketers sometimes call this the "30-day Rule." Surprisingly, though, many well-established mail order companies have only a loose grip on the operational steps necessary to comply with this rule.

It is usually the case in the highly competitive, technologically advanced environment of mail order and internet sales, that merchants are easily able to comply with the Rule by providing a stated shipment representation. If a website says the product will be shipped in two days, it almost always is, and often it is shipped even sooner. But when products are not timely shipped, things sometimes go a little sideways. The most common reason for failure to ship within the stated time frame is the lack of a product–the back order issue.

The rule provides that, if after taking the customer’s order, a seller learn that it cannot ship within the time stated, it must seek the customer’s consent to the delayed shipment. If it is the first such delay, and if the seller can provide a revised shipment date, it must notify the customer of his or her right to cancel the order; sellers are permitted to treat the client’s silence in response as an expression of assent.  But, if there is a second delay, or if the seller cannot provide a revised shipment date, then the seller MUST get the client to consent affirmatively to the continued delay. If a seller cannot obtain the customer’s consent to the delay – or if the customer refuses to consent -- the seller must, without being asked, promptly refund all the money the customer paid for the unshipped merchandise.

There are at least two safe harbors from which many catalog companies may benefit. First, the clock does not begin ticking on any shipment representations until there is a “properly completed order.” An order is properly completed when the seller receives the correct full or partial payment, accompanied by all the information needed to fill the order. In many instances, merchants do not collect payment on backordered items as a matter of routine-though they are permitted to do so. This prevents the shipping representation clock for beginning.

Second, a shipment representation made at the time of order trumps shipment representations contained on a product page or in a catalog. So if customer service representatives explain to a customer that an item is backordered for 6 weeks, then that becomes the new shipment representation.

Like many legal issues, the Mail Order Merchandise Rule need not present a business risk, provided that you are aware of its requirements and plan accordingly. It is important for catalog and web merchants to have business processes in place to track shipment representations, and to ensure that the proper notifications are sent to customers.

In my next blog post, we will touch on some unusual and unexpected California-specific regulations that can impact multichannel merchants.

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