$9.3 million FTC settlement suggests Mail Order Rule compliance is always in style

Trend-conscious buyers want the latest styles ASAP and online retailer Fashion Nova reinforced those expectations by promising “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!” But according to the FTC, the California company’s shipment delays violated the Mail, Internet, or Telephone Order Merchandise Rule and left consumers haute under the collar. The $9.3 million settlement is the largest ever in a case of its kind.

People still call it Mail Order Rule, but the regulation has been updated since its 1975 enactment to reflect consumers’ shift to online shopping. It prohibits sellers from soliciting orders unless, at the time of the solicitation, the seller has a reasonable basis to expect it will be able to ship: 1) within the time it states; or 2) if no time is stated, within 30 days. It’s a practical rule that recognizes that sometimes stuff happens. When shipments will be delayed, the Rule lays out sequential if-then steps sellers must take to ensure consumers aren’t left hanging. One key provision is that if a seller can’t ship within the required time, the seller must send the buyer a shipping delay notice that offers the buyer “an option either to consent to a delay in shipping or to cancel the buyer’s order and receive a prompt refund.”

According to the FTC, despite Fashion Nova’s use of phrases like “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!,” the company often failed to meet its shipping promises to consumers, and failed to meet the Mail Order Rule’s requirement that consumers must be notified of shipping delays and given the chance to cancel orders and receive prompt refunds. The upshot: The company violated consumers’ legal right to decide for themselves “OK, I’ll wait” or “No way. Cancel and refund my money.” In addition, the complaint alleges that Fashion Nova at times failed to refund consumers for the items it didn’t ship. Instead, it was the company’s policy to issue gift cards, which aren’t considered refunds under the Mail Order Rule. The company also failed to cancel orders and provide refunds when it didn’t offer consumers delay option notices.

You’ll want to read the proposed stipulated order for the details, but the record-setting $9.3 million financial remedy will provide compensation to consumers who received gift cards from Fashion Nova when they should have received refunds. The order also imposes court-enforceable provisions to ensure future Mail Order Rule compliance. In addition, Fashion Nova will have to make affirmative disclosures about shipping times, implement procedures to ensure it’s easy for buyers to cancel delayed orders, and stop its policy of offering gift cards rather than refunds for unshipped merchandise.

If your company is covered by the Mail, Internet, or Telephone Order Merchandise Rule, here are some tips to take from the case.

You must have a reasonable basis for shipping representations. As a part of retailers’ Mail Order Rule compliance, it’s important to remember that statements about shipping aren’t puffery. Like price and product features, they’re among the objective claims consumers rely on in deciding whether to do business with you or your competitor. Under the Mail Order Rule, a company must have “a reasonable basis to expect that it will be able to ship” within the stated time. That “reasonable basis” must be grounded in objective criteria, not crossed fingers and wishful thinking.

If you won’t be able to ship on time, tell buyers about their options and honor their choice. If there is a shipment delay, the decision-making shifts to the buyer. You must “clearly and conspicuously and without prior demand” give buyers “an option either to consent to a delay in shipping or to cancel the buyer`s order and receive a prompt refund.” That first clause means you must reach out to them in a way they’ll notice. You can’t wait until they ask “Where’s my stuff?” And the second clause makes it clear that buyers – not sellers – are in the driver’s seat. It’s illegal for you to substitute your judgment and conclude they won’t mind the wait.

In the Mail Order Rule context, a gift card isn’t a “refund.” When a shipping delay has left consumers in the lurch or when a retailer doesn’t fulfill an order or doesn’t ship merchandise, a gift card won’t suffice.

Has the $9.3 million settlement convinced you to make sure your procedures are runway-ready? Legal compliance is always in fashion. Read the FTC’s Business Guide to the FTC's Mail, Internet, or Telephone Order Merchandise Rule.