FTCs Telephone Order Rules
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VendorSeek
The Federal Trade Commission in conjunction with the Direct Marketing Association has organized the FTC's Mail or Telephone Order Merchandise Trade Regulation Rule. The 'Rule,' applies to most goods a customer orders from the seller by mail, telephone, fax, or on the Internet. Regardless of how the merchandise is advertised, how the customer pays, or who initiates the contact, the rule will stand.
What is the Rule - The Rule mandates that when you advertise merchandise, you have a reasonable basis for stating or insinuating that you can ship within a certain amount of time. If you do not make a shipping statement, you must have some reason for believing that you can ship the merchandise within 30 days (sometimes deemed the '30-day rule').
- If after the order is completed, you the supplier find that you cannot ship within the 30 days, the customer's consent to carry on with the transaction must be sought after.
- If customer consent is not obtained for any reason, you the supplier must refund in totality their monies paid for the merchandise.
Staying in Compliance with the Rule What You Should Know Before Making a Shipment Representation
When offering to sell merchandise, you need reasonable basis for
- Any expressed or implied shipment representation
- Believing you can ship within 30 days of receipt of the order (in case there was no shipment representation or if it was not clear and overt).
Whenever you change the shipment date via delay notice you must have reasonable basis for
- The new shipment date
- Any representation that the shipment date is not known by you the supplier
Referring to orders by telephone, any updated or contradictory shipping information supersedes any prior advertisements, but you must have a reasonable basis for the modification.
Reasonable basis- meaning that the supplier has, at present time, information that would satiate a reasonable and prudent businessperson, acting in good faith, that the present representation is sound fact.
Whether making a shipment representation or relying on the 30-day rule, advertising must be clear and concise as to when the merchandise will be shipped.
What You Must Know Before Making Shipment Representations in Sales Involving Credit Applications
In reference to customers applying for an in-house new credit account or increasing an existing credit line to pay for the order of merchandise the following applies to the Rule
- If no shipment representation is made upon the order, the supplier is allowed 50 (rather than 30) days to ship the merchandise
- If making a shipment representation, the supplier must have a reasonable basis for believing that they can make shipment within the 50 days allotted (the extra time is assumed to be factored in to cater to the credit application or extension).
When Your Fulfillment Or Other Obligations Begin ('Property Completed' Orders) The time starts on your obligations as soon as you receive a 'properly completed' order. This means you received the correct full or partial payment, accompanied by the information you will need to fulfill the order. Payment may be in the form of cash, check, money order, the customer's authorization to charge an existing account, the customer's application to you for credit to pay for the order, or any substitute for these transactions that you accept. It is not of relevance when you post or deposit the payment, when the check clears, or when your bank credits your account; the time on your obligation starts with the received order form. If in the event a customer's check is returned or customer is refused credit, the time relegated to the Rule stops the shipment clock; however, the clock starts again once the customer pays in any of the accepted forms and the supplier is able to convert the payment.
What You Must Do If You Learn You Cannot Ship on Time Upon learning that you the supplier cannot ship on time, you must then immediately ponder if you can ship the merchandise ever. If you cannot ship the order, then the monies supplied by the customer must be immediately returned in full. If you can ship the order later, the customer's consent as to the later shipment date must be attained. This can be over the phone, fax, mail, or email, as long as the new shipment information is quickly relayed to the consumer. In the event that the modification of the shipment date is unable to be consented and will exceed the 30 days or 50 days involving credit processes, then the consumer's monies must be refunded in full.
What a First Day Delay Option Notice Must Say In seeking customer consent in reference to a shipping delay, the first delay notice provided must include - A concrete revised shipment date, or if this is unknown by the supplier, a statement saying that you cannot provide a definite shipment date
- A statement delineating that if the customer decides not to wait any further, they have the option of canceling the order involving a prompt and full refund
- Means for the customer to cancel at the supplier's expense may it be by pre-paid postage mailing or toll-free number.
- The following information when you cannot provide a definite revised shipping date: reason for the delay along with a statement saying that the customer can cancel the transaction at any time and be refunded promptly in full before receiving the merchandise.
If your first delay option notice entails a definite revised shipping date of 30 days or less, you must inform the customer that a non-response will imply and will be treated as a consent to the delay; conversely, if your first delay notice does denote a definite revised shipping date exceeding 30 days, or that you the supplier has no definite knowledge of a shipping date, you must tell the consumer if they do not respond, the order will be cancelled automatically and their monies refunded 30 days after the first notice.
What Later Notices Must Say If the supplier cannot provide the merchandise by the definite revised shipment date stated in the most recent delay option notice, before that date you must seek the consent of the consumer in extending the shipment. This will be attained via a 'renewed' delay option notice. The parameters of the renewed notice are very similar to the ones of the first delay notice, but with one important difference: the customer's silence may not be treated as consent to the delay.
A renewed delay option notice must include - A new definite revised shipment date or, if unknown by the supplier, a statement that the supplier cannot provide a definite date
- A statement that says if the customer chooses not to wait, the order can be cancelled immediately and their monies be promptly returned in full
- A statement that says unless you receive notice that the customer assents to wait beyond the most recently revised shipment date and you have still not shipped by then, the customer's order will automatically be cancelled and they be promptly returned of their monies in full
- Some means for the customer to inform you at your own expense whether the customer agrees to the delay or is in fact canceling the order
- The following information must be detailed within a newly revised shipping date: the reason for the delay and a statement that, if the customer agrees to the indefinite delay, the customer may decide to cancel the order at any time before shipping
If provided with an appropriate and timely delay option notice and the customer does agree to the indefinite revised shipment date, then no additional delay notices are required of the supplier.
When You May Cancel an Order Rather than seeking the customer's consent to delay, you the supplier can always cancel the order and send a complete refund. In this 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, the supplier, must cancel an order and provide a prompt refund when
- The customer acts upon any option to cancel the order before you ship the merchandise
- The customer is negligent in responding 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 is negligent in responding to your notice of a definitely revised shipment date or 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 has consented to a definite delay and you have not shipped or obtained further consent to any additional delays by the last shipment date the customer had consented to
- You, the supplier, have not shipped or provided the required or renewed option notice on time
- You, the supplier, have determined that you will never be able to make promise to provide the merchandise
How Quickly You Must Make a Refund When the supplier must make a Rule-required refund - If the customer paid 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 the account will not be charged (within one billing cycle) after the order is cancelled
How Much You Must Refund If you, the supplier, cannot ship any of the merchandise agreed upon, you must refund the entire amount allotted including any shipping, handling, insurance, or other costs involved. In case that you have shipped some but not all of the merchandise agreed upon, you must refund the difference between the total amount paid and the amount the customer would have paid in the event that they received all of the merchandise.
- When making Rule-required refunds, you cannot substitute credit toward future purchases, credit vouchers, or script
Why You Should Keep Records It is not required that the supplier keep records, but in the event that there is reason to enforce the Rule upon the supplier and they have not kept records, the burden will be on them to prove that they have acted in accordance to the Rule. Documentation should provide answers to the following
- Substantiation for shipment representations including: how demand was anticipated, how inventory was monitored, how inventory acquisition coordinated with customer demand and order cancellation, how demand needs were communicated to and met by buyers/suppliers/drop shippers
- Fulfillment system: how fulfillment shipment was designed to meet requirements of the Rule, if delay options notices were in compliance, if the customer's active or passive exercise of any cancellation option resulted in a prompt refund response
- Recordkeeping: if adequate records were kept for each individual order with date received, contents of and date the supplier provided any delay option notice, the date the supplier received any notice of cancellation, date of shipments and contents within, dates of any refunds and the content of the merchandise
- If delay option notices were provided by phone accurate records are to be kept of such including dates and phone numbers dialed
The statute of limitations on actions to enforce the Rule is three years for the consumer redress and five years for civil penalties. State statutes of limitations for individual customer or state actions are sometime longer and vary by state.
What the Rule Does Not Cover The following sales are exempt from the rule
- Magazine subscriptions except for the first shipment
- Sales of seeds and growing plants
- Orders made on collect-on-delivery basis
- Transactions covered by the FTC's Negative Option Rule
Why You Should Comply With the Rule Suppliers found in violation of the Rule can be sued by the FTC for injunctive relief, monetary penalties reaching up to $11,000 per violation (any time during 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 U.S. postal service is involved, they may also enact authority on issues such as non-delivery; as well as, state enforcement agencies for violating state consumer protection laws.
For more information consult the full documentation of the Rule found at:
www.ftc.gov/bcp/conline/pubs/buspubs/mailorder.htm
The Federal Trade Commission website:
www.ftc.gov
Direct Marketing Association website:
www.the-dma.org
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