E-Commerce Sites – Complying With The FTC’s Merchandise Order Rule

When selling products online, it is important to keep in mind there are legal requirements applicable to the sales and delivery process. The FTC’s Mail and Telephone Merchandise Rule is one significant regulation applicable to e-commerce sites.

FTC Role

The Federal Trade Commission is in charge of enforcing certain laws. Part and parcel to this, the “FTC” issues rules and regulations to provide companies with insight into how the agency will interpret the laws and expect companies to act.

Must a business conform to the rules and regulations issued by the FTC? Not necessarily. The company can ignore the regulations and then challenge the position of the FTC when the Commission pursues the company in court. This approach is risky given the costs of defending a legal challenge and the potential of an adverse verdict.

Merchandise Order Rule

The “Merchandise Order Rule” issued by the FTC is an attempt to regulate the delivery of products online. Specifically, the rule focuses on the amount of time an e-commerce site has to deliver a product ordered by a customer. Although the title of the rule does not include the word “Internet”, it does apply to online orders.

Under the rule, an e-commerce site must have a reasonable basis for stating a product can be shipped within a certain period. If no time is indicated on the site, then shipment must be made within 30 days of the order by the customer. The site can select a longer period than 30 days, but it must clearly state as much on the site.

What if something occurs preventing the shipment of the product within the allowed time? The e-commerce site must notify the customer and provide the customer with a right to cancel the order. If the customer does not cancel or demand a refund within the first 30 days, the site can assume he or she has consented to an additional 30 days for delivery. If the delay goes beyond the second 30 day period, the site must again contact the customer. If there is no response, the site must refund the order amount regardless automatically.

FTC Enforcement

The FTC enforces this rule with great enthusiasm. The agency has obtained a host of settlements and judgments against online providers that failed to comply with the rule. Examples include:

  • Iomega paying $900,000 for failing to follow delay protocols, and
  • Macy’s paying $350,000 for failing to deliver in a timely manner during Christmas shopping season.

Other companies such as KB Toys, CD Now, and Toys R Us have also successfully been pursued by the FTC.

Christmas Rule

The Merchandise Order Rule applies year around, but many attorneys refer to it as the Christmas Rule. The Christmas shopping season online continues to grow by leaps and bounds each year. This presents a positive problem for many e-commerce sites. One can expect more and more orders, but delivery must be timely.

The FTC works off of a complaint system. It looks for patterns of complaints from consumers to prioritize its investigations and enforcement actions. Nothing produces more complaints than Christmas shopping orders that do not arrive before December 25. Come hell or high water, every e-commerce site needs to get its orders out the door in a timely manner during this period or risk an unpleasant knock on the door from the FTC.

As I write this, the calendar is turning to November. The Christmas shopping season is just around the corner. The management of all e-commerce sites must review their shipping, handling, and customer service protocols to make sure they are in compliance with the Merchandise Order Rule if any delays arise with orders.

Richard A. Chapo, Esq.