Does an online business have to deliver a customer order within a particular period of time? Yes. The FTC’s Mail or Telephone Order Merchandise Trade Regulation Rule [‘Rule”] is the authoritative document. Despite the name, this Rule applies to internet orders, and the FTC just updated it for the first time in 39 years. Here is what you need to know.
Reasonable Shipping Claims
The first element of the FTC delivery Rule focusses not on your delivery efforts, but on what you promise customers before they order. Whether that promise is to deliver the product within a week, two weeks or 30 days, you must have a “reasonable basis” for making the promise. If the text on your site states delivery will occur within 14 business days, but they take three weeks at a minimum – you are violating the Rule.
Importantly, the Rule does not require you promise the shortest possible delivery period. The FTC simply wants to see consumers provided with accurate information they can take it into account when making the decision to purchase or not. If you are shipping delicate products sent via a slow delivery method that takes six to eight weeks, there is no legal issue so long as you clearly notify customers of the fact before they place their order.
What if you fail to clearly display the standard delivery times on your site? Then you are bound by the default time provision of the FTC Rule, which means you have 30 days to deliver the product to the customer.
What exactly is a “reasonable basis” when it comes to promising delivery times to customers? The FTC defines it as follows:
“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:
1. Anticipated demand. Is the demand for each advertised item reasonably anticipated?
2. 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?
3. Fulfillment system. For all promotions in the relevant sales seasons, can the fulfillment system handle the cumulative anticipated demand for all products?
4. Recordkeeping. Are adequate records kept of the key events in each individual transaction to ensure that items can be shipped within the applicable time, as established by the Rule?
Shipping delays are inevitable. The important thing to understand is that these delays do not constitute a violation of the new FTC Rule so long as the business affirmatively acts as follows to:
- Notify the customer of the delay;
- Tell the customer how long the delay is reasonably expected to last;
- Provide the customer with the option of asking for a refund; and
- Immediately honor a refund request.
Importantly, you must obtain affirmative consent from the customer if the delay is more than 30 days. No affirmative consent is necessary for shorter periods.
What if you cannot deliver the order at all such as where the manufacturer has suddenly discontinued the product? You must immediately alert the customer of the fact and refund their money.
In rare instances, a customer order may be delayed a second time. The FTC has set out specific guidelines for this situation as well.
Before we get into the regulations, serious thought needs to be given to how to handle the situation from a practical perspective. At this point, your customer is most likely growing rather unhappy. Alerting them to a second delay is not going to improve their mood, and they may well go to Yelp or various social media sites and post negative reviews of your business. In anticipation of this, it is wise to offer such customers significant “we apologize” incentives such as 25 percent off on other products or tickets to an event in their town. While this may eliminate the profit margin on the order, it tends to keep customers from trashing your business on social media.
As to the second delay itself, the FTC requires you undertake a number of steps. These include:
- Alert the customer to the second delay in writing and offering an immediate refund.
- Provide a new expected delivery date if there is a reasonable basis for doing so.
- Provide a statement indicating a refund will be issued automatically if the new delivery date is not met.
- Provide a means for the customer to contact you to accept the second delay.
The customer must affirmatively agree to the second delay. The failure of the consumer to reply does not act as acceptance of the second delay. You must issue a refund automatically if you receive no response.
If you refund an order, the refund must be for the full amount of the original order. The transaction must return any charged amount to the customer. Store credits, sales offers or product exchanges are not acceptable alternatives.
FTC Civil Penalties
While complying with delivery rules is a smart public relations move, there also exists a financial reason for doing so. The FTC has the authority to pursue unfair and deceptive business practice charges against companies that violate this Rule on a repeated basis. The potential penalties are as high as $16,000 per violation. A case involving 100 alleged violations could thus contain a damage claim of up to 1.6 million dollars. Put another way, it is in your financial interest to handle the delivery of customer orders in a professional and responsible manner.
You work hard to convince consumers to visit and buy products from your business. Why then would throw all that hard work away by taking forever to deliver a customer’s order? Nothing aggravates people more. Be smart – under promise and over deliver. If it typically takes 10 days to deliver your products, suggest it takes 20 on your site. When the customer receives the order much earlier than expected, they will view your business positively and be more likely to return and order from it again. In this way, you can turn the legal obligations associated with this FTC Rule into a positive for your business.
Confused about the various rules and regulations that apply to ecommerce? Contact me for a free consultation to discuss the regulations and how they apply to your business.
Richard A. Chapo, Esq.