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December 5, 2011

FTC Seeks to Regulate Online Merchants With Proposed Changes to Mail Order Rule

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The Federal Trade Commission (FTC) is proposing amendments to the Mail Order Rule that would result in its regulation of all sales made over the Internet regardless of how a buyer might initiate the purchase.

If you’re an online merchant, the ramifications are significant.

The Mail Order Rule

The Mail Order Rule (Rule), actually The Mail or Telephone Order Merchandise Rule, was issued in 1975 and later updated in 1993 for purposes of clarifying a merchant’s obligations regarding shipment of merchandise. The FTC passed the Rule to force merchants to consider and state the time of shipment, or at least to ship within 30 days. That’s why the Rule is often referred to as the “30-Day Rule.”

Under the current Rule, a merchant must have a reasonable basis to expect that they can ship merchandise within he time frame advertised, or at least within 30 days of the sale. If the merchant is not able to ship within the time frame originally promised, or within 30 days if no time frame is promised, the merchant is required to get the customer’s consent to a later ship date or refund the purchase price.

The Rule originally covered mail order and telephone sales. In the early days of the commercialization of the Internet the Rule arguably covered online sales because dial-up modems using telephone lines were construed to be telephone sales. Fast forward to today, and the widespread use of high-speed broadband connections has cast doubt on the applicability of the Rule to most online sales.

The Proposed Changes

Concerned that their regulatory authority over online sales has been compromised by changing technology, the FTC recently proposed 4 changes to the Rule by:

* explicitly stating that it covers all sales placed over the Internet regardless of how the purchaser accesses the Internet;

* allowing merchants to provide refund notices and refunds to purchasers “by any means at least as fast and reliable as first-class mail” which could include notices by courier or email and refunds by electronic funds transfer (the current rule requires that refund notices be sent by first class mail);

* expanding the list of covered payment methods to cover debit cards, prepaid gift cards, and online payment services in general; and

* shortening the maximum allowable refund time to 7 working days for third party credit card purchases, and 1 billing cycle for the merchant’s own credit card sales.

Conclusion

The FTC argues that the “proposed amendments are necessary to remedying unfair and deceptive acts or practices and ensuring that buyers receive timely delivery or timely refunds.”

If you’re an online merchant, it’s recommended that you review your shipping policies and procedures now to make sure they are meeting the proposed new requirements, particularly regarding refunds for credit card purchases to be made within the 7 day limitation.

This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.


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