For many years, the Federal Trade Commission (FTC) has required that sellers who solicit buyers to order merchandise through mail or telephone have a reasonable basis to expect that they can ship ordered merchandise within the time frame they advertise or, if they do not specify a time frame, within 30 days. When a seller cannot ship within the promised time, the FTC's Mail or Telephone Order Merchandise Rule (the Rule) also requires that the seller either obtain the buyer's consent to the shipping delay or refund payment for the unshipped merchandise.
Now, the FTC is seeking to amend the Rule, which was last updated in 1993, in four significant ways. Specifically, the FTC proposes to:
- clarify that the Rule applies to all orders placed over the Internet;
- revise the Rule to allow sellers to provide refunds and refund notices to buyers by any means at least as fast and reliable as first class mail;
- clarify sellers' obligations when buyers use payment methods such as debit cards and prepaid gift cards; and
- require that refunds be made within seven working days for purchases that were made using third party credit, such as Visa, MasterCard, or American Express cards.
INTERNET SALES
The FTC recognizes that because of the proliferation of Internet access by cable, satellite, and other non-telephonic means, many purchases involve access to the Internet using a means other than the telephone. Thus, the FTC is proposing that the Rule expressly cover all Internet order sales, regardless of a consumer's means of access to the Internet.
"FIRST CLASS MAIL" REQUIREMENT
Currently, the Rule requires that sellers send refunds by first class mail. Without identifying the specific methods, the FTC proposes amending the Rule to allow sellers to deliver refunds "by any means at least as fast and reliable as first class mail." This proposal would harmonize the Rule with Regulation Z, which implements the Truth In Lending Act and requires third party credit card refunds to occur "through the card issuer's normal channels for credit statements." The proposed amendment should eliminate any inconsistency between the requirements of the Rule and Regulation Z when the card issuer's normal channel does not include first class mail. Under the FTC's proposal, sellers will have the flexibility to use any refund delivery method they can demonstrate is as fast and as reliable as first class mail.
PAYMENT METHODS
The existing Rule ties sellers' shipment, notification, and refund obligations to payment methods in two categories: (1) cash, check, or money order, and (2) credit. The FTC is proposing a third payment category of "other payment methods," including debit card, prepaid gift card, and payroll card payments, that would require sellers to make prompt refunds of such payments by either reversing the payment or by sending a cash, check, or money order refund. Under this proposal, sellers would be able to use the same payment method as the buyer to refund payments when that is the simplest or least expensive means available.
In addition, where appropriate, sellers could make refunds by cash, check, or money order. The FTC believes that this would provide flexibility where refunding by the original payment method is not possible (e.g., because the buyer has closed his or her debit card account, or the value cannot be returned to the buyer's prepaid gift card) or where cash, a check, or a money order is cheaper or easier (e.g., refunding by wire payment would require a seller to pay wire fees).
SEVEN DAY REQUIREMENT
The FTC proposes amending the "prompt refund" definition to require sellers to provide refunds within seven working days to buyers who purchase with third party credit cards (e.g., Visa, MasterCard, or American Express cards). The FTC's proposal is consistent with current credit card regulations.
Additionally, the refund deadline would remain one billing cycle for credit sales where the seller is the creditor, as when merchants use their own store charge cards; the FTC says that it recognizes the additional burden that would be imposed on seller-creditors if they had to meet a seven working day deadline. Nevertheless, the FTC is seeking comment specifically on whether to require that seller-creditors also meet a seven working day deadline. Comments on that issue, and on any other issue relating to the FTC's proposed changes to the Rule, are due by December 14, 2011.
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