By Daniel Garcia
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We have made it. Stores are beginning to open; customers are lining up to get a fix for their shopping needs, and most importantly, people are going back to work. What does that mean for small business owners? Well, as people head back to work, customers are developing a disposable income again, which means more sales for small business owners. However, many small business owners may have had to shift their market offerings and now have an expanded online customer base --- those who would instead prefer to ship their items to their house. But, do those small business owners know there are requirements when they advertise products to ship to customers? Well, the FTC's Mail, Internet, or Telephone Order Merchandise Trade Regulation does precisely that. Luckily, I have laid out the requirements below.
What is this Regulation?
Yes, the name itself is quite exhausting. However, the regulation's purpose is simple. It aims to protect consumers from unfair or deceptive shipment or refund claims. What exactly does that mean? Simply put, it is meant to deter sellers from advertising products that will be shipped in X amount of days but know they are unable to send the item in that time frame or were dishonest in issuing refunds. The regulation, commonly referred to as the 30-Day rule or Mail Order Rule, advances its purposes by setting a default shipment requirement for when there is no mention of the shipment date, covers the seller's refund obligations, and when sellers must issue refunds. It is important to note that this regulation applies to all businesses in the nation, but states and cities may have separate requirements that go beyond the FTCs. A small business owner may refer to the law firm at the end of this article to receive assistance to comply with any local or state requirements.
What is covered?
The regulation covers items that are sold by mail, via the Internet, or telephone, and will be shipped to consumers. That means if a consumer buys an item on the Internet, using their cell phone or laptop, calls by telephone, or mails in an order, the FTC regulates the shipment of that item. The seller also must have a reasonable basis to expect the item will be shipped by the time stated or if there is no time mentioned within 30 days. Yes, that is why this regulation is regularly called the 30-day rule. The regulation also covers steps businesses must take if they are unable to ship the item within the time stated or if there is no time mentioned within 30 days.
Certain items are excluded from these rules, including:
- Subscriptions, such as magazine sales, that are delivered continuously, after the initial shipment is made.
- Orders of seeds and growing plants.
- Orders made on collect on delivery basis.
When does an order fall under the regulation?
Now that we know the regulation covers shipping, how do we know when the "clock" begins for shipment? The most straightforward answer is when the buyer pays the seller, but some minor details affect when the clock runs. The regulation starts to count the days whenever there is a "properly completed order." To be a "properly complete order," there must be two items: payment and all the information needed to complete the order. Payment can be either for the entire or a portion of the amount due, a charge to the customer's account or any other payment method accepted by the seller. It is important to note a small exception; if a payment method is dishonored (bounced check/denied credit), the "clock" is stopped and resets when the payment is honored or qualifies for the credit.
For example, if a buyer purchases a T-shirt on December 10 with a check and the buyer states the item will ship within four days, and the seller pays and provides all the information needed, the buyer must ship by December 14. However, if the payment method is dishonored and the buyer then pays in cash on December 13, the seller has to ship the item by December 17. If he is unable to ship within that timeline, the follow-up process is detailed below.
There is one exception; "bill me later orders" are not required to comply with the FTC's regulations. These orders are when the seller ships goods without receiving payment beforehand and collect payment after delivery. If the seller sends an item to a buyer along with an invoice requiring payment within 30 days of receipt, these shipping regulations do not apply.
How does this affect small businesses?
Why is this important for small business owners? The pandemic shifted the physical marketplace to a mostly online platform, but it also frustrated shipping not only for consumer businesses but also their suppliers. Small business owners dealt with postponing shipments, providing indefinite shipping times, and all those communications to the consumers may have violated the FTC's regulation. While most business owners may abide by some of the rules by maintaining excellent communication with their customers, do they know that there is a regulation specifying what they exactly have to offer in their communications? Failing to follow the regulations can result in a fine up to $43,280 per violation, but it can also lead to a lack of repeat customers. For example, Fashion Nova recently settled with the FTC to pay $9.3 million by violating the regulations when promising “fast shipping” or “2-day shipping” and issued gift cards when the customers should have received refunds. You can read the article and tips here. Understanding the requirements for small business owners is essential to avoid fines, maintain customers, prepare for any other significant shifts in the market (like increase in shipping), but also prepare as many consumers will move their shopping online.
As stores are beginning to open, many consumers do not feel comfortable returning to a physical store. Salesforce recently conducted a study where 35% of the consumers are not willing to shop in person until there is a vaccine available. In the same study, 44% of consumers moved their shopping online, and 68% expect to continue to buy items online after the pandemic has subsided. Small business owners are going to see more online orders and, as a result, should understand the requirements set by the FTC for shipping. This article will help provide a basis to enable you to navigate those requirements.
Besides, small business owners may not have a classic brick and mortar store and utilize a "drop-shipper" to fulfill their orders and to store their inventory. Is the "drop-shipper" responsible for the delays in shipping? No, the seller is responsible because they are the business soliciting the orders to the consumer. The seller is in the best position to adjust their shipping times to issue correct representations of when the drop-shipper can ship the item.
How does a small business comply with the regulation?
There are five key concepts to understand for a small business to comply with the FTC’s regulation.
What should a business know before shipping?
Before a small business advertises a shipping time, they must consider, on a reasonable basis, if they can ship the item within the time offered in their advertisement or within 30 days if they do not state a time once there has been a properly completed order.
If the buyer is applying for credit from the seller to purchase items from the seller, the seller has an additional 20 days to ship the item. The FTC adds 20 days to process and run a credit check for the prospective buyer. However, this is only if the seller does not give a shipment date; if the seller states he will be ship within 20 days, the additional days do not apply to that timeline. Whatever timeline the seller gives must be on a reasonable basis in which the business owner has estimated the time from a credit check to shipment.
What if you cannot ship within the time stated or 30 days from the order?
Let us assume for whatever reason, like a pandemic, that a business owner is unable to ship their items either by the time promised or the 30-day rule. The FTC has a process that sellers must follow to comply with the regulation. If the seller still wants to ship the item, he must issue a delay notice following these rules:
- Within a reasonable time after he becomes aware that they are unable to ship the item, ask the buyer for consent in delaying the shipment and provide a new shipment date.
- The seller must also offer, without hiding or making it difficult to understand, the buyer an option to cancel their order and receive a prompt refund.
- The seller must also provide a means for the customer to cancel, which can be a toll-free number or website.
- The seller must state that a buyer’s non-response will be consent to the delay, as long as the new shipment date is within 30 days.
For revised shipping dates, the seller must have a reasonable basis for selecting the new shipping date.
What if you don’t know when you can ship the items?
There may be times where the seller is unable to determine when they will be able to ship the items. Especially during pandemics, where the business halts or slows down, small business owners need to know what they have to do. If it is reasonable that the seller cannot provide a new shipping date, maybe their warehouse burned down, they must:
- Offer the buyer all the options mentioned for the first delay notice.
- The reason for the delay.
- If the customer agrees to the indefinite delay, they may cancel at any time before the shipment of the item.
What if you cannot ship the item within the extension period?
If a seller is still unable to ship the items within the revised delivery date after the first notice of delay, the seller may provide a new delay notice to the customer adhering to the same requirements for the first notice. However, there is one significant difference to any renewed delay notices specifying a new delivery date; the customer's non-response will function as consent to the delay. The customer's non-response will serve as a cancelation of the order, and the seller must issue a prompt refund if he is unable to ship the item within the first revised shipping date. Yet, if the customer has agreed to an indefinite shipping date in the first notice, there is no need for a second delay notice since their initial delay notice is still in effect.
When do you have to cancel an order and issue a refund?
A seller must cancel the order and issue a prompt refund when:
- The buyer has not expressly consented to a revised shipment date more than 30 days of the original 30-day shipping requirement or to an indefinite time, and the seller has not shipped the item within the initial 30 days.
- The seller has not and is unable to ship the item within the revised shipping date and has not received the buyer's express consent to a newly revised shipping delay.
- The seller has not offered a new shipment date or delay and has not shipped the items within 30 days.
- The buyer rejects a new delayed shipping date.
- The buyer determined they are unable ever to ship the item.
What is a "prompt refund? It is a refund sent by any means at least as fast and reliable within seven working days of the date, which the buyers have a right to refund. If the seller is not able to provide a refund in the same manner the buyer paid, the seller may issue a refund in the form of a check, cash, or money order. If the seller is the creditor, they must issue a refund as fast and reliable as first-class mail within one (1) billing cycle from the date on which the buyer has the right to a refund.
Ready to ship?
While I have included many of the requirements of the FTC’s regulation, a small business owner should read the entire text to understand the provisions not included in this article. The regulation can be found here. While the text can be complicated, the FTC has also issued an explanation of the requirements here.
Still not sure if a small business is violating shipping regulations or whether past communications are compliant? A small business owner can utilize Wilson Sonsini to help determine if their procedures are compliant. They can also use Legalucy to narrow down any legal issues that you may have regarding this regulation.
Key Take-Away
While many small business owners see the regulation as another requirement they have to jump through to maintain their business, I see it as a client customer satisfaction tool. Maintaining clear communication to keep consumers informed when they are likely to get their product is all effort to keep them happy. A happy consumer means more businesses! Don't see this as boxing small businesses in, but rather boxing in complaints. Happy shipping!
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