Using a Fulfillment House or Drop-Shipper
The FTC staff receives questions from mail or telephone order merchants
who want to know how to comply with the Rule in certain circumstances.
Provided below are commonly-asked questions and staff responses.
Q:
Who is liable for Rule violations caused by a fulfillment house
or drop-shipper?
A:
The seller is. This is because the person soliciting the order,
not the agent fulfilling it, is the seller of mail or telephone order merchandise
under the Rule. The person soliciting the order can control—among other
things—the shipment representations made in soliciting the sale. This should
include the time needed to transmit orders to a fulfillment house and for
the fulfillment house to respond.
However, staff considers the following circumstances when deciding whether
to recommend an enforcement action:
(1) whether the merchant made all reasonable efforts to prevent violations,
including, e.g.,
-
contracting with the fulfillment house to require it to comply with the
Rule (or, at least, require it to promptly inform the merchant of any problems
that could involve the Rule);
-
"seeding" orders with the fulfillment house to monitor its fulfillment
time; and
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monitoring customer complaints for unusual surges.
(2) whether the violations were genuinely unforeseeable and beyond the
merchant's control to prevent;
(3) whether the merchant, from all objective circumstances, did not
know and did not have reason to know of the violations when they occurred;
and,
(4) whether the merchant promptly took all reasonable steps to remedy
the fulfillment, notification, or refund systems failures as soon as it
discovered them, and to remedy any resulting customer injury.
"Bill me" Orders; Sales On Approval
Q:
We offer to ship merchandise ordered by mail or telephone and
to bill the customer later. Are we covered by the Rule?
A:
Whether the transaction is covered by the Rule depends on
whether you bill as part of a credit arrangement made with the customer.
For example, suppose you ship the merchandise under an arrangement where
the customer has an open account or a charge account you have provided,
and the customer authorizes you to charge the account. This is a credit
sale and is covered by the Rule. The customer's authorization to place
a charge on the customer's account meets the Rule's test for coverage that
the order is prepaid and thus properly completed when received by the merchant.
On the other hand, suppose you ship the merchandise along with an invoice
payable upon receipt. This is not a credit or prepaid sale and is not covered
by the Rule. Of course, if you are unreasonably slow in shipping the merchandise
or do not ship in the time you promised, the customer may have the right
under state law to refuse to accept the merchandise.
Q:
Does the Rule cover sales on approval?
A:
No. Sales on approval permit the prospective customer to return
merchandise, usually after a "no obligation" or "free trial" period, even
though it is exactly as represented in the merchant's advertising. These
sales do not require the customer to pay for the order until the merchandise
is received and approved. Because the order is not prepaid with cash, check,
money order, or charge, it cannot be treated as the "receipt of a properly
completed order"—which would trigger the Rule's requirements.
Unordered Merchandise
Whether or not the Rule is involved, in any approval or other sale you
must obtain the customer's prior express agreement to receive the merchandise.
Otherwise the merchandise may be treated as unordered merchandise.
It is unlawful to:
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Send any merchandise by any means without the express request of
the recipient (unless the merchandise is clearly identified as a gift,
free sample, or the like); or,
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Try to obtain payment for or the return of the unordered merchandise.
Merchants who ship unordered merchandise with knowledge that it is unlawful
to do so can be subject to civil penalties of up to $10,000 per violation.
Moreover, customers who receive unordered merchandise are legally entitled
to treat the merchandise as a gift. Using the U.S. mails to ship unordered
merchandise also violates the Postal laws.
Insurance Charges
Q:
What are our responsibilities if we charge to insure delivery?
A:
Instead of directing customers to make claims against the
common carriers who may be responsible for losing merchandise, most merchants
reship for the sake of customer satisfaction. To pay for these reshipment
policies, some merchants ask customers to buy "insurance" or provide it
as an option. By offering insurance, the merchant implicitly represents
that it will honor any claim of nondelivery by providing prompt reshipment.
Or, if reshipment is impossible, a prompt refund. It would be improper
to collect fees from customers for reshipment insurance and not respond
promptly and appropriately to their bona fide claims of loss.
Substitutions
Q:
If a customer orders an item which is backordered, can we substitute
an item of similar or better quality without the customer's consent?
A:
For backorders, the Rule provides only two ways of responding
to a properly completed order for mail or telephone order merchandise:
obtain the customer's agreement to delayed shipment or provide a full and
prompt refund. Unless the customer expressly agrees to the substitution
beforehand, you do not have the option of substituting merchandise that
is materially different from your advertised merchandise. The term "materially
different" means that the merchandise differs in some manner that is likely
to affect the customer's choice of, or conduct regarding, the merchandise.
Any product feature would be deemed material if it is expressly mentioned
or depicted in advertising. Differences in design, style, color, fabric,
or promoted end use also would be deemed material.
Dry-testing
Q:
We want to sell by mail or telephone a product that is not yet
available. What does the Rule require us to do in our advertising for the
product?
A:
The Rule does not address this situation directly. However,
in an advisory opinion, the FTC told a publishing company that it could
"dry-test" its merchandise as long as the following conditions were met:
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In promoting the merchandise, the merchant can make no suggestion that
the merchandise will be shipped or that customers expressing an interest
in it will receive it.
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In all promotional materials, the merchant must disclose all material aspects
of the promotion, including the fact that the merchandise is only planned
and may not be shipped.
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If any part of the promotion is later dropped, the merchant must notify
subscribers of the fact within a reasonable time after soliciting their
subscriptions.
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If, within a reasonable time after soliciting their subscriptions, the
merchant has made no decision to ship the merchandise, it must notify subscribers
of this fact and give them the opportunity to cancel and, where payment
has been made, make a prompt refund.
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The merchant can make no substitutions of any merchandise for that ordered.
Qualifying 30-day or Other Shipment Representations
Q:
In soliciting telephone orders we make no shipment representation,
so the 30-day rule applies. In taking the order, the sales representative
tells the customer that the merchandise will be shipped in 72 hours. Then
we discover that the merchandise cannot be shipped in 72 hours, but can
be shipped within 30 days. Do we have to get the customer's agreement to
a delay?
A:
Yes. The shipment representation you make in negotiating the
sale during the telephone call supersedes any express shipment representation
you made in soliciting the order or, if you made no express shipment representation,
the 30-day shipment time. Your compliance with the Mail or Telephone Order
Merchandise Rule will be determined based upon the 72-hour shipment representation.
Table of Contents
How to Comply
Questions and Answers
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