1999 was the year that ecommerce broke. It is also the year where ecommerce became the Grinch that stole Christmas. In 1998, ecommerce proved itself as a viable and compelling concept. As won-over companies scrambled to set up their online ventures in 1999, "mistakes were made." Online purchases by consumers who sought to avoid the Eight Ring of Hell - shopping malls - exploded. Some dot-coms were pleasantly surprised. Some were unpleasantly surprised. As automated orders poured in, it became apparent that cyber-Santa might not just be able to slide down the chimney on time - if at all. And while many of their webpages promised delivery by the time chestnuts were roasting on an open fire, it didn't happen. Some companies failed to tell their customers that there was not a snowball chance that they could deliver. Some companies continued to take orders even though they knew they had no inventory or knew they could not timely deliver.
During a peak week in December, ecommerce garnered $1.25 billion in sales. The US Census Bureau measured $5.5 Billion in Ecommerce sales for 4 Quarter 1999 - the first quarter that the US Census kept track. A private study found a 300% increase in revenue over 1998.
Failing to deliver on time for the holidays is one of those industry blunders that makes obsolete the theology of self-regulation. The FTC created a list, checked it twice, and made clear in a blizzard of terms that this was not to happen again. In one action, the FTC hit seven online retails with $1.5 million in fines for their failures to deliver products during the 1999 holiday season.
There is a simple rule that the FTC wants online retails to understand: taking orders and not delivering is bad. Online sales, mail orders, or catalogue sales - it's all the same.
The FTC describes its Mail or Telephone Order Merchandise Rule [16 C.F.R. § 435.1] as follows:
The Rule requires that when you advertise merchandise, you must have a reasonable basis for stating or implying that you can ship within a certain time. If you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days. That is why direct marketers sometimes call this the "30-day Rule."
If, after taking the customer’s order, you learn that you cannot ship within the time you stated or within 30 days, you must seek the customer’s consent to the delayed shipment. If you cannot obtain the customer’s consent to the delay -- either because it is not a situation in which you are permitted to treat the customer’s silence as consent and the customer has not expressly consented to the delay, or because the customer has expressly refused to consent -- you must, without being asked, promptly refund all the money the customer paid you for the unshipped merchandise.
Online merchants who say that they will deliver on a certain date must do so. Online merchants who do not say when they will deliver must do so within 30 days. If they do not, then the consumer gets their money back - sending the goods late does not cut it. If the consumer orders a special gift to be delivered on a Saturday, and it is delivered on a Monday, guess what? It is free.
This puts Online Merchants in the position of thinking twice about delivery representations. They need to have a reasonable basis for those representations. If they do not have the ability to deliver on a specific date, then it would not be reasonable for them to represent that they can.
So if you are an Online Merchant and you cannot deliver, what should you do?
When you learn that you cannot ship on time, you must decide whether you will ever be able to ship the order. If you decide that you cannot, you must promptly cancel the order and make a full refund.
If you decide you can ship the order later, you must seek the customer’s consent to the delay. You may use whatever means you wish to do this -- such as the telephone, fax, mail, or email -- as long as you notify the customer of the delay reasonably quickly. The customer must have sufficient advance notification to make a meaningful decision to consent to the delay or cancel the order.
Some businesses adopt internal deadlines that are earlier than those set by the Rule to ensure that their delay notices give all customers a meaningful opportunity to consent to the delay. If businesses fail to ship or give delay notifications by their internal deadlines, they automatically cancel the orders and make refunds.
In any event, no notification to the customer can take longer than the time you originally promised or, if no time was promised, 30 days. If you cannot ship the order or provide the notice within this time, you must cancel the order and make a prompt refund.
If the online merchant delivers the goods late, the goods are treated as "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:
- 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,
- 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 $11,000 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.
If you are an online consumer, and an online merchant fails to timely deliver, you are due a refund. If the merchant delivers late, you may be entitled to keep the good for free. The merchant may not deliver to you different goods than you ordered (substitute delivery) without your permission.
The FTC has enforcement authority over violations.
Merchants who violate the Rule can be sued by the FTC for injunctive relief, monetary civil penalties of up to $11,000 per violation (any time during the five years preceding the filing of the complaint), and consumer redress (any time during the three years preceding the filing of the complaint).
For more about this rule, see
- FTC Proposes Amendments to Mail or Telephone Order Merchandise Rule to Keep Up With Current Technology and Business Practices, Oct. 3, 2011
- The Rule, issued in 1975, requires that marketers who solicit buyers to order merchandise through mail or telephone must have a reasonable basis to expect that they can ship ordered merchandise within the time frame they advertise, or, if no time frame is specified, within 30 days. The Rule also requires that, when a seller cannot ship within the promised time, the seller must obtain the buyer's consent to a delay in shipping or refund payment for the unshipped merchandise. In 2007, the FTC sought public comment on how the Rule could be amended to address changes in technology and commercial practices. Based on a review of comments received, the FTC has concluded that the Rule continues to benefit consumers and will be retained. In addition, the Commission proposes the following amendments to the Rule:
- Clarify that the Rule covers 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 not spelled out in the Rule, such as debit cards or prepaid gift cards;
- Require that refunds be made within seven working days for purchases that were made using third-party credit, such as Visa or MasterCard cards. For credit sales where the seller is the creditor (such as merchants using their own store charge cards) the refund deadline would remain one billing cycle.
- 16 CFR Part 435: Mail or Telephone Order Merchandise Rule: Final Rule Amendments, File No. P924214
Text of the Federal Register Notice
- 16 CFR Part 435: Mail or Telephone Order Merchandise Rule: Notice of Proposed Rulemaking, File No. P924214
Text of Federal Register Notice