[Federal Register Volume 72, Number 175 (Tuesday, September 11, 2007)]
[Proposed Rules]
[Pages 51728-51730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-17778]


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FEDERAL TRADE COMMISSION

16 CFR Part 435


Mail or Telephone Order Merchandise

AGENCY:  Federal Trade Commission.

ACTION:  Request for public comments.

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SUMMARY:  The Federal Trade Commission (``FTC'' or ``Commission'') 
requests public comment on the overall costs, benefits, and regulatory 
and economic impact of its Mail or Telephone Order Merchandise Rule 
(``MTOR'' or ``Rule''), as part of the Commission's systematic review 
of all current Commission regulations and guides. The Commission has 
made no determination respecting retention of the Rule. Assuming, for 
the sake of seeking comment, the record supports retaining the Rule, 
the Commission also requests public comment on possible changes to the 
Rule to bring it into conformity with changed market conditions.

DATES:  Comments will be accepted until November 7, 2007.

ADDRESSES:  Interested parties are invited to submit written comments. 
Comments should refer to ``16 CFR Part 435 Comment - Mail or Telephone 
Order Merchandise Rule, Project No. P924214'' to facilitate the 
organization of comments. A comment filed in paper form should include 
this reference both in the text and on the envelope, and should be 
mailed or delivered to the following address: Federal Trade Commission/
Office of the Secretary, Room H-135 (Annex K), 600 Pennsylvania Avenue, 
NW., Washington, DC 20580. Comments containing confidential material, 
however, must be clearly labeled ``Confidential,'' and must comply with 
Commission Rule 4.2(d), 16 CFR 4.2(d).\1\ The FTC is requesting that 
any comment filed in paper form be sent by courier or overnight 
service, if possible, because postal mail in the Washington area and at 
the Commission is subject to delay due to heightened security 
precautions.
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    \1\The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    Comments filed in electronic form should be submitted by following 
the instructions on the web-based form at https://secure.commentworks.com/ftc-MTORComment. To ensure that the Commission 
considers an electronic comment, you must file it on that web-based 
form. You may also visit http://www.regulations.gov to read this 
notice, and may file an electronic comment through that website. The 
Commission will consider all comments that www.regulations.gov forwards 
to it.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at http://www.ftc.gov. As a matter 
of discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT:  Joel N. Brewer, Attorney, Division of 
Enforcement, Bureau of Consumer Protection, Federal Trade Commission, 
Washington, DC, 20580; (202) 326-2967.

SUPPLEMENTARY INFORMATION:

I. Background

    The FTC promulgated the Mail Order Rule (as the Rule was then 
called) in 1975 in response to consumer complaints that many merchants 
had failed to ship merchandise ordered by mail on time, failed to ship 
at all, or failed to provide prompt refunds for unshipped 
merchandise.\2\ A second proceeding in 1993 demonstrated that consumers 
who ordered merchandise by telephone experienced the same delayed 
shipment and refund problems. Accordingly, under authority of Section 
18 of the FTC Act, 15 U.S.C. 57a, the Commission amended the Rule, 
effective March 1, 1994, to cover merchandise ordered by telephone, 
including by telefax or by computer through the use of a modem (e.g., 
Internet sales), and renamed it the ``Mail or Telephone Order 
Merchandise Rule.''\3\
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    \2\40 FR 51582 (Oct. 22, 1975). The FTC initiated the rulemaking 
in 1971 under Section 6(g) of the FTC Act, 15 U.S.C. 46(g), and 
substantially completed the rulemaking when Congress amended the FTC 
Act by adopting Section 18, 15 U.S.C. 57a. By operation of law, the 
Commission treated the Mail Order Rule as having been promulgated 
under authority of Section 18. The Mail Order Rule took effect 
February 2, 1976.
    \3\58 FR 49095 (Sept. 21, 1993).
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    Generally, the MTOR requires a merchant to: (1) have a reasonable 
basis for any express or implied shipment representation made in 
soliciting a sale; (2) ship within the time period promised and, if no 
time period is promised, within 30 days; (3) notify the consumer of, 
and obtain the consumer's consent to, any delay in shipment; and (4) 
make prompt and full refunds when the consumer exercises a cancellation 
option or the merchant is unable to meet the Rule's shipment or 
notification requirements.

II. Changing Conditions

    With changes in technology and commercial practices, some of the 
Rule's provisions may no longer fully achieve the Commission's original 
goals. This section discusses these market changes and possible changes 
in the Rule's language to address them. The Commission has not 
concluded whether the changes discussed in this part are substantive or 
non-substantive, and it seeks comment on this subject.\4\ The first 
such change concerns the uses of

[[Page 51729]]

technologies other than the telephone to access the Internet. The 
second and third changes relate to the growing availability of 
alternative payment and refund methods.
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    \4\Section 18 (a)(2) of the FTC Act, 15 U.S.C. 57a(a)(2), 
provides that in making substantive changes to rules that define 
with specificity unfair or deceptive acts or practices, the 
Commission must follow the procedures set forth in section 18(b)(1), 
15 U.S.C. 57a(b)(1). Section 18(a)(2) also provides that, in making 
non-substantive rules (including interpretive rules) and general 
statements of policy, the Commission need not follow these 
procedures. Thus, the Commission could make non-substantive changes 
in accordance with sections 1.21 et seq. of the Commission's Rules 
of Practice, 16 CFR 1.21 et seq., relating to rules promulgated 
under authority other than section 18(a)(1)(B) of the FTC Act.
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A. Consumer Access To The Internet By Means Other Than The Telephone

    The Rule covers purchases of most merchandise ordered by 
telephone.\5\ Section 435.2(b) of the Rule defines ``telephone'' as 
``any direct or indirect use of the telephone to order merchandise, 
regardless of whether the telephone is activated by, or the language 
used is that of human beings, machines, or both.'' In promulgating this 
definition, the Commission made clear that it intended to cover all 
orders made by computer, including Internet orders.\6\
    The Commission's definition of ``telephone'' accomplished this goal 
because at the time, consumers necessarily accessed the Internet 
through the telephone.\7\ As the Internet became an increasingly 
popular means of ordering merchandise, however, alternative means of 
access (e.g., cable and wireless) replaced some telephone dial-up 
services, blurring the Rule's coverage.
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    \5\See Section 435.1(a)(1). The only exceptions, listed in Part 
435.3, include: (1) subscriptions (other than the initial 
installment); (2) seeds and growing plants; (3) C.O.D. orders; and 
(4) negative option sales covered by 16 CFR Part 425. None of the 
proposed changes would alter these exceptions.
    \6\The Commission noted that rulemaking participants understood 
that the definition of ``telephone'' was meant to ``cover orders 
taken by mechanical means over the phone, orders placed by 
computers, and orders placed by fax transmission.'' 58 FR 49095, 
49113.
    \7\Since then, it appears that many industry members and trade 
associations have treated the Rule as applicable to all orders by 
computer. For example, the Direct Marketing Association (DMA), a 
national trade association for the direct marketing industry, 
advises members that the Rule applies to merchandise ordered by 
computer. See www.the-dma.org/guidlines/30dayrule.
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    Because the Commission intended that the Rule cover all Internet 
ordering, regardless of the consumer's means of access, the Commission 
seeks comment on whether it should propose amending the Rule expressly 
to cover merchandise ordered by computer and/or via the Internet.\8\
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    \8\If the Commission amends the Rule to address this issue, it 
could also change the name of the Rule by adding the words 
``computer'' and/or ``Internet'' to the title, or by replacing it 
with a title used by some industry members, the ``Distance Shopping 
Rule.''
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B. Consumer Payment By Demand Draft, Debit Card, Or Other Means

    Consumers' payments for goods trigger all of the merchants' 
obligations under the Rule. For example, the merchant's obligation to 
ship within the promised time (or within 30 days, if no time is 
promised) begins with its receipt of the consumer's ``properly 
completed order,'' comprised of ``all information needed to process the 
order'' and ``full or partial payment in the proper amount.''\9\
    Moreover, different obligations ensue depending upon whether 
consumers pay by credit card or other means.\10\
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    \9\Section 435.2(d).
    \10\Section 435.1(c) requires the merchant to make a ``prompt 
refund'' under certain circumstances. Section 435.2(f) defines a 
``prompt refund'' depending on whether the buyer paid for the 
merchandise by charging it or paying with cash, check, or money 
order.
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    It is, therefore, important that the Rule clearly delineate which 
payments trigger the merchant's obligations. Unfortunately, the advent 
of new payment methods has created some ambiguity on this issue. This 
ambiguity arises from the Rule's definitions. On the one hand, in 
promulgating Section 435.2(a) of the Rule, the Commission attempted to 
make clear that the Rule applied to all payment methods. Specifically, 
Section 435.2(a) defines ``mail or telephone order sales'' as ``sales 
in which the buyer has ordered merchandise from the seller by mail or 
telephone, regardless of the method of payment . . .'' (emphasis 
added). On the other hand, the definitions of ``receipt of a properly 
completed order,'' ``refund,'' and ``prompt refund,'' only include 
payment by ``cash, check, money order,'' or ``authorization from the 
buyer to charge an existing charge account.'' At the time the 
Commission adopted Section 435.2(a) no potential conflict existed 
because consumers paid for virtually all mail and telephone order 
purchases by the means enumerated in Sections 435.2(d)-(f). Consumers' 
current use of non-enumerated payments systems such as debit cards or 
demand drafts, however, requires the Commission to revisit the issue.
    To effectuate its clear intent as expressed in Section 435.2(a), 
the Commission now seeks comment on whether to propose amending 
Sections 435.2(d) and (e)\11\ to eliminate the phrase ``cash, check, 
money order'' wherever it appears and substitute the words ``other than 
credit.''\12\ This change, however, would not end the inquiry. The MTOR 
creates different responsibilities depending on whether a consumer pays 
by a traditional means (i.e., cash, check, or money order) or by 
credit. For example, Section 435.2(f)(1) provides that the merchant 
must make refunds in the form of cash, check, or money order within 
seven working days of the buyer's right to a refund vesting, while 
Section 435.2(f)(2) provides that the merchant must make credit refunds 
within one billing cycle of the buyer's right to a refund vesting. 
Payment by a new method, such as debit card or a demand draft, does not 
explicitly fall into either category. If the Commission proposes to 
change the Rule, it must determine into which of the two categories the 
new payment methods best fall, or whether they should be placed in a 
third category.
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    \11\Section 435.2(f) incorporates by reference the payment 
methods enumerated in Sections 435.2(d) and (e). Therefore, by 
amending Sections 435.2(d) and (e), the Commission will effectively 
amend Section 435.2(f) as well.
    \12\Thus Section 435.2(e)(1) could read: ```Refund' shall mean: 
(1) Where the buyer tendered full payment for the unshipped 
merchandise in any form other than credit, a return of the amount 
tendered in the form it was tendered.''
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    The Commission could treat these new payment methods in the same 
manner as cash, checks, and money orders. The different time period for 
providing refunds to consumers who have paid with credit is based on 
the unique features of the credit card payment system. Specifically, 
merchants using the credit card payment system use this system to 
reverse charges as well. Their actions can only be realized by 
consumers after at least one billing cycle. In contrast, debit cards 
and demand drafts allow merchants to access consumers' bank accounts in 
the same manner as traditional checks. It, therefore, seems appropriate 
to treat demand drafts and debit cards in the same manner as check 
payment methods.

C. Making Refunds Using Means Other Than First Class Mail

    When it adopted the refund provisions of the Rule in 1975, the 
Commission expressed concern that consumers receive their Rule-required 
refunds ``as soon as possible while not putting an unobtainable or 
unreasonable time constraint on sellers.''\13\ Thus Section 435.2(f)(1) 
requires that merchants subject to the Rule provide refunds (other than 
credit card refunds) by first class mail within seven business days of 
the consumer's right to a refund vesting. More recently, new, 
practicable means of sending refunds at least as quickly and reliably 
as first class mail may have been developed (e.g., electronic funds 
transfer). However, merchants may feel constrained by the language of 
the Rule to use only first class mail for making refunds. Similarly, 
for purchases paid by credit card, Section 435.2(f)(2) provides that 
merchants making refunds must send a credit memorandum to the consumer 
or other notice by first class mail within

[[Page 51730]]

one billing cycle. Appropriate e-mail notification of a charge 
reversal, however, may be just as fast and reliable as providing notice 
by first class mail.
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    \13\40 FR 51582, 51593.
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    It may be appropriate, therefore, for the Rule to allow merchants 
increased flexibility in choosing the means by which they transmit cash 
refunds or notify consumers of charge reversals. The FTC could 
accomplish this change by replacing the words ``first class mail'' with 
the words ``by any means at least as fast and reliable as first class 
mail'' in Sections 435.2(f)(1) and (2). This would make it clear to 
merchants that they could use other means, such as private courier or 
electronic transfer, to provide refunds as long as the means are at 
least as fast and reliable as first class mail. The Commission has no 
basis for believing that such changes would affect current industry 
compliance practice.

III. Possible Renumbering

    To comport with recent rules and to make the Rule easier to 
navigate, the Commission may prefer to organize the Rule by placing its 
definitions first, followed by the Rule's substance. Additionally, the 
Commission may prefer to organize its definitions alphabetically. If 
the Commission decides to retain the Rule, it may propose, therefore, 
to reverse and renumber Sections 435.1 and 435.2, and array each of the 
terms defined in alphabetical order.

IV. Regulatory Review Program

    The Commission has determined to review all current Commission 
rules and guides periodically. These reviews seek information about the 
costs and benefits of the Commission's rules and guides and their 
regulatory and economic impact. The information obtained assists the 
Commission in identifying rules and guides that warrant modification or 
rescission. Therefore, the Commission solicits comment on, among other 
things, the economic impact of the Mail or Telephone Order Merchandise 
Rule; possible conflict between the Rule and state, local, or federal 
laws; and the effect on the Rule of any technological, economic, or 
other industry changes.

V. Request For Comment

    The Commission solicits written public comment on the following 
questions:
    (1) Is there a continuing need for the Rule as currently 
promulgated?
    (2) What costs has the Rule imposed on, and what benefits has the 
Rule provided to, purchasers of merchandise ordered by mail or 
telephone?
    (3) In what respects has the Rule affected the operation of third-
party dispute mediation agencies such as the Better Business Bureau 
(hereafter, ``mediation agencies''), or state law enforcement agencies?
    (4) What costs or benefits would amending the Rule explicitly to 
cover all computer and Internet orders impose on or provide to 
consumers, merchants, mediation agencies, or state law enforcement 
agencies? If the Commission decides to propose such a change, how 
should it revise the text of the Rule?
    (5) What costs or benefits would amending the Rule to refer to 
payment by means other than cash, check, money order, or credit card 
impose on or provide to merchants, consumers, mediation agencies, or 
state law enforcement agencies? If the Commission decides to propose 
such a change, how should it revise the text of the Rule? Should the 
text provide an expanded list of payment methods, general 
classifications of payment methods (such as credit card vs. all other 
methods), or some other alternative?
    (6) What costs or benefits would amending the Rule to permit Rule-
required refunds or notices of charge reversals by means at least as 
fast and reliable as first class mail impose on or provide to 
merchants, consumers, mediation agencies, or state law enforcement 
agencies?
    (7) What changes, if any, should the FTC make to the Rule to 
increase the benefits of the Rule to purchasers? How would these 
changes affect the costs the Rule imposes on firms subject to its 
requirements? How would these changes affect the benefits to 
purchasers?
    (8) What burdens or costs, including costs of compliance, has the 
Rule imposed on firms subject to its requirements? Has the Rule 
provided benefits to such firms? If so, what benefits?
    (9) What changes, if any, should the FTC make to the Rule to reduce 
the burdens or costs imposed on firms subject to its requirements? How 
would these changes affect the benefits provided by the Rule?
    (10) How could any of the changes suggested in Part II of this 
notice be modified to reduce the burdens or costs imposed on firms 
subject to its requirements? How would these modifications affect the 
benefits provided to merchants, consumers, mediation agencies, or state 
law enforcement agencies?
    (11) Does the Rule overlap or conflict with other federal, state, 
or local laws or regulations?
    (12) Would any of the changes to the Rule suggested in Part II of 
this notice overlap or conflict with other federal, state, or local 
laws or regulations?
    (13) Since the FTC issued the Rule in its current form, what 
effects, if any, have changes in relevant technology, commercial 
practices or economic conditions had on the Rule? To what extent would 
the changes to the Rule suggested in Part II of this notice accommodate 
these changes?
    (14) To what extent are the changes discussed in Part II of this 
notice either substantive or non-substantive?
    (15) Should the Commission make any of the changes suggested in 
Part III of this notice?

VI. Communications by Outside Parties to Commissioners or Their 
Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record. See 16 CFR 1.26(b)(5).

List of Subjects in 16 CFR Part 435

    Mail order merchandise, Telephone order merchandise, Trade 
practices.

    Authority: 15 U.S.C. 41-58.

    By direction of the Commission.

Donald S. Clark
Secretary
[FR Doc. E7-17778 Filed 9-10-07: 8:45 am]
BILLING CODE 6750-01-S