[Federal Register Volume 79, Number 180 (Wednesday, September 17, 2014)]
[Rules and Regulations]
[Pages 55615-55622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22092]


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FEDERAL TRADE COMMISSION

16 CFR Part 435

RIN 3084-AB07


Mail or Telephone Order Merchandise Rule

AGENCY: Federal Trade Commission (``Commission'' or ``FTC'').

ACTION: Final rule.

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SUMMARY: The Commission adopts final amendments to its Trade Regulation 
Rule previously entitled ``Mail or Telephone Order Merchandise,'' 
including revising its name to ``Mail, Internet, or Telephone Order 
Merchandise'' (the ``Rule''). The final Rule is based upon the comments 
received in response to an Advance Notice of Proposed Rulemaking 
(``ANPR''), a Notice of Proposed Rulemaking (``NPRM''), a Staff Report, 
and other information. This document contains the text of the final 
Rule and the Rule's Statement of Basis and Purpose (``SBP''), including 
a Regulatory Analysis.

DATES: The provisions of the final Rule will become effective on 
December 8, 2014.

ADDRESSES: This document is available on the Internet at the 
Commission's Web site, www.ftc.gov. The complete record of this 
proceeding is also available at that Web site.

FOR FURTHER INFORMATION CONTACT: Jock Chung, (202) 326-2984, Attorney, 
Division of Enforcement, Bureau of Consumer Protection, Federal Trade 
Commission, Room CC-9528, 600 Pennsylvania Ave. NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: The final amendments modify the Rule in four 
ways. First, they clarify that the Rule covers all Internet merchandise 
orders, regardless of the method consumers use to access the Internet. 
Second, they permit refunds and refund notices by any means at least as 
fast and reliable as first class mail. Third, they clarify sellers' 
refund obligations for orders using payment methods not specifically 
enumerated in the Rule (``non-enumerated payments''). Finally, they 
require sellers to process any third party credit card refunds by seven 
working days after a buyer's right to a refund vests.

Statement of Basis and Purpose

I. Background

    The Rule prohibits sellers from soliciting mail, Internet, or 
telephone order sales unless they have a reasonable basis to expect 
that they can ship the ordered merchandise within the time stated on 
the solicitation or, if no time is stated, within 30 days. The Rule 
further requires a seller to seek the buyer's consent to the delayed 
shipment when the seller learns that it cannot ship within the time 
stated or, if no time is stated, within 30 days. If the buyer does not 
consent, the seller must promptly refund all money paid for the 
unshipped merchandise.
    The Commission promulgated the Mail Order Merchandise Rule in 1975 
to ensure sellers either shipped mail-ordered merchandise on time or 
offered cancellations and refunds for merchandise.\1\ In 1993, the 
Commission amended the Rule to cover merchandise ordered by telephone 
(including merchandise ordered through the Internet using telephone 
Internet access), and renamed it the Mail or Telephone Order 
Merchandise Rule.\2\
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    \1\ 40 FR 51582 (Nov. 5, 1975).
    \2\ 58 FR 49096 (Sept. 21, 1993).
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    On September 11, 2007, as part of its rule review process,\3\ the 
Commission published a request for public comment,\4\ which also served 
as an ANPR.\5\ It then published an NPRM in 2011.\6\ In April 2013, 
Commission staff issued a Staff Report to the Commission.\7\
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    \3\ The Commission reviews all its rules and guides periodically 
to ensure that they remain relevant. These periodic reviews seek 
information about the costs and benefits of the Commission's rules 
and guides as well as their economic and regulatory impact. The 
information obtained assists the Commission in identifying rules and 
guides that warrant modification or rescission.
    \4\ 72 FR 51728 (Sept. 11, 2007).
    \5\ 15 U.S.C. 57a(b)(2)(A).
    \6\ 76 FR 60765 (Sept. 30, 2011).
    \7\ See Bureau of Consumer Protection, Staff Report to the 
Federal Trade Commission and Proposed Revised Trade Regulation Rule 
(16 CFR Part 435) (Apr. 2013) (``Staff Report''). The Staff Report 
is available at http://www.ftc.gov/os/2013/04/130429mtorstaffreport.pdf. The Commission published a notice in the 
Federal Register announcing the availability of, and seeking comment 
on, the Staff Report. See 78 FR 25908 (May 3, 2013).

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[[Page 55616]]

A. ANPR

    The ANPR requested public comment on the costs, benefits and 
continuing need for the Rule. More specifically, it requested comment 
on the costs and benefits of amending the Rule to: (1) Explicitly cover 
all Internet merchandise orders, (2) permit refunds and refund notices 
by any means at least as fast and reliable as first class mail, and (3) 
specify requirements for making refunds by means other than cash, 
check, money order or credit. After reviewing the comments, the 
Commission concluded that the benefits of the Rule outweighed its 
costs. Consequently, it took two actions on September 30, 2011. First, 
it retained the Rule with minor technical amendments.\8\ Doing so 
provided the public with the immediate benefit of the technical 
amendments. Second, it issued an NPRM with proposals that addressed the 
three specific issues detailed above.\9\
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    \8\ 76 FR 60715 (Sept. 30, 2011). The amendments alphabetized 
the Rule's definitions, and placed the definitions before the 
substantive provisions.
    \9\ 76 FR 60765.
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B. NPRM

    The NPRM proposed four amendments. First, it proposed clarifying 
that the Rule covers all Internet merchandise orders by amending the 
Rule's name, coverage section, and the ``order sales'' definition.\10\ 
Second, it proposed allowing sellers the flexibility to use methods 
other than first class mail to deliver refunds and refund notices.\11\ 
Third, it proposed clarifying sellers' obligations for orders using 
payment methods other than the four specified in the current Rule: 
Cash, check, money order, or credit.\12\ Finally, it proposed amending 
the Rule to require third party credit sale refunds within the same 
seven-working-day period as it proposed for non-enumerated payment 
refunds.\13\
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    \10\ Id. at 60767-60768.
    \11\ Id. at 60768.
    \12\ Id. at 60768-60770.
    \13\ Id. at 60770.
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    In response, the Commission received four comments. Three supported 
the proposed amendments. One advocated eliminating the Rule, but did 
not address any of the proposed amendments.

C. Staff Report

    Pursuant to the Rule amendment process announced in the NPRM, the 
Commission's Bureau of Consumer Protection issued the Staff Report in 
April 2013.\14\ The Staff Report explained the history of the Rule 
amendment proceeding, summarized the issues raised during the various 
notice and comment periods, and addressed comments received in response 
to the NPRM. It recommended that the Commission amend the Rule as 
proposed in the NPRM for the reasons set forth in the NPRM. Staff 
received no comments in response.
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    \14\ See Staff Report, available at http://www.ftc.gov/os/2013/04/130429mtorstaffreport.pdf. See n.7.
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II. Analysis of the Amendments

    To amend the Rule, the Commission must address: (1) The prevalence 
of the acts or practices addressed by the rule; (2) the manner and 
context in which the acts or practices are deceptive or unfair; (3) the 
economic effect of the rule, taking into account the effect on small 
businesses and consumers; and (4) the effect of the rule on state and 
local laws.\15\
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    \15\ Rules of Practice, 16 CFR 1.14(a)(1)(i)-(iv). In addition, 
in accordance with 16 CFR 1.14(a)(1)(v), the regulatory analysis is 
provided at Section VI of this SBP.
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A. Prevalence of Acts or Practices Addressed by the Rule

    In the NPRM, the Commission cited evidence from commenters, 
consumer complaints, and law enforcement actions of shipment and refund 
failures for Internet orders of merchandise.\16\ This evidence 
demonstrates that deceptive and unfair practices remain prevalent in 
merchandise orders via the Internet.
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    \16\ 76 FR at 60767.
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B. Manner and Context in Which the Acts or Practices Are Deceptive or 
Unfair

    A representation, omission, or practice is deceptive if it is 
material and likely to mislead a reasonable consumer.\17\ The 
Commission found when it amended the Rule that reasonable consumers 
expect that merchandise ordered by mail or telephone, including 
merchandise ordered over the Internet using a modem, will be shipped in 
the time expressly represented or, if no time is specified, within 30 
days.\18\ The Commission further found that shipment time is important 
to consumers.\19\ Consequently, the Commission determined that shipment 
time claims imply that the seller has a reasonable basis for expecting 
that it can ship within that time. Such claims are therefore deceptive 
if the seller lacks a reasonable basis for the claims.\20\
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    \17\ Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984).
    \18\ 58 FR at 49105.
    \19\ Id. at 49106.
    \20\ Id. at 49105-06.
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    An act or practice is unfair if it causes substantial injury that 
is not outweighed by offsetting consumer or competitive benefits, and 
that consumers could not reasonably have avoided. The Commission 
determined, in promulgating and amending the Rule, that where a seller 
fails to notify a buyer of shipment delays, that seller unilaterally 
changes the terms of the contract.\21\ The Commission further found 
that unilaterally changing the contract causes substantial injury to 
consumers, who are unable to cancel their orders and purchase the 
merchandise more quickly elsewhere.\22\ Moreover, consumers are unable 
to reasonably avoid this injury, and the harm is not outweighed by any 
corresponding benefits to consumers or merchants.\23\ Consequently, the 
Commission found that failure to offer refunds is unfair.\24\
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    \21\ Id. at 49106.
    \22\ Id.
    \23\ Id.
    \24\ Id.
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C. The Economic Effect of the Rule

    During the Rule amendment proceeding, the Commission solicited 
comment on the economic impact of the Rule, as well as the costs and 
benefits of each proposed amendment. The record demonstrates that the 
final Rule's requirements will continue to protect consumers from 
unfair or deceptive shipment or refund claims, clarify the Rule's 
coverage and refund requirements for non-enumerated payments, and 
minimize sellers' costs, including costs for small businesses, by 
permitting flexibility in the means of transmission and form for 
refunds.

D. The Effect of the Rule on State and Local Laws

    Section 435.3(b) of the final Rule continues to provide that the 
Commission does not intend to preempt action by state or local 
governments or supersede any provisions of any state or local laws, 
except to the extent that they conflict with the Rule. A law does not 
conflict with the Rule if it affords buyers equal or greater 
protection.

[[Page 55617]]

III. The Purposes and Descriptions of the Amendments

A. Clarify the Rule's Coverage

    The amendments clarify that the Rule covers all Internet 
merchandise orders, regardless of the method consumers use to access 
the Internet. When the Commission amended the Rule in 1993 to cover 
Internet merchandise orders made through the telephone, it intended to 
cover all orders placed over the Internet,\25\ which at that time 
required a telephone line to connect. Since that time, new methods of 
Internet access, such as cable access, have taken over the market. This 
leaves an ambiguity about the Rule's Internet coverage. To rectify this 
problem, the amendments expressly cover all Internet access, including 
orders placed over the Internet using shopping applications (known as 
``apps'').
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    \25\ 72 FR at 51729.
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    The final Rule does not cover face-to-face transactions in which a 
seller's representative merely receives product or inventory 
information through the Internet; in such instances, buyers do not 
order merchandise via the Internet.\26\
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    \26\ It does, however, cover merchandise orders placed via the 
Internet, even if the buyer is in the seller's store at the time the 
buyer places the order. For example, the Rule covers a purchase 
where a buyer orders merchandise via the Internet using a smartphone 
while in the seller's store.
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    The record indicates that explicitly covering all Internet order 
sales meets buyers' expectations that their legal protections are 
independent of their means of Internet access. Moreover, there is no 
reason to believe that buyers who access the Internet using a non-
telephonic connection need less protection than those that do so via 
telephonic connection.\27\ Amending the Rule in this manner also is 
consistent with the Commission's longstanding intent that the Rule 
address all Internet merchandise orders.\28\ Furthermore, the amendment 
will not impose new costs on sellers, who cannot distinguish between 
Internet access methods in fulfilling customer orders and who already 
comply with the Rule for all Internet orders.\29\
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    \27\ 76 FR at 60767-60768.
    \28\ Id. See also 72 FR at 51729.
    \29\ Id. at 60768.
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B. Timing and Method of Refunds

    The Rule currently covers all payment methods, but only sets 
explicit requirements when buyers pay by cash, check, money order, or 
credit. Specifically, in these circumstances the Rule requires sellers 
to provide refunds within certain times, using certain methods, 
depending on how consumers originally paid. The amendments address the 
timing of refunds for third party credit transactions, the means of 
delivering refunds, and the timing and method for non-enumerated 
payment refunds.
    First, the amendments alter the time within which sellers must 
provide refunds for third party credit transactions (e.g., Visa or 
MasterCard) from one billing cycle to 7 working days. This change 
should not place any additional burden on sellers because they already 
must comply with Regulation Z, which has a 7 working day refund 
period.\30\ The period for first party cards (e.g., a retailer that 
itself issues the credit card, rather than a separate entity, such as a 
bank or finance company, that issues the credit card for the retailer) 
\31\ remains one billing cycle. The record provides no support for a 
policy change and Reg. Z does not set a specific time period for these 
transactions.\32\
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    \30\ See 12 CFR 1026.12(e). In this situation, the credit card 
issuer then has 3 working days after receipt of the refund to credit 
the account.
    \31\ The credit agreement usually reveals who in fact is the 
card issuer.
    \32\ Reg Z requires that creditors (which includes sellers that 
are creditors, among others) must refund credit balances following 
specific timing requirements, in certain circumstances. This 
includes when a credit balance is on the account and a consumer 
makes a written request for a refund. 12 CFR 1026.11(a)(2). In the 
circumstances described, creditors must comply with Reg Z's stricter 
timing requirements.
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    Second, the amendments allow increased flexibility by permitting 
refund deliveries by any means that is at least as fast and reliable as 
first class mail for all payment methods. This change should provide 
sellers with the authority to deliver refunds by cheaper and more 
convenient means, if available, and thus provide buyers with quicker 
refunds.
    Third, for non-enumerated payment methods, the amendments address 
both the means and timing of refunds. The amendments provide 
alternative methods for making refunds when consumers pay by non-
enumerated means: (1) Sellers can always use cash, checks or money 
orders; or (2) they can use the same method as that used by the buyer. 
Additionally, the amendments make clear that sellers must provide 
refunds within 7 working days when a buyer uses a non-enumerated 
payment method. These changes harmonize the rules for refunding 
enumerated and non-enumerated payments, thus simplifying compliance.

IV. Section-by-Section Analysis of Amendments to Part 435

A. Title of Part 435

    The amendments insert the term ``Internet'' into the Rule's title 
to clarify that it covers all sales in which the buyer has ordered 
merchandise via the Internet.

B. Section 435.1: Definitions

    The final Rule begins with a list of defined terms in alphabetical 
order. The final Rule contains amendments to four of those definitions.
1. Section 435.1(a): Mail, Internet, or telephone order sales
    Section 435.1(a), previously the definition for ``Mail or telephone 
order sales,'' is amended to become the definition for ``Mail, 
Internet, or telephone order sales.'' The term ``via the Internet'' is 
inserted to clarify that the final Rule covers all sales in which the 
buyer has ordered merchandise via the Internet.
2. Section 435.1(b): Prompt refund
    Section 435.1(b) sets time periods and specifies transmission 
methods for making refunds. Section 435.1(b)(1) is amended by:
     Inserting a reference to Section 435.1(d)(2)(ii), which 
sets refund requirements for third party credit sales, i.e., credit 
sales where a third party is the creditor. This reference requires 
sellers to send refunds for third party credit sales within seven 
working days of a buyer's right to a refund vesting. Setting the same 
prompt refund requirements for third party credit sales and non-
enumerated payment sales limits the need for sellers to distinguish 
between different types of card payments.
     Inserting a reference to new Section 435.1(d)(3), which 
sets refund requirements for non-enumerated payments. This reference 
requires sellers to send refunds for non-enumerated payments within 7 
working days of a buyer's right to a refund vesting, the same time 
period as for third party credit sales.
     Inserting ``any means at least as fast and reliable as'' 
before ``first class mail'' to permit sellers the flexibility to make 
refunds by alternate means.
     Inserting the following text to set the time period for a 
refund and permit a seller the flexibility to make refunds by alternate 
means where it has discovered that it cannot provide a refund by the 
same method as payment was tendered:
    ``Provided, however, that where the seller cannot provide a refund 
by the

[[Page 55618]]

same method payment was tendered, prompt refund shall mean a refund 
sent in the form of cash, check, or money order, by any means at least 
as fast and reliable as first class mail, within seven (7) working days 
of the date on which the seller discovers it cannot provide a refund by 
the same method as payment was tendered.''
    Section 435.1(b)(2) sets time periods and specifies transmission 
methods for refunds for credit payments where the seller is the 
creditor. It is amended by inserting ``any means at least as fast and 
reliable as'' before ``first class mail'' to permit sellers the 
flexibility to make refunds by alternate means.
    The final Rule deletes ``to the buyer'' from Sections 435.1(b)(1) 
and (2) and moves this text to the definition for Refunds, Section 
435.1(d). This amendment consolidates the Rule's specifications for 
refund recipients in the definition for Refunds, Section 435.1(d).
3. Section 435.1(c): Receipt of a properly completed order
    Section 435.1(c) establishes the starting point for calculating the 
time by which sellers must ship orders, notify consumers of shipment 
delays, offer to cancel orders, or make refunds. It is amended by:
     Inserting ``or other payment methods'' to the list of 
payment methods. This amendment sets the starting point for calculating 
requirements for covered merchandise orders that use non-enumerated 
payments.
     Substituting ``a payment by means other than cash or 
credit as'' in place of ``the check or money order'' in Sections 
435.1(c) and 435.1(c)(1). This amendment expands the previous 
requirement for sellers that receive notice of dishonored checks or 
money orders to include sellers that receive notice of dishonored non-
enumerated payments.
4. Section 435.1(d): Refunds
    Section 435.1(d) prescribes payment methods for refunds. As 
amended, it also prescribes the recipients for refunds.
    Section 435.1(d)(1) specifies refund requirements for cash, check, 
or money order payments. It is amended by inserting ``sent to the 
buyer.'' This moves the requirement that sellers send refunds for this 
type of payment to the buyer from Section 435.1(b)(1).
    Section 435.1(d)(2) specifies refund requirements for credit sales. 
It is amended by:
     Inserting ``sent to the buyer'' into Section 
435.1(d)(2)(i) to specify the recipient for refunds where the seller is 
a creditor. This moves the requirement that sellers send refunds for 
credit payments where the seller is a creditor to buyers from Section 
435.1(b)(2).
     In Section 435.1(d)(2)(ii), deleting ``a copy of'' and 
inserting ``and a copy of the credit memorandum or the like sent to the 
buyer that includes the date that the seller sent the credit memorandum 
or the like to the third party creditor and the amount of the charge to 
be removed.'' This amendment now makes explicit the previously implicit 
requirement that sellers must send a credit memorandum or the like to 
the third party creditor.\33\ It also moves the requirement that 
sellers send refunds to buyers for credit payments where a third party 
is the creditor from Section 435.1(b)(2).
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    \33\ 76 FR at 60770 n. 35. The Rule previously required the 
seller to send the buyer ``a copy of an appropriate credit 
memorandum or the like to the third party creditor,'' which 
implicitly required the seller to send an original credit memorandum 
to the third party creditor.
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     In Section 435.1(d)(2)(iii), adding ``sent to the buyer.'' 
This moves the requirement that sellers send refunds to the buyer for 
credit sales where partial payment is made by cash, check, or money 
order from Section 435.1(b)(1).
    Section 435.1(d)(3) is a new section that specifies refund 
requirements for non-enumerated payment sales. It permits sellers to 
use the same payment method as the buyer to refund non-enumerated 
payments when that is the simplest or cheapest means available. In 
addition, where appropriate, sellers can make refunds by cash, check, 
or money order. This provides flexibility where refunding: (1) By the 
original payment method is not possible (e.g., because the buyer has 
closed his or her debit card account, or value cannot be returned to 
the buyer's prepaid gift card); or (2) by cash, check, or money order 
is cheaper or easier (e.g., refunding by wire payment would require a 
seller to pay wire fees).
    Section 435.1(d)(3)(iii) specifies that where a seller has not yet 
accessed a buyer's funds, a seller can simply notify the buyer that it 
has cancelled the order.

C. Section 435.2 The Rule

    The title and preamble to Section 435.2 and preamble to Section 
435.2(a)(1) are amended by inserting ``Internet'' and ``via the 
Internet'' to clarify that the Rule covers all Internet merchandise 
orders.

V. Paperwork Reduction Act

    The Rule contains various information collection requirements for 
which the Commission has obtained clearance under the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq. (``PRA''), Office of Management 
and Budget (``OMB'') Control Number 3084-0106. OMB renewed 3-year PRA 
clearance for the Rule on April 15, 2013, effective through April 30, 
2016.
    As discussed above, the Commission is making a limited number of 
amendments designed to clarify the Rule and provide sellers with 
methods for satisfying the Rule's refund requirements. As described 
above, to the extent that the amendments expand the Rule's coverage, 
they do so in a way that will not result in significantly higher costs 
because sellers generally have already aligned their practices with the 
amendments.\34\
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    \34\ 76 FR 60772.
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    In the Commission's view, there are no additional ``collection of 
information'' requirements included in the amendments to submit to OMB 
for clearance under the PRA. Consequently, the amendments will not 
affect the PRA ``burden'' associated with the Rule's requirements.

VI. Regulatory Analysis and Regulatory Flexibility Act Requirements

    Under Section 22 of the FTC Act, 15 U.S.C. 57b-3, the Commission 
must issue a regulatory analysis for a proceeding to amend a rule only 
when it: (1) Estimates that the amendment will have an annual effect on 
the national economy of $100 million or more; (2) estimates that the 
amendment will cause a substantial change in the cost or price of 
certain categories of goods or services; or (3) otherwise determines 
that the amendment will have a significant effect upon covered entities 
or upon consumers. The Commission has determined that the final Rule 
will not have such effects on the national economy; on the cost of 
ordering merchandise by mail, telephone, or over the Internet; or on 
covered parties or consumers. The record indicates that sellers already 
treat Internet orders in the same manner as mail or telephone orders 
and that they do not charge buyers until the time of shipment, so the 
amendments generally will not require sellers to alter their behavior 
and would not impose additional costs on most sellers. As noted in the 
Paperwork Reduction Act discussion above, the Commission estimates each 
business affected by the final Rule will likely incur only minimal 
compliance costs, if any.
    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires that the Commission conduct an analysis of the anticipated 
economic impact of the

[[Page 55619]]

amendments on small entities. The purpose of a regulatory flexibility 
analysis is to ensure that an agency consider the impacts on small 
entities and examine regulatory alternatives that could achieve the 
regulatory purpose while minimizing burdens on small entities. Section 
605 of the RFA, 5 U.S.C. 605, provides that such an analysis is not 
required if the agency head certifies that the regulatory action will 
not have a significant economic impact on a substantial number of small 
entities.
    The Commission believes that the amendments will not have a 
significant economic impact upon small entities, although it may affect 
a substantial number of small businesses. Specifically, the amendments 
are limited and designed to clarify the Rule and define for sellers how 
to satisfy the Rule's refund requirement. In the Commission's view, the 
amendments will not have a significant or disproportionate impact on 
the costs of small entities that solicit orders for merchandise to be 
ordered through the mail, by telephone, or via the Internet. To the 
extent that the amendments expand the Rule's coverage, they do so in a 
way that will not result in significantly higher costs because sellers 
generally have already aligned their practices with the amendments in 
the final Rule. Specifically, expanding the Rule to clarify its 
application to all Internet merchandise orders will not result in 
significantly higher costs as the record indicates that sellers 
currently treat all Internet orders as being subject to the Rule. 
Moreover, defining the timing and method of refunding non-enumerated 
payment methods should not have a significant cost impact on small 
entities because sellers typically do not access buyer funds until 
merchandise shipment, and thus there are only a limited number of 
refunds issued. For the same reason, requiring refunds for third party 
credit sales within 7 working days should not have a significant impact 
on small entities. Therefore, based on available information, the 
Commission believes that the final Rule will not have a significant 
economic impact on a substantial number of small businesses, and this 
document serves as notice to the Small Business Administration of the 
agency's certification of no significant impact.
    Although the Commission certifies under the RFA that the amendments 
will not have a significant impact on a substantial number of small 
entities, the Commission has determined, nonetheless, that it is 
appropriate to publish a Final Regulatory Flexibility Analysis in order 
to address the impact of the final Rule on small entities. Therefore, 
the Commission has prepared the following analysis:

A. Need for and Objectives of the Amendments

    Based upon the record, including public comments, the Commission is 
amending the Rule to respond to the development of new technologies and 
changed commercial practices.
    The objective of the amendments is to clarify that the Rule covers 
all Internet merchandise orders, 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 under the Rule for sales 
made using payment methods not specifically enumerated in the Rule, and 
require sellers to process any third party credit card refund within 7 
working days of a buyer's right to a refund vesting. The legal basis 
for the amendments is Section 18 of the FTC Act, 15 U.S.C. 57a, which 
authorizes the Commission to promulgate, modify, and repeal trade 
regulation rules that define with specificity acts or practices in or 
affecting commerce that are unfair or deceptive within the meaning of 
Section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).

B. Significant Issues Raised in Public Comments

    None of the comments disputed the Initial Regulatory Flexibility 
Analysis in the NPRM. The Small Business Administration did not submit 
comments.

C. Small Entities to Which the Amendments Will Apply

    Under the Small Business Size Standards issued by the Small 
Business Administration, Mail-Order Houses qualify as small businesses 
if their sales are less than $35.5 million annually. The Commission 
estimates that the amendments will not have a significant impact on 
small businesses because, according to the record, sellers already 
comply in many respects with the requirements of the amendments.

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements, Including Classes of Covered Small Entities and 
Professional Skills Needed To Comply

    The Rule currently does not have any reporting or recordkeeping 
requirements. The Commission does not anticipate the final Rule to have 
any additional reporting or record keeping requirements. As explained 
earlier in this document, the amendments clarify that the Rule covers 
all Internet merchandise sales regardless of how buyers access the 
Internet, allows sellers to provide refunds and refund notices by means 
at least as fast and reliable as first class mail, and clarifies 
sellers' obligations under the Rule for sales made using non-enumerated 
payment methods. The small entities potentially covered by these 
amendments include all such entities subject to the Rule. The 
professional skills necessary for compliance with the amendments 
include clerical personnel.

E. Significant Alternatives to the Final Rule

    The Commission has not proposed any specific small entity exemption 
or other significant alternatives, as the amendments simply clarify the 
scope of the Rule (i.e., Internet sales), provide additional compliance 
options (e.g., for refunds and refund notices), and require certain 
actions (e.g., refunds) consistent with the Rule's previous 
requirements. Under these limited circumstances, the Commission does 
not believe a special exemption for small entities or significant 
compliance alternatives are necessary or appropriate to minimize the 
compliance burden, if any, on small entities while achieving the 
intended purposes of the Rule. Furthermore, the compliance alternatives 
incorporated into the Rule benefit all covered entities.

List of Subjects in 16 CFR Part 435

    Internet order merchandise, Mail order merchandise, Telephone order 
merchandise, Trade practices.

    For the reasons set forth in the preamble, the Federal Trade 
Commission revises 16 CFR part 435 to read as follows:

PART 435--MAIL, INTERNET, OR TELEPHONE ORDER MERCHANDISE

Sec.
435.1 Definitions.
435.2 Mail, Internet, or telephone order sales.
435.3 Limited applicability.


    Authority: 15 U.S.C. 57a.


Sec.  435.1  Definitions.

    For purposes of this part:
    (a) Mail, Internet, or telephone order sales shall mean sales in 
which the buyer has ordered merchandise from the seller by mail, via 
the Internet, or by telephone, regardless of the method of payment or 
the method used to solicit the order.
    (b) Prompt refund shall mean:
    (1) Where a refund is made pursuant to paragraph (d)(1), 
(d)(2)(ii), (d)(2)(iii), or (d)(3) of this section, a refund sent by

[[Page 55620]]

any means at least as fast and reliable as first class mail within 
seven (7) working days of the date on which the buyer's right to refund 
vests under the provisions of this part. Provided, however, that where 
the seller cannot provide a refund by the same method payment was 
tendered, prompt refund shall mean a refund sent in the form of cash, 
check, or money order, by any means at least as fast and reliable as 
first class mail, within seven (7) working days of the date on which 
the seller discovers it cannot provide a refund by the same method as 
payment was tendered;
    (2) Where a refund is made pursuant to paragraph (d)(2)(i) of this 
section, a refund sent by any means at least as fast and reliable as 
first class mail within one (1) billing cycle from the date on which 
the buyer's right to refund vests under the provisions of this part.
    (c) Receipt of a properly completed order shall mean, where the 
buyer tenders full or partial payment in the proper amount in the form 
of cash, check, or money order; authorization from the buyer to charge 
an existing charge account; or other payment methods, the time at which 
the seller receives both said payment and an order from the buyer 
containing all of the information needed by the seller to process and 
ship the order. Provided, however, that where the seller receives 
notice that a payment by means other than cash or credit as tendered by 
the buyer has been dishonored or that the buyer does not qualify for a 
credit sale, receipt of a properly completed order shall mean the time 
at which:
    (1) The seller receives notice that a payment by means other than 
cash or credit in the proper amount tendered by the buyer has been 
honored;
    (2) The buyer tenders cash in the proper amount; or
    (3) The seller receives notice that the buyer qualifies for a 
credit sale.
    (d) Refund shall mean:
    (1) Where the buyer tendered full payment for the unshipped 
merchandise in the form of cash, check, or money order, a return of the 
amount tendered in the form of cash, check, or money order sent to the 
buyer;
    (2) Where there is a credit sale:
    (i) And the seller is a creditor, a copy of a credit memorandum or 
the like or an account statement sent to the buyer reflecting the 
removal or absence of any remaining charge incurred as a result of the 
sale from the buyer's account;
    (ii) And a third party is the creditor, an appropriate credit 
memorandum or the like sent to the third party creditor which will 
remove the charge from the buyer's account and a copy of the credit 
memorandum or the like sent to the buyer that includes the date that 
the seller sent the credit memorandum or the like to the third party 
creditor and the amount of the charge to be removed, or a statement 
from the seller acknowledging the cancellation of the order and 
representing that it has not taken any action regarding the order which 
will result in a charge to the buyer's account with the third party;
    (iii) And the buyer tendered partial payment for the unshipped 
merchandise in the form of cash, check, or money order, a return of the 
amount tendered in the form of cash, check, or money order sent to the 
buyer.
    (3) Where the buyer tendered payment for the unshipped merchandise 
by any means other than those enumerated in paragraph (d)(1) or (2) of 
this section:
    (i) Instructions sent to the entity that transferred payment to the 
seller instructing that entity to return to the buyer the amount 
tendered in the form tendered and a statement sent to the buyer setting 
forth the instructions sent to the entity, including the date of the 
instructions and the amount to be returned to the buyer; or
    (ii) A return of the amount tendered in the form of cash, check, or 
money order sent to the buyer; or
    (iii) A statement from the seller sent to the buyer acknowledging 
the cancellation of the order and representing that the seller has not 
taken any action regarding the order which will access any of the 
buyer's funds.
    (e) Shipment shall mean the act by which the merchandise is 
physically placed in the possession of the carrier.
    (f) Telephone refers to 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.
    (g) The time of solicitation of an order shall mean that time when 
the seller has:
    (1) Mailed or otherwise disseminated the solicitation to a 
prospective purchaser;
    (2) Made arrangements for an advertisement containing the 
solicitation to appear in a newspaper, magazine or the like or on radio 
or television which cannot be changed or cancelled without incurring 
substantial expense; or
    (3) Made arrangements for the printing of a catalog, brochure or 
the like which cannot be changed without incurring substantial expense, 
in which the solicitation in question forms an insubstantial part.


Sec.  435.2  Mail, Internet, or telephone order sales.

    In connection with mail, Internet, or telephone order sales in or 
affecting commerce, as ``commerce'' is defined in the Federal Trade 
Commission Act, it constitutes an unfair method of competition, and an 
unfair or deceptive act or practice for a seller:
    (a)(1) To solicit any order for the sale of merchandise to be 
ordered by the buyer through the mail, via the Internet, or by 
telephone unless, at the time of the solicitation, the seller has a 
reasonable basis to expect that it will be able to ship any ordered 
merchandise to the buyer:
    (i) Within that time clearly and conspicuously stated in any such 
solicitation; or
    (ii) If no time is clearly and conspicuously stated, within thirty 
(30) days after receipt of a properly completed order from the buyer. 
Provided, however, where, at the time the merchandise is ordered the 
buyer applies to the seller for credit to pay for the merchandise in 
whole or in part, the seller shall have fifty (50) days, rather than 
thirty (30) days, to perform the actions required in this paragraph 
(a)(1)(ii).
    (2) To provide any buyer with any revised shipping date, as 
provided in paragraph (b) of this section, unless, at the time any such 
revised shipping date is provided, the seller has a reasonable basis 
for making such representation regarding a definite revised shipping 
date.
    (3) To inform any buyer that it is unable to make any 
representation regarding the length of any delay unless:
    (i) The seller has a reasonable basis for so informing the buyer; 
and
    (ii) The seller informs the buyer of the reason or reasons for the 
delay.
    (4) In any action brought by the Federal Trade Commission, alleging 
a violation of this part, the failure of a respondent-seller to have 
records or other documentary proof establishing its use of systems and 
procedures which assure the shipment of merchandise in the ordinary 
course of business within any applicable time set forth in this part 
will create a rebuttable presumption that the seller lacked a 
reasonable basis for any expectation of shipment within said applicable 
time.
    (b)(1) Where a seller is unable to ship merchandise within the 
applicable time set forth in paragraph (a)(1) of this section, to fail 
to offer to the buyer, clearly and conspicuously and without prior 
demand, an option either to consent to a delay in shipping or to cancel 
the buyer`s order and receive a prompt refund. Said offer shall be made

[[Page 55621]]

within a reasonable time after the seller first becomes aware of its 
inability to ship within the applicable time set forth in paragraph 
(a)(1) of this section, but in no event later than said applicable 
time.
    (i) Any offer to the buyer of such an option shall fully inform the 
buyer regarding the buyer's right to cancel the order and to obtain a 
prompt refund and shall provide a definite revised shipping date, but 
where the seller lacks a reasonable basis for providing a definite 
revised shipping date the notice shall inform the buyer that the seller 
is unable to make any representation regarding the length of the delay.
    (ii) Where the seller has provided a definite revised shipping date 
which is thirty (30) days or less later than the applicable time set 
forth in paragraph (a)(1) of this section, the offer of said option 
shall expressly inform the buyer that, unless the seller receives, 
prior to shipment and prior to the expiration of the definite revised 
shipping date, a response from the buyer rejecting the delay and 
cancelling the order, the buyer will be deemed to have consented to a 
delayed shipment on or before the definite revised shipping date.
    (iii) Where the seller has provided a definite revised shipping 
date which is more than thirty (30) days later than the applicable time 
set forth in paragraph (a)(1) of this section or where the seller is 
unable to provide a definite revised shipping date and therefore 
informs the buyer that it is unable to make any representation 
regarding the length of the delay, the offer of said option shall also 
expressly inform the buyer that the buyer's order will automatically be 
deemed to have been cancelled unless:
    (A) The seller has shipped the merchandise within thirty (30) days 
of the applicable time set forth in paragraph (a)(1) of this section, 
and has received no cancellation prior to shipment; or
    (B) The seller has received from the buyer within thirty (30) days 
of said applicable time, a response specifically consenting to said 
shipping delay. Where the seller informs the buyer that it is unable to 
make any representation regarding the length of the delay, the buyer 
shall be expressly informed that, should the buyer consent to an 
indefinite delay, the buyer will have a continuing right to cancel the 
buyer's order at any time after the applicable time set forth in 
paragraph (a)(1) of this section by so notifying the seller prior to 
actual shipment.
    (iv) Nothing in this paragraph shall prohibit a seller who 
furnishes a definite revised shipping date pursuant to paragraph 
(b)(1)(i) of this section, from requesting, simultaneously with or at 
any time subsequent to the offer of an option pursuant to paragraph 
(b)(1) of this section, the buyer's express consent to a further 
unanticipated delay beyond the definite revised shipping date in the 
form of a response from the buyer specifically consenting to said 
further delay. Provided, however, that where the seller solicits 
consent to an unanticipated indefinite delay the solicitation shall 
expressly inform the buyer that, should the buyer so consent to an 
indefinite delay, the buyer shall have a continuing right to cancel the 
buyer's order at any time after the definite revised shipping date by 
so notifying the seller prior to actual shipment.
    (2) Where a seller is unable to ship merchandise on or before the 
definite revised shipping date provided under paragraph (b)(1)(i) of 
this section and consented to by the buyer pursuant to paragraph 
(b)(1)(ii) or (iii) of this section, to fail to offer to the buyer, 
clearly and conspicuously and without prior demand, a renewed option 
either to consent to a further delay or to cancel the order and to 
receive a prompt refund. Said offer shall be made within a reasonable 
time after the seller first becomes aware of its inability to ship 
before the said definite revised date, but in no event later than the 
expiration of the definite revised shipping date. Provided, however, 
that where the seller previously has obtained the buyer's express 
consent to an unanticipated delay until a specific date beyond the 
definite revised shipping date, pursuant to paragraph (b)(1)(iv) of 
this section or to a further delay until a specific date beyond the 
definite revised shipping date pursuant to paragraph (b)(2) of this 
section, that date to which the buyer has expressly consented shall 
supersede the definite revised shipping date for purposes of paragraph 
(b)(2) of this section.
    (i) Any offer to the buyer of said renewed option shall provide the 
buyer with a new definite revised shipping date, but where the seller 
lacks a reasonable basis for providing a new definite revised shipping 
date, the notice shall inform the buyer that the seller is unable to 
make any representation regarding the length of the further delay.
    (ii) The offer of a renewed option shall expressly inform the buyer 
that, unless the seller receives, prior to the expiration of the old 
definite revised shipping date or any date superseding the old definite 
revised shipping date, notification from the buyer specifically 
consenting to the further delay, the buyer will be deemed to have 
rejected any further delay, and to have cancelled the order if the 
seller is in fact unable to ship prior to the expiration of the old 
definite revised shipping date or any date superseding the old definite 
revised shipping date. Provided, however, that where the seller offers 
the buyer the option to consent to an indefinite delay the offer shall 
expressly inform the buyer that, should the buyer so consent to an 
indefinite delay, the buyer shall have a continuing right to cancel the 
buyer's order at any time after the old definite revised shipping date 
or any date superseding the old definite revised shipping date.
    (iii) Paragraph (b)(2) of this section shall not apply to any 
situation where a seller, pursuant to the provisions of paragraph 
(b)(1)(iv) of this section, has previously obtained consent from the 
buyer to an indefinite extension beyond the first revised shipping 
date.
    (3) Wherever a buyer has the right to exercise any option under 
this part or to cancel an order by so notifying the seller prior to 
shipment, to fail to furnish the buyer with adequate means, at the 
seller's expense, to exercise such option or to notify the seller 
regarding cancellation.
    (4) Nothing in paragraph (b) of this section shall prevent a 
seller, where it is unable to make shipment within the time set forth 
in paragraph (a)(1) of this section or within a delay period consented 
to by the buyer, from deciding to consider the order cancelled and 
providing the buyer with notice of said decision within a reasonable 
time after it becomes aware of said inability to ship, together with a 
prompt refund.
    (c) To fail to deem an order cancelled and to make a prompt refund 
to the buyer whenever:
    (1) The seller receives, prior to the time of shipment, 
notification from the buyer cancelling the order pursuant to any 
option, renewed option or continuing option under this part;
    (2) The seller has, pursuant to paragraph (b)(1)(iii) of this 
section, provided the buyer with a definite revised shipping date which 
is more than thirty (30) days later than the applicable time set forth 
in paragraph (a)(1) of this section or has notified the buyer that it 
is unable to make any representation regarding the length of the delay 
and the seller:
    (i) Has not shipped the merchandise within thirty (30) days of the 
applicable time set forth in paragraph (a)(1) of this section, and
    (ii) Has not received the buyer's express consent to said shipping 
delay within said thirty (30) days;
    (3) The seller is unable to ship within the applicable time set 
forth in paragraph (b)(2) of this section, and has

[[Page 55622]]

not received, within the said applicable time, the buyer's consent to 
any further delay;
    (4) The seller has notified the buyer of its inability to make 
shipment and has indicated its decision not to ship the merchandise;
    (5) The seller fails to offer the option prescribed in paragraph 
(b)(1) of this section and has not shipped the merchandise within the 
applicable time set forth in paragraph (a)(1) of this section.
    (d) In any action brought by the Federal Trade Commission, alleging 
a violation of this part, the failure of a respondent-seller to have 
records or other documentary proof establishing its use of systems and 
procedures which assure compliance, in the ordinary course of business, 
with any requirement of paragraph (b) or (c) of this section will 
create a rebuttable presumption that the seller failed to comply with 
said requirement.


Sec.  435.3  Limited applicability.

    (a) This part shall not apply to:
    (1) Subscriptions, such as magazine sales, ordered for serial 
delivery, after the initial shipment is made in compliance with this 
part;
    (2) Orders of seeds and growing plants;
    (3) Orders made on a collect-on-delivery (C.O.D.) basis;
    (4) Transactions governed by the Federal Trade Commission`s Trade 
Regulation Rule entitled ``Use of Prenotification Negative Option 
Plans,'' 16 CFR Part 425.
    (b) By taking action in this area:
    (1) The Federal Trade Commission does not intend to preempt action 
in the same area, which is not inconsistent with this part, by any 
State, municipal, or other local government. This part does not annul 
or diminish any rights or remedies provided to consumers by any State 
law, municipal ordinance, or other local regulation, insofar as those 
rights or remedies are equal to or greater than those provided by this 
part. In addition, this part does not supersede those provisions of any 
State law, municipal ordinance, or other local regulation which impose 
obligations or liabilities upon sellers, when sellers subject to this 
part are not in compliance therewith.
    (2) This part does supersede those provisions of any State law, 
municipal ordinance, or other local regulation which are inconsistent 
with this part to the extent that those provisions do not provide a 
buyer with rights which are equal to or greater than those rights 
granted a buyer by this part. This part also supersedes those 
provisions of any State law, municipal ordinance, or other local 
regulation requiring that a buyer be notified of a right which is the 
same as a right provided by this part but requiring that a buyer be 
given notice of this right in a language, form, or manner which is 
different in any way from that required by this part. In those 
instances where any State law, municipal ordinance, or other local 
regulation contains provisions, some but not all of which are partially 
or completely superseded by this part, the provisions or portions of 
those provisions which have not been superseded retain their full force 
and effect.
    (c) If any provision of this part, or its application to any 
person, partnership, corporation, act or practice is held invalid, the 
remainder of this part or the application of the provision to any other 
person, partnership, corporation, act or practice shall not be affected 
thereby.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014-22092 Filed 9-16-14; 8:45 am]
BILLING CODE 6750-01-P