[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