In its complaint against Zaappaaz, Inc, the FTC alleges that wrist-band.com “guaranteed” same day shipping of COVID-related products, but took weeks to ship orders and failed to inform consumers of delays. The complaint also cites multiple instances of incorrect or defective products received by consumers for which the company denied refeeds, as well as un-kept promises of refunds to consumers who never received their purchased products.

The FTC also alleges that American Screening, LLC, Ron Kilgarlin Jr., and Shawn Kilgarlin violated the Mail Order Rule by stating that PPE products would be shipped “within 24-48 hours,” when many items were not shipped until weeks or months later.

All sellers offering products via website or catalog should take note and review existing compliance practices. Our breakdown of the Mail Order Rule can help companies navigate the requirements. Our recent article, Top FTC Rules and Guides You Should Keep in Mind, may also be useful.

As described under the FTC’s Mail Order Rule, a seller needs a “reasonable basis” for shipping within a certain time, and, if there are delays, it must notify purchasers and in certain circumstances cancel and refund orders. In this recent lawsuit, the FTC also alleges violation of the FTC Act by falsely advertising to ship items within one business day and by selling items that were not “authentic, certified, or specifically branded." As discussed in our previous post, failure to comply can have significant consequences. For example, a few months ago Fashion Nova agreed to pay a $9.3 million civil penalty and to implement certain procedures, including allowing customers to easily request refunds for their delayed orders instead of being issued gift cards for unshipped items.

The claim is pending in federal court in New York, but companies should not wait for a decision or settlement to consider the following key takeaways: (1) although COVID-19 continues to disrupt distribution chains, have a reasonable basis for shipping representations; (2) if (or maybe “when”) an unexpected delay occurs, follow the Mail Order Rule’s specific requirements for notice and handling of open orders; and (3) monitor customer feedback to identify shipping issues and address them quickly.

Update: Our article, Top FTC Rules and Guides You Should Keep in Mind, and other mail order rule blog posts may also be useful.

Summer associate Leticia Salazar contributed to this post. Ms. Salazar is not a practicing attorney and is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

Join us for:

Trade Association Antitrust 101 Please join us on July 14 for a webinar geared toward association legal counsel, executives, marketers, staff and members, participants in association activities or attendees to association meetings.

Antitrust issues are a constant concern for trade associations and their members. Competition regulators will have associations and their members under even greater scrutiny as groups work together to address the ongoing challenges presented by COVID-19. Please join us for a webinar covering the basics of antitrust compliance for association legal and compliance counsel, executives, staff and outside advisers. This webinar is designed to help association professionals and those who attend association functions identify potential antitrust issues and provide practical guidance for effective compliance programs and mitigating risk. Finally, we will talk about how to respond to enforcement actions in the event your organization is involved in an investigation.

Discussion topics include:

• Antitrust law basics
• Best practices for associations and its membership
• Effective compliance and training programs
• Strategies for responding to warning letters or other enforcement actions

Additional webinars will be announced soon

Representations About Shipping Dates The Mail Order Rule requires that when you advertise merchandise, you must have a reasonable basis for representations about timing for shipping. If you provide no shipping date, you must have a reasonable basis for believing that you can ship within 30 days. Particularly in these times of uncertainty, companies may choose to use a shipping date that is further out than what they would reasonably anticipate in typical circumstances.

Initial Delay Notice If you cannot ship the merchandise by the promised time frame or within 30 days, you must notify the customer and give the option to cancel the order and obtain a full and prompt refund.

If you know when you can expect to ship the merchandise, the initial delay notice must contain: (1) the revised shipping date; (2) the customer’s ability to cancel for a full refund; and (3) a statement that a customer’s non-response is a consent to the delay.

If you cannot provide a revised shipping date, the initial delay notice must contain: (1) the reason for the delay and (2) a statement that, if the customer agrees to the indefinite delay, the customer may cancel the order any time before shipment.

Subsequent Delay Notices Given the current unpredictability around supply chains and distributions, companies may be unable to ship by the date included in the initial delay notice. If that occurs, prior to that date, you must send a “renewed” delay notice. Although this notice must include much of the same information as the initial delay notice, a customer must expressly consent to further delay.

A renewed delay option must include information about: (1) a revised shipping date; (2) the customer’s ability to cancel for a full refund; and (3) a statement that, unless the customer agrees to wait beyond the most recent definite revised shipment date and the company has not shipped by then, you will automatically cancel the order and issue a prompt refund.

If you cannot provide a new definite revised shipping date, the notice must include: (1) the reason for the delay; and (2) a statement that, if the customer agrees to the indefinite delay, the customer may cancel the order any time until shipment.

Instead of sending a delay notification, you can cancel the order and send a refund, as long as you notify the customer and send the refund within the time you would have sent the consent notification.

Exemptions to the Rule Not all merchandise is subject to the Mail Order Rule. For example, products such as monthly gift clubs, subscription boxes, and magazine subscriptions are exempt, although because the FTC could still challenge practices allegedly unfair or deceptive, we recommend taking reasonable steps to notify consumers about shipping delays and to offer options for cancellation and perhaps a refund.

Enforcement The FTC can extract large civil penalties for violations of the Mail Order Rule: up to $43,280 per violation plus consumer redress. For example, in FTC v. DiscountMetalBrokers, Inc., a court ordered DiscountMetalBrokers to pay over $6 million for violations of the FTC Act and the Mail Order Rule. The FTC has also levied fines of over $800,000 in settlements related to alleged Mail Order Rule violations.

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The Mail Order Rule imposes very specific requirements that companies should navigate carefully, COVID-19 or not. As companies face shipping and distribution disruptions, appropriate notice to customers as delays become known will avoid Mail Order Rule violations and enforcement.

For other helpful information during this pandemic, visit our COVID-19 Resource Center.

Update: Our article, Top FTC Rules and Guides You Should Keep in Mind, and other mail order rule blog posts may also be useful.