At the same time that consumers are turning to the internet to purchase everything – food, diapers, work-from-home office equipment, wine, and impossible-to-find puzzles – e-commerce businesses are facing unprecedented challenges in their ability to fulfill orders: disruptions to their supply chains, sick employees, warehouse and distribution center shutdowns, and a crippled US Postal Service. We thought this was a good time to remind businesses that sell goods (services are exempted) online – or by phone or mail – of their obligations under the FTC’s Mail, Internet, or Telephone Order Merchandise Rule (MITOR, for short). Many states also have look-alike laws or regulations that often impose additional requirements on sellers.
MITOR was originally promulgated in 1975 in response to consumer complaints that catalog sellers failed to ship ordered merchandise timely or at all and were not providing refunds in a timely fashion. It was updated several times over the years, including to include telephone and then internet sales.
In sum, MITOR requires that when you advertise, you must have a reasonable basis for stating or implying that you can ship the advertised goods within a certain time. If, however, you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days.
If, after taking the customer’s order, you cannot ship within the advertised time (or within 30 days if the advertising was silent on shipping), you must seek the customer’s consent to the delayed shipment. If you cannot obtain the customer’s consent to the delay, you must promptly refund all the money the customer paid you for the unshipped merchandise.
Violation of MITOR can result in penalties ($43,280 per violation) and consumer redress. If you use a third-party fulfilment company to fulfill and ship orders, you, the seller, are still liable for violation of the rule. Although the FTC has not brought many cases under MITOR in recent years, the FTC’s enforcement priorities closely track customer complaints. Given the pandemic’s impact on brick-and-mortar stores, and the resulting consumer reliance on e-commerce, we expect an uptick in complaints about shipping and delivery issues, which could cause the FTC to examine sellers’ compliance with MITOR.
Below we break down each of the elements of the rule and provide guidance on how to comply.
Reasonable Basis for Shipping Representations
Before advertising how long it will take to ship goods (or how long it will take for the goods to be delivered to the consumer), you will need a “reasonable basis” for making the representation; this means you will need such information or data about your fulfillment and shipping practices that would, under the circumstances, satisfy a reasonable and prudent businessperson, acting in good faith, that the representation is true.
This applies to specific statements about shipping (e.g., “overnight shipping”) and to unspecific statements such as “fast shipping.” According to the FTC if you represent that you ship in, let’s say, 48 hours “most of the time,” you will be required to ship in 48 hours all of the time (or you will have to send a delay notice).
It is critical that you keep records substantiating your shipping claims because in an FTC action to enforce MITOR, if you cannot document your use of systems and procedures for complying, the burden of proving compliance shifts to you. These records should document customer demand and inventory management and how your fulfilment system is programmed to meet MITOR’s requirements.
Providing Notice of Delay and Obtaining Consent to Delay
Again, unanticipated delays in shipping merchandise are permissible so long as you communicate the delay to the customer. The clock begins to run as soon as you receive a properly completed order, meaning the buyer tenders to you (1) correct payment (or authorization to charge an account) and (2) the information you need to fulfill the order.
If you cannot meet the advertised ship time (or 30 days if there was no shipping representation), you must contact the consumer – by email, phone, fax, or mail – and notify her of the delay and seek her consent to the delay or give her the opportunity to cancel the order. MITOR requires this first delay notice to contain specific information, including but not limited to a statement that if the customer chooses not to wait, she can cancel the order and obtain a refund. You must provide the customer an easy mechanism for canceling the order. Finally—and importantly—for the first delay notice, if the customer does not cancel her order you can assume she has agreed to the delayed shipment.
If you later learn that you cannot ship the goods by the revised shipment date you included in the delay notice, you must again contact the customer. This time, however, you must obtain her affirmative consent to further delay. In other words, if you do not hear back from the customer, you must cancel the order and provide a refund.
MITOR requires all refunds to be “prompt.” For orders paid for by credit card or PayPal (or similar means), you must send the credit memorandum to the creditor within seven business days after the order is cancelled. Where you are the creditor, you must credit the customer’s account within one billing cycle after the order is cancelled. Orders paid for by cash or check also must be refunded within seven business days.
Note, you must refund shipping and handling if you do not ship any of the ordered merchandise. If, however, you ship part of the order, you have to refund the difference between the total amount paid and the amount the customer would have paid for the shipped items only.
Compliance with MITOR is relatively straightforward so long as you keep the following in mind:
- Do not make affirmative shipping or delivery representations in ads or on checkout webpages unless you have solid backup showing that you can meet the timelines.
- Make sure your order, inventory, and fulfilment management systems are properly synced to meet shipping deadlines (remember, if your advertising is silent, you must ship within 30 days).
- Anticipate COVID-related delays and update your website and order confirmation emails and text messages accordingly to manage customer expectations.
- If there are unanticipated delays caused by workforce shortages, inventory backorders, or other logistics problems, you (or your fulfilment house) must be able to quickly send compliant delay notices. Take some time now to revisit how you communicate with customers and ensure your delay notice templates are current, compliant, and ready to go. MITOR has very specific requirements for what must be included in the notifications.
- Communicate with your shipping carriers early and often and line up a backup.