First came the guidance and reminder (blogged about here). And, now, the enforcement. The FTC has just announced a $9.3 million settlement with Fashion Nova, an online fashion retailer. The FTC’s complaint alleges that the retailer made representations about the speed of its shipping in its solicitations, including on its website. For example, it stated on its home page, “Free 2 Day Shipping on all U.S. Orders $75 and Up.” It also stated “Back at Top Speed – Expect Your Items Quick!” along with an image of a plane and the statement “Fast Shipping” throughout the website. In addition to what consumers paid for merchandise, many also paid added shipping costs, including for one- or two-day shipping.
However, despite its promises (and the extra payments by consumers for fast shipping), Fashion Nova did not always ship the merchandise, ship it as fast as promised, or offer to allow a buyer to cancel her delayed order. In addition, the FTC alleged that the retailer, per its policy, issued disgruntled consumers gift cards that could only be used on the Fashion Nova website, rather than a refund of the purchase amount.
The FTC’s complaint alleges that all of these actions constituted violations of the Mail, Internet or Telephone Order Merchandise Rule (16 CFR Section 435), sometimes referred to as the "Thirty Day Rule." The Rule prohibits sellers from soliciting orders unless, at the time of the solicitation, they have a reasonable basis to expect that they will be able to ship within the time stated; or if no time is stated, within 30 days. The Rule also sets out requirements for the steps a seller must take if it discovers that it cannot ship as promised (or within 30 days if no specific shipment time was promised), including issuing shipping delay notices, coupled with cancellation rights. (The specific steps a retailer must take, in the order in which it must take them, are set out in the FTC’s business guidance.) The Rule also requires sellers to provide customers with actual refunds, not store credits or gift cards.
The settlement requires Fashion Nova to pay $9.3 million, to be used to refund consumers who were harmed by the company’s violations of the Mail Order Rule. Consumers who received gift cards instead of refunds will be eligible for refunds under the settlement. The settlement also prohibits Fashion Nova from any further violations of the Mail Order Rule, and requires the company to ship ordered merchandise within one day of receipt of an order when the company doesn’t specify a shipping date.
Lessons learned? Of course, marketers must comply with the Mail Order Rule: if you make promises about when you’ll ship, keep them. If you don’t specify when you'll ship, be sure you can ship within thirty days. If you discover you can’t ship on time, send notices, get consent for delay or issue refunds.
But another lesson to take away here is that when the FTC sends up a flare --- issuing guidance or a reminder about one of its rules – it’s best to pay attention.