What You Should Know Before You Make a Shipment Representation
The following information will help you comply with the Rule.
When you offer to sell mail or telephone order merchandise, you must have
a "reasonable basis" for:
Whenever you change the shipment date by providing a delay notice,
you must have a "reasonable basis" for:
any express or implied shipment representation, or
believing you can ship within 30 days of receipt of an order—if you make
no shipment representation or if the shipment representation is not
clear and conspicuous.
When you take orders by telephone, you may choose to provide prospective
customers with updated shipment information. This may differ from what
you said or implied about the shipment time in your advertising. The updated
shipment information you provide on the telephone supersedes any shipment
representation you made in the advertising. You also must have a reasonable
basis for the updated shipment representation.
the new shipment date, or
any representation that you do not know when you can ship the merchandise.
"Reasonable basis" means that the merchant has, at the time of making
the representation, such information as would under the circumstances satisfy
a reasonable and prudent businessperson, acting in good faith, that the
representation is true.
The evidence you need to demonstrate the reasonableness of your shipment
representations varies with circumstances. The following, however, is important:
Remember: Whether you make a shipment representation or rely on the 30-day
rule, your advertising should be unambiguous about when you will ship.
Anticipated demand. Is the demand for each advertised item reasonably anticipated?
Supply. For each advertised item, is there a sufficient inventory on hand
or adequate sources of supply to meet the anticipated demand for the product?
Fulfillment system. For all promotions in the relevant sales seasons, can
the fulfillment system handle the cumulative anticipated demand for all
Record keeping. Are adequate records kept of the key events (see section
headed "Why You Should Keep Records" for a list of key events) in each
individual transaction to ensure that items can be shipped within the applicable
time, as established by the Rule?
What You Must Know Before Making Shipment Representations in Sales Involving
If your customers apply to you to establish an in-house new credit account
or increase an existing credit line to pay for the merchandise they order,
the Rule provides the following:
If you make no shipment representation when you solicit the order, you
are allowed 50 (instead of 30) days to ship the order. The extra 20 days
is to enable you to process the credit application. If you wish to use
this provision of the Rule, you must have a reasonable basis to believe
you can ship in 50 days.
If you do make a shipment representation when you solicit the order, you
must have a reasonable basis for being able to ship in that time, regardless
of whether the order is accompanied by an application for credit or extension
of a credit line. You are presumed to have factored in the time needed
to process the credit application or to have qualified your shipment representation
When Your Fulfillment Or Other Obligations Begin ("Properly Completed"
The "clock" on
your obligation to ship or take other action under the Rule begins as soon
as you receive a "properly completed" order. An order is properly completed
when you receive the correct full or partial (in whatever form you accept)
payment, accompanied by all the information you need to fill the order.
Payment may be by cash, check, money order, the customer's authorization
to charge an existing account (including one you have created for the customer),
the customer's application to you for credit to pay for the order, or any
substitute for these transactions that you accept.
It is irrelevant when you post or deposit payment, when checks clear,
or when your bank credits your account. The clock begins to run when
you receive a properly completed order.
Note, however, that if a customer's check is returned or a customer
is refused credit, the Rule stops the shipment clock. It is reset at day
one when the customer gives you cash, the customer's check is honored,
or you receive notice that the customer qualifies for
credit. At this point, you may take the amount of time you originally stated
to fulfill the order.
What You Must Do If You Learn You Cannot Ship on Time
When you learn that you cannot ship on time, you must decide whether you
will ever be able to ship the order. If you decide that you cannot,
you must promptly cancel the order and make a full refund.
If you decide you can ship the order later, you must seek the customer's
consent to the delay. You may use whatever means you wish to do this—such
as the telephone or the mail—as long as you notify the customer of the
delay reasonably quickly. The customer must have sufficient advance notification
to make a meaningful decision to consent to the delay or cancel the order.
Some businesses adopt internal deadlines that are earlier than those
set by the Rule to ensure that their delay notices give all customers a
meaningful opportunity to consent to the delay. If businesses fail to ship
or give delay notifications by their internal deadlines, they automatically
cancel the orders and make refunds.
In any event, no notification to the customer can take longer than the
time you originally promised or, if no time was promised, 30 days. If you
cannot ship the order or provide the notice within this time, you must
cancel the order and make a prompt refund.
What a First Delay Option Notice Must Say
In seeking your customer's consent to delay, the first delay notice you
provide to the customer (the "delay option" notice) must include:
a definite revised shipment date or, if unknown, a statement that you are
unable to provide a revised shipment date;
a statement that, if the customer chooses not to wait, the customer can
cancel the order and obtain a full and prompt refund; and
some means for the customer to choose to cancel at your expense (e.g.,
by providing a postage prepaid reply card or toll-free telephone number).
The following information when you can-not provide a revised shipping date:
If your first delay option notice provides a definite revised shipping
date of 30 days or less, you must inform customers that their non-response
will be treated as a consent to the delay.
the reason for the delay, and
a statement that, if the customer agrees to the indefinite delay, the customer
may cancel the order any time until you ship the merchandise.
Thus, your delay option notice might look something like this:
If your first delay option provides a definite revised shipping date
more than 30 days or states that you do not know when you will be able
to ship, you must tell your customers that if they do not respond, the
order will be canceled automatically within the originally promised time
plus 30 days.
|We will be unable to ship the merchandise listed above until [date
30 days or less later than original promised time]. If you don't want to
wait, you may cancel your order and receive a prompt refund by calling
our toll-free customer service number, (800) 555-1234. If we do not hear
from you before we ship the merchandise to you, we will assume that you
have agreed to this shipment delay.
(Many merchants add clarifying language such as "Remember, if you want
the merchandise, don't call. ")
For example, suppose you have a reasonable basis for being able to ship
in 30 days and you have chosen to make no shipment representation in your
advertising. Within the 30 day period after you receive the customer's
properly completed order you learn that you cannot ship in time and, although
you believe you will be able to ship at some point, you don't know when.
Your delay option notice to the customer might look something like this:
Remember: You are required to explain the nature of the backorder problem
only if you provide an indefinite revised shipment date.
This explanation should be detailed enough to permit the customer to judge
what the possible length of the delay might be.
|Because [explanation of backorder problem], we are unable to ship the
merchandise listed above. We don't know when we will be able to ship it.
If you don't want to wait, you may cancel your order and receive a prompt
refund by calling our toll-free customer service number, (800) 555-1234.
If we do not hear from you and we have not shipped by [date 30 days
later than original promised shipment time—in this example, 60 days after
receipt of the properly completed order], your order will be canceled automatically
and your money will be refunded.
If you do not want your order automatically canceled on [date 30 days
later than original promised shipment time], you may request that we keep
your order and fill it later. If you do request that we keep your order
and fill it later, you still have the right to cancel the order at any
time before we ship it to you. You may use our toll-free number, (800)
555-1234, either to request that we fill your order later or to cancel
You also have the option of seeking your customer's affirmative agreement
to the delay. In any event, you must indicate what will happen if the customer
does not respond.
What Later Notices Must Say
If you cannot ship the merchandise by the definite revised shipment
date included in your most recent delay option notice, before that date
you must seek the consent of your customers to any further delay. You must
do this by providing customers a "renewed" delay option notice. A renewed
delay option notice is similar in many ways to the first delay option notice.
One important difference: the customer's silence may not be treated
as a consent to delay.
A renewed delay option notice must include:
a new definite revised shipment date or, if unknown, a statement
that you are unable to provide any date;
a statement that, if the customer chooses not to wait, the customer can
cancel the order immediately and obtain a full and prompt refund;
a statement that, unless you receive notice that the customer agrees to
wait beyond the most recent definite revised shipment date and you have
not shipped by then, the customer's order automatically will be canceled
and a prompt refund will be provided; and
some means for the customer to inform you, at your expense (e.g., by
providing a postage prepaid reply card or toll-free telephone number) whether
the customer agrees to the delay or is canceling the order.
the following information when you cannot provide a new definite revised
If you have provided an appropriate and timely delay option notice and
the customer agrees to an indefinite revised shipment date, no additional
delay notices are required.
the reason for the delay, and
a statement that, if the customer agrees to the indefinite delay, the customer
may cancel the order any time until you ship.
When You May Cancel an Order
Instead of seeking the customer's consent to delay, you can always cancel
the order and send a refund. In that case, you must notify the customer
and send the refund within the time you would have sent any delay notice
required by the Rule.
When You Must Cancel an Order
You must cancel an order and provide a prompt refund when:
the customer exercises any option to cancel before you ship the merchandise;
the customer does not respond to your first notice of a definite revised
shipment date of 30 days or less and you have not shipped
the merchandise or received the customer's consent to a further delay by
the definite revised shipment date;
the customer does not respond to your notice of a definite revised shipment
date of more than 30 days (or your notice that you are unable to
provide a definite revised shipment date) and you have not
shipped the merchandise within 30 days of the original shipment
the customer consents to a definite delay and you have not shipped or obtained
the customer's consent to any additional delay by the shipment time the
customer consented to;
you have not shipped or provided the required delay or renewed option notices
on time; or
you determine that you will never be able to ship the merchandise.
The following is one example of a delayed order scenario:
You have a reasonable basis to be able to ship the merchandise
in 30 days. That being the case, you make no shipment representation in
your advertising. When your prospective customer calls to place the order
on July 1, nothing has happened to change your belief that you can ship
in 30 days, so in accepting the order you provide no updated shipment information.
You plan to ship the order by July 31.
On July 10, you realize you cannot ship by July 31. Within
a few days (reasonably quickly so the customer has time to make a decision),
you send a delay notice with a revised shipment date. Based on information
such as customer demand for the merchandise and information you recently
received from your suppliers, you reasonably believe that you will be able
to ship 30 days from the original shipment date. The revised shipping date
you provide in the delay notice is August 30, i.e., 30 days from
duly 31. Your delay notice explains that, unless the customer tells you
otherwise, you will assume that the customer is willing to wait for the
merchandise until then.
3. Having heard nothing from the customer, on August 10 you realize
that you will not be able to ship by August 30, so reasonably promptly
you send a second delay option notice saying when you now reasonably
believe you will be able to ship. The notice tells the customer that the
order will be canceled automatically on August 30 unless you have already
shipped by then or the customer expressly tells you not to
How Quickly You Must Make a Refund
When you must make a Rule-required refund, the following applies:
If the customer paid by cash, check, or money order, you must refund the
correct amount by first class mail within seven working days after the
order is canceled.
If the customer paid by credit, you must credit the customer's account
or notify the customer that the account will not be charged, within one
customer's billing cycle, after the order is canceled.
How Much You Must Refund
If you cannot ship any of the merchandise ordered by the customer,
you must refund the entire amount the customer "tendered," including any
shipping, handling, insurance, or other costs. If you ship some, but not
all, of the merchandise ordered, you must refund the difference between
the total amount paid and the amount the customer would have paid, according
to your ordering instructions, for the shipped items only.
For example, if you charge a flat fee for shipping and handling regardless
of the total number or cost of the items ordered, you need not refund any
shipping and handling charges if you ship some items. On the other
hand, if your shipping and handling charges are indexed to the number of
items or the dollar amount of the order, you can keep only those shipping
and handling charges that are appropriate to the number or dollar amount
of the items actually shipped.
When making Rule-required refunds, you cannot substitute credit toward
future purchases, credit vouchers, or scrip.
When the order is paid for in whole or in part by proofs of purchase,
coupons, or other promotional devices, you must provide "reasonable compensation"
to the customer for the proofs of purchase plus any shipping, handling,
or other charges the customer paid. (The circumstances of each promotion
may affect what is deemed to be reasonable.)
Why You Should Keep Records
Although you are not required to keep records, an accurate, up-to-date
recordkeeping system can help show that you are complying with the Rule.
Your documentation should provide answers to the following questions.
If you provide delay option notices by telephone, you may want to keep
accurate records of the scripts you use. To help document your compliance
with the Rule, you may find it useful to maintain a chronological record
of all calls you make, including the number from which the call is made,
the called number, the party contacted, and the duration of the contact.
Substantiation for shipment representations. How is demand anticipated?
How is inventory monitored? How is inventory acquisition coordinated with
customer demand and order cancellation? How are demand needs communicated
to and met by buyers/suppliers/drop shippers?
Fulfillment system. How is the fulfillment system designed to meet the
requirements of the Rule? Are the delay option notices in compliance? Does
the customer's active or passive exercise of any cancellation option result
in a prompt refund response?
Recordkeeping. Are adequate records kept for each individual order demonstrating
the date you received the order; the contents of and date you provided
any delay option notice; the date you received any exercise of a cancellation
option; the date of any shipment and the merchandise shipped; the date
of any refund and the merchandise for which the refund was made?
Businesses often ask how long they should keep their records relating
to Rule compliance The statute of limitations on actions to enforce the
Rule is three years for consumer redress and five years for civil penalties.
State statutes of limitations for individual customer or state actions
are sometimes longer. Check the state laws where you plan to do business.
What the Rule Does Not Cover
The following sales are exempt from the Rule:
The Rule also does not cover services, such as mail order photo-finishing.
In the question and answer section that follows, you will notice other
circumstances in which mail or telephone order merchandise may not be covered
by the Rule.
magazine subscriptions (and similar serial deliveries), except for the
sales of seeds and growing plants;
orders made on a collect-on-delivery basis (C.O.D.); and,
transactions covered by the FTC's Negative Option Rule (such as book and
Why You Should Comply with the Rule
Merchants who violate the Rule can be sued by the FTC for injunctive relief,
monetary civil penalties of up to $10,000 per violation (any time during
the five years preceding the filing of the complaint), and consumer redress
(any time during the three years preceding the filing of the complaint).
When the mails are involved, the Postal Service also has authority to take
action for problems such as non-delivery. State law enforcement agencies
can take action for violating state consumer protection laws.
Apart from this, your failure to ship on time or your failure to notify
your customers promptly about delays and to obtain their consent to the
delays, or your failure to make full and prompt refunds when your customers
do not consent to delayed shipment, can adversely affect your business
by discouraging repeat purchases. Accordingly, most businesses regard compliance
with the Rule as simply good business practice.
Table of Contents
How to Comply
Questions and Answers