Is it Time to Update Your Shipping and Return Practices?

Last month, the Federal Trade Commission announced that it entered into a more than $2 million settlement with online retailer GOAT, resolving allegations that the company failed to comply with the FTC's Mail Order Rule and engaged in other deceptive marketing practices.  

Mail Order Rule

If you're thinking about where you want to focus your attention as we start the new year, this is important enforcement action to pay attention to.  The FTC's Mail, Internet, or Telephone Order Merchandise Rule sets forth detailed rules about what marketers must do when they sell products online.  

Under the Mail Order Rule, if you make representation about when you're going to ship a product, you must have a reasonable basis for that statement.  If you don't tell consumers when you plan to ship, then you must have a reasonable basis for believing that you can ship within thirty days.  Then, to oversimply what is a very complicated rule, once you've taken an order, if you learn that you won't be able to ship when promised (or within thirty days, if you didn't say when you'd ship), then you must provide notice to the consumer and then generally give the consumer an opportunity to cancel.  If the consumer does decide to cancel, you must provide a prompt refund.  

If you fail to comply with the Mail Order Rule, the FTC is entitled to seek civil penalties of $51,744 per violation.  If you're selling millions of products online, or even thousands, those penalties can  add up quickly!  (The civil penalty amount actually goes up every year, and the FTC should announce the adjusted amount in the next week or so.) 

FTC's Action Against GOAT

GOAT is an online marketplace that sells sneakers and clothing.  According to the allegations in the FTC's complaint, GOAT advertises that the products it sells are verified – “Authenticity Assured” and “Buyer Protection Guaranteed” – before they are shipped to buyers.  Once a consumer makes a purchase, the order is processed based on the applicable shipping speed – “Ship to Verify,” “Instant (Standard)," and “Instant (Next Day)."  GOAT represented on its website the specific expected delivery timing for each of the order types.  For example, GOAT said that “Instant (Next Day)” orders typically arrive within 1 to 2 business days.  GOAT also represented that “Instant" orders placed before 11:00 a.m. on weekdays would be processed and shipped the same day.  

The FTC alleged that GOAT's shipping practices violated the Mail Order Rule.  First, the FTC alleged that GOAT didn't have a reasonable basis for many of its shipping representations.  For the orders placed on weekdays before 11:00 a.m., the FTC alleged that GOAT only shipped 63% of the orders when it said it would.  And, for “Instant (Next Day)” orders, the FTC alleged that more than 16% of orders were shipped late.  The FTC also alleged that after GOAT failed to ship when promised, GOAT also failed to notify customers and give them the opportunity to cancel their orders.  

The FTC also alleged that GOAT engaged in deceptive and unfair practices in connection with its buyer protection program as well.  Although GOAT promotes that the products are “Authenticity Assured” and “Buy Protection Guaranteed,” the FTC alleged that GOAT rejected numerous consumer requests for returns of products that were not authentic, were incorrect, or had other issues.  The FTC raised a number of other concerns with GOAT's buyer protection program as well, charging that GOAT's “standard operating procedures for customer requests impose numerous obstacles to Buyers obtaining refunds when the receive Deficient Products.”  For example, the FTC alleged that GOAT often provided credits instead of refunds, didn't refund shipping costs, and had long customer service response times.  The FTC also highlighted the difficulty with the return process, noting that GOAT does not have a telephone number for customer service inquires or a live chat function.  

Some Takeaways

Here are some key takeaways from this enforcement action. 

First, if you don't have procedures in place to comply with the Mail Order Rule, you should implement them.  As you can see from this case, if you fail to comply, the civil penalties can be substantial.

Second, it's important to keep in mind that you must have a “reasonable basis” for the shipping claims that you make – and that the FTC is going to hold you to a very high standard for what that means.  As this case shows, even if you ship most products on time (for example, 63%), that's not going to satisfy the FTC.  In fact, even shipping the great majority (for example, 84%) of products when you said you would is not going to be enough for the FTC either.  While what's “reasonable” is going to vary with the circumstances, the FTC is expecting a very high level of on-time performance here.  One of the key questions that the FTC is going to ask is, “can the fulfillment system handle the cumulative anticipated demand for all products?”  

Third, if you've got a return policy, or some sort of satisfaction guarantee, you'd better have a reasonable process in place that allows you to live up to those promises.  The FTC is going to take issue with you if you make it difficult for customers to reach you or to get a refund or if you impose unreasonable hurdles or conditions on consumers before they can get what was promised. 

As Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said when announcing the settlement, “When an online business promises to protect consumers' purchases, it must have the appropriate systems in place to make sure those protections can be implemented.  Forcing consumers to jump through hoops or keep complaining in order to get a promised refund is also unacceptable under the law.”