On March 25, 2021, the Federal Trade Commission ("FTC") announced that it will pay approximately $6.5 million to more than 500,000 consumers who were affected by online fashion retailer Fashion Nova Inc.'s ("Fashion Nova") alleged violations of the FTC's mail order rule ("Mail Order Rule"). Under the terms of the FTC's settlement with Fashion Nova, Fashion Nova agreed to pay $9,300,000 to settle allegations that it allegedly failed to notify consumers of delivery delays and allow them to cancel orders that were not shipped in a timely manner. Of the settlement amount, $7.04 million was paid to the FTC to fund its refunds to consumers. Fashion Nova was required to use the remaining $2.26 million to refund certain consumers directly.
What was alleged by the FTC?
Fashion Nova's Refund and Shipping Practices Violated the Mail Order Rule
According to the FTC's complaint, Fashion Nova violated Sections 5, 13, and 19 of the FTC Act by making deceptive representations concerning its shipping policies. For example, Fashion Nova's home page allegedly claimed that it offered "Free 2 Day Shipping on all U.S. Orders $75 and Up." The FTC alleged that Fashion Nova frequently failed to ship the purchased merchandise to customers in a timely manner. In many instances, the items ordered were out of stock or Fashion Nova shipped a materially different item, such as merchandise that was damaged, of a different size, or used. When Fashion Nova failed to ship the purchased item, it often failed to cancel the order or give customers a prompt refund. Per Fashion Nova's company policy, Fashion Nova often issued customers gift cards in the amount of the unshipped merchandise that could only be used on Fashion Nova's website.
The Mail Order Rule, which applies to merchandise sold to consumers online, by mail, or phone, requires that companies have a reasonable basis for making representations about their ability to ship items within advertised timeframes. In addition, if a company cannot ship an item within the time stated or otherwise within thirty (30) days, the company must seek the customer's consent for the delayed shipment. If the company cannot obtain the customer's consent, the company must promptly issue a full refund to the customer. The refund may not be in the form of a gift card.
Terms of the Mail Order Rule Settlement Order and Refund Payments
In addition to payments to the FTC and certain consumers, the settlement order enjoins Fashion Nova from prospectively representing that any item would be shipped faster than within thirty (30) days without also clearly and conspicuously disclosing, before payment is made, the date by which the merchandise will be shipped. Fashion Nova is also required to provide a clear and conspicuous mechanism for customers to cancel any merchandise that is not received by a disclosed date. This mechanism must be at least as simple to use as the mechanism the customer used to buy the subject merchandise. Where a customer requests a refund, Fashion Nova is also prohibited from paying the refund through use of a gift card.
In its statement discussing the refund payments to consumers, the FTC stated that it had received thousands of complaints regarding Fashion Nova's shipping and refund practices. The FTC made clear that the shipping practices that Fashion Nova was accused of have been prohibited under the Mail Order Rule for nearly fifty (50) years. The Deputy Director of the FTC's Bureau of Consumer Protection noted, "Online retailers need to know that our Mail Order Rule requires them to notify customers in the event of shipping delays and offer the right to cancel with a full refund - not just a gift card or store credit."
As readers know, the FTC and state attorneys general frequently investigate and prosecute companies for deceptive advertising and marketing practices. It is important that online retailers work with experienced marketing attorneys to guide them through state and federal consumer protection laws to avoid violations of the Mail Order Rule and other regulatory trouble.
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