Federal Register, Volume 76 Issue 190 (Friday, September 30, 2011)

[Federal Register Volume 76, Number 190 (Friday, September 30, 2011)]
[Proposed Rules]
[Pages 60765-60774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-24354]

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FEDERAL TRADE COMMISSION

16 CFR Part 435

Mail or Telephone Order Merchandise Rule

AGENCY: Federal Trade Commission (``Commission'' or ``FTC'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FTC proposes amending the Mail or Telephone Order
Merchandise Rule (``MTOR'' or ``Rule'') to respond to the development
of new technologies and changed commercial practices. By doing so, the
Commission seeks to accomplish four objectives: clarify that the Rule
covers all Internet merchandise orders regardless of whether the buyer
accesses the Internet through a telephone line, allow sellers to
provide refunds and refund notices to buyers by any means at least as
fast and reliable as first class mail, clarify sellers' obligations
under the Rule for sales made using payment methods not specifically
enumerated in the Rule, and require sellers to process any third party
credit card refund within seven working days of a buyer's right to a
refund vesting. Additionally, the FTC sets forth its interpretation of
``demand drafts'' as the functional equivalents of checks for purposes
of the Rule.

DATES: Written comments must be received on or before December 14,
2011. Parties interested in an opportunity to present views orally,
should submit a request to do so, and such requests must be received on
or before December 14, 2011.

ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``16 CFR Part 435--Mail
or Telephone Order Merchandise'' on your comment, and file your comment
online at https://ftcpublic.commentworks.com/ftc/MTORamendmentsNPRM, by
following the instructions on the Web-based form. If you prefer to file
your comment on paper, mail or deliver your comment to the following
address: Federal Trade Commission, Office of the

[[Page 60766]]

Secretary, Room H-113 (Annex N), 600 Pennsylvania Avenue, NW.,
Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jock Chung, (202) 326-2984, Attorney,
Division of Enforcement, Bureau of Consumer Protection, Federal Trade
Commission, Room M-8102B, 600 Pennsylvania Ave., NW., Washington, DC
20580, or Gregory Madden, (202) 326-2426, Attorney, Division of
Enforcement, Bureau of Consumer Protection, Federal Trade Commission,
Room M-8102B, 600 Pennsylvania Ave., NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: The Commission finds that using expedited
procedures in this rulemaking will serve the public interest. Expedited
procedures will support the Commission's goals of clarifying and
updating existing regulations without undue expenditure of resources,
while ensuring that the public has an opportunity to submit data,
views, and arguments on whether the Commission should amend the Rule.
Because written comments should adequately present the views of all
interested parties, the Commission is not scheduling a public hearing
or workshop. However, if any person would like to present views orally,
he or she should follow the procedures set forth in the DATES,
ADDRESSES, and SUPPLEMENTARY INFORMATION sections of this document.
Pursuant to 16 CFR 1.20, the Commission will use the procedures set
forth in this document, including: (1) Publishing this Notice of
Proposed Rulemaking; (2) soliciting written comments on the
Commission's proposals to amend the Rule; (3) holding an informal
hearing (such as a workshop), if requested by interested parties; (4)
obtaining a final recommendation from staff; and (5) announcing final
Commission action in a document published in the Federal Register. Any
motions or petitions in connection with this proceeding must be filed
with the Secretary of the Commission.

I. MTOR Background

The Commission originally promulgated the Mail Order Rule in 1975
in response to complaints that many mail order sellers failed to ship
ordered merchandise, failed to ship merchandise on time, or failed to
provide prompt refunds for unshipped merchandise. The Commission issued
the Rule pursuant to its authority under sections 5 and 18 of the
Federal Trade Commission Act (``FTC Act''), 15 U.S.C. 45 and 57a, to
proscribe these deceptive and unfair acts or practices.\1\
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\1\ Federal Trade Commission: Part 435--Mail Order Merchandise:
Promulgation of Trade Regulation Rule, 40 FR 49492-94 (Oct. 22,
1975); Federal Trade Commission: Part 435--Mail Order Merchandise:
Promulgation of Trade Regulation Rule: Correction, 40 FR 51582-597
(Nov. 5, 1975) (``Promulgation of Rule: Correction''). The
Commission initiated the rulemaking in 1971 under section 6(g) of
the FTC Act, 15 U.S.C. 46(g), and had substantially completed the
rulemaking when Congress amended the FTC Act by adopting section 18,
15 U.S.C. 57a. By operation of law, the Mail Order Rule was then
treated as having been promulgated under authority of section 18.
See United States v. JS&A Group, Inc., 547 F. Supp. 20, 23 (N.D.
Ill. 1982); United States v. Braswell, Inc., No. C 81-558 A, 1981
U.S. Dist LEXIS 15444, at *8 (N.D. Ga. 1981). The Mail Order Rule
took effect February 2, 1976.
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A second proceeding, concluding in 1993, demonstrated that
consumers who ordered merchandise by telephone experienced the same
shipment and refund problems. Accordingly, the Commission amended the
Rule to cover merchandise ordered by telephone, ``including orders
placed by facsimile machines or computers with telephone modems,'' and
renamed the Rule the ``Mail or Telephone Order Merchandise Rule.'' \2\
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\2\ Federal Trade Commission: Trade Regulation Rule; Mail or
Telephone Order Merchandise: Final Trade Regulation Rule, 58 FR
49096, 49097 (Sept. 21, 1993) (``Telephone Order Merchandise'').
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The MTOR prohibits sellers from soliciting mail or telephone order
sales unless sellers have a reasonable basis to expect that they will
be able to ship, after receipt of a properly completed order, the
ordered merchandise within the time stated on the solicitation or, if
no time is stated, within 30 days. The MTOR further requires a seller
to seek the buyer's consent to the delayed shipment when the seller
learns that it cannot ship within the time stated or, if no time is
stated, within 30 days. If the buyer does not consent, the seller must
promptly refund all money paid for the unshipped merchandise.\3\
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\3\ The MTOR is consistent with the requirements of the
Telemarketing Sales Rule (``TSR''), 16 CFR 310, but covers different
practices. The MTOR covers post-purchase events, such as actions
that a seller must take when it learns it cannot ship merchandise on
time. The TSR, unlike the MTOR, also covers sales of services, and
covers numerous pre-purchase practices, such as disclosures made
before a customer consents to pay. The MTOR covers telemarketing
sales that the TSR exempts, such as certain customer-initiated
telephone calls made in response to a direct mail solicitation, 16
CFR 310.6(b)(6), and sales that do not involve telemarketing, such
as mailorder or non-voice telephone (facsimile or Internet) sales.
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II. Proposed Amendments Due to Changing Conditions

The Commission can issue a notice of proposed rulemaking under the
FTC Act if it has ``reason to believe that the unfair or deceptive acts
or practices which are the subject of the proposed rulemaking are
prevalent.'' 15 U.S.C. 57a(b)(3). The Commission can find ``unfair or
deceptive acts or practices are prevalent'' where: ``(A) It has issued
cease and desist orders regarding such acts or practices, or (B) any
other information available to the Commission indicates a widespread
pattern of unfair or deceptive acts or practices.'' Id. at
57a(b)(3)(A)-(B). The Commission has ``wide latitude for judgment'' in
fashioning a remedy and need only show a ``reasonable relationship''
between the unfair or deceptive act or practice and the remedy.
American Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 988 (DC Cir. 1985)
(quoting Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13 (1946)); see
also Telephone Order Merchandise, 58 FR 49096, 49106.
On September 11, 2007, as part of its rule review process,\4\ the
Commission published a request for public comment,\5\ which also served
as an Advance Notice of Proposed Rulemaking.\6\ In this Advance Notice
of Proposed Rulemaking (``ANPR''), the Commission generally sought
comment on the Rule's costs, benefits, and the continuing need for the
Rule.\7\ The Commission specifically sought comment on whether to
propose amending the Rule to: (1) Clarify that it covers all Internet
merchandise sales regardless of how buyers access the Internet (e.g.,
dial-up telephone modem, cable, or wireless); (2) allow sellers to
provide refunds and refund notices by means at least as fast and
reliable as first class mail; and (3) require sellers to provide cash,
check, or money order refunds when buyers use any payment method other
than credit.
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\4\ The Commission reviews all its rules and guides periodically
to ensure that they remain relevant. These periodic reviews seek
information about the costs and benefits of the Commission's rules
and guides as well as their economic and regulatory impact. The
information obtained assists the Commission in identifying rules and
guides that warrant modification or rescission.
\5\ Federal Trade Commission: Mail or Telephone Order
Merchandise: Request For Public Comment, 72 FR 51728 (Sept. 11,
2007) (``ANPR'').
\6\ 15 U.S.C. 57a(b)(2)(A).
\7\ In a separate document published elsewhere in this Federal
Register, the Commission publishes its determination retaining the
Rule. In that document, the Commission is also making final, non-
substantive technical amendments, placing the Rule's definitions at
the beginning and alphabetizing the definitions. References in this
document are to the Rule as reordered and redesignated in the final
rule.
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After reviewing the comments received in response to the ANPR, and
based on recent enforcement actions and complaints, the Commission
finds that it has reason to believe that unfair

[[Page 60767]]

or deceptive acts or practices involving Internet sales are prevalent,
notwithstanding the number of reliable Internet retailers.
Consequently, the Commission proposes amending the Rule to address new
technologies and commercial practices by: (1) Expressly covering all
Internet merchandise orders, (2) allowing sellers to provide refunds
and refund notices by any means at least as fast and reliable as first
class mail, (3) clarifying sellers' obligations under the Rule for
sales made using payment methods not specifically enumerated in the
Rule, and (4) requiring sellers to provide refunds within seven working
days where the buyer uses a third party credit card.\8\ The Commission
finds these proposed amendments are reasonably related to remedying
unfair and deceptive acts or practices and ensuring that buyers receive
timely delivery or timely refunds.
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\8\ Even though the ANPR sought comment on only three potential
amendments, the Commission now proposes four amendments to the MTOR.
The additional proposed amendment responds to comments the FTC
received.
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Finally, consistent with the Federal Reserve System's handling of
demand drafts, the Commission announces its determination that ``demand
drafts'' are the functional equivalent of checks and the Commission
will treat them as such for purposes of the Rule.

A. Clarify Coverage of Internet Orders

The Commission expanded coverage of the Rule to include Internet
orders when it amended the ``telephone'' definition in 1993.\9\ At that
time, to the extent consumers had access to the Internet, they
typically accessed it through the telephone. Other means of accessing
the Internet, however, are now widespread. In fact, from June 2000 to
May 2011, American consumers largely switched from dial-up connections
to broadband for Internet access.\10\ The Commission's 2007 ANPR
therefore sought comment on whether the Commission should clarify the
Rule by amending it to expressly cover merchandise ordered via the
Internet regardless of the access method.\11\
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\9\ Section 435.1(f) defines ``telephone'' as ``any direct or
indirect use of the telephone to order merchandise, regardless of
whether the telephone is activated by, or the language used is that
of human beings, machines, or both.'' The Commission noted that
rulemaking participants understood that the ``telephone'' definition
was meant to ``cover orders taken by mechanical means over the
phone, orders placed by computers, and orders placed by fax
transmission.'' Telephone Order Merchandise, 58 FR at 49113.
\10\ During this period, the portion of U.S. households
accessing the Internet through dial-up connections declined from 34
percent to 4 percent, and the portion using broadband increased from
3 percent to 60 percent. Broadband and Dial-up Adoption, 2000-2011,
http://pewinternet.org/Trend-Data/Home-Broadband-Adoption.aspx.
\11\ In 2007, the Commission explained that it intended to
``cover all Internet ordering, regardless of [buyers'] means of
access * * *.'' ANPR, 72 FR at 51729.
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All four responsive comments supported clarifying the Rule in this
manner.\12\ The Direct Marketing Association (``DMA'') \13\ commented
that its own guidelines treat all Internet orders equally and its
members follow those guidelines.\14\ The National Retail Federation
(``NRF'') \15\ also supported covering Internet orders regardless of
means of access, provided that the order was placed through the
``publicly accessible worldwide web.'' NRF at 3. Specifically, NRF's
comments urged the Commission not to cover sales by retailers who use
Internet connections within their stores only to provide information to
sales representatives.\16\ NRF at 3 n.1.
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\12\ Public comments received in response to the ANPR are
available at: http://www.ftc.gov/os/comments/mailortelephoneorder/index.shtm. This document cites to these comments by indicating the
short form for the commenter, e.g., ``DMA'' for the Direct Marketing
Association, and the page of the comment.
\13\ DMA is a global trade organization representing business
and nonprofit organizations engaged in direct marketing. DMA at 1.
DMA represents more than 3,600 companies in the U.S. and abroad,
along with more than 200 nonprofit organizations. Id.
\14\ DMA, http://www.ftc.gov/os/comments/mailortelephoneorder/532289-00004.htm, at 3.
\15\ NRF identifies itself as the world's largest retail trade
association with membership from all retailing formats and
distribution channels (e.g., catalog sales, Internet sales). NRF,
http://www.ftc.gov/os/comments/mailortelephoneorder/532289-00003.htm, at 1. NRF's membership comprises more than 1.6 million
U.S. retail establishments with 2006 sales of $4.7 trillion. Id. NRF
includes a division for members with interests in merchandise
distribution via the Internet, Shop.Org, that specifically joined
NRF's comments. Id.
\16\ The Commission notes that the MTOR does not presently cover
transactions in which a seller's representative merely receives
product or inventory information through a telephone, but the
transaction with the buyer is conducted by means of media outside
the Rule's scope (e.g., face-to-face transactions). Similarly, the
proposed amendments to the MTOR would not cover transactions in
which a seller's representative uses the Internet to receive product
or inventory information, but where the buyer orders the merchandise
by means outside of the Rule's scope.
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Two individual commenters also voiced support. Paul T. Dearing
(``Dearing'') commented that a merchant could not ``reasonably argue
that an order placed over a wireless network was somehow exempt from
the requirements of the Rule.'' \17\ He further noted that, given
current practices, amending the Rule would not ``impose any new
obligations or create any new rights that have not already been
recognized for over a decade.'' Id. Oriyomi Nwokeji (``Nwokeji'')
commented that consumers and merchants do not consider access methods
when processing Internet orders.\18\
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\17\ Dearing, http://www.ftc.gov/os/comments/mailortelephoneorder/532289-00002.pdf, at 2.
\18\ Nwokeji, http://www.ftc.gov/os/comments/mailortelephoneorder/532289-00001.htm, at 1.
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These comments are consistent with publicly available data,
consumer complaints, and enforcement actions. First, Internet sales
accounted for 44 percent of the almost $200 billion of 2007 non-store
merchandise sales, indicating how common such purchases have
become.\19\ As noted, the overwhelming majority of these sales occur
via broadband Internet access, not telephone dial-up.
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\19\ U.S. Census Bureau, E-Stats, 2007 E-Commerce Multi-Sector
Report, May 28, 2009, http://www.census.gov/compendia/statab/2010/tables/10s1022.pdf, tbl.1022 Electronic Shopping and Mail-Order
Houses--Total and E-Commerce Sales by Merchandise Line: 2006-2007.
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Second, consumer complaints indicate that Internet merchandise
buyers, regardless of the way they connect to the Internet, suffer from
the unfair or deceptive acts or practices that prompted adoption of the
Rule. The Internet Crime Complaint Center (``IC3'') \20\ reported that
in 2009 almost 12 percent of the 336,655 Internet-related complaints
that it received (approximately 40,000 complaints) related to ``Non-
Delivery of Merchandise/Payment.'' \21\ Significantly, non-delivery
represented almost 20 percent of the 146,633 complaints referred to
local, State, and Federal law enforcement authorities for further
investigation (approximately 29,000 referrals). Id. at 5.
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\20\ IC3 is a joint operation of the National White Collar Crime
Network and the Federal Bureau of Investigation. It serves as a
clearinghouse for receiving, developing, and referring complaints
regarding Internet crime.
\21\ 2009 Internet Crime Report, at 2, Internet Crime Complaint
Center, http://www.ic3.gov/media/annualreport/2009_IC3Report.pdf
(2010). IC3 defines this category as: ``Non-Delivery of Merchandise
(non-auction)--An incident in which the complainant bought
something, but it never arrived.'' Id. app. II.
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While many Internet sellers are highly reliable, law enforcement
actions \22\ and

[[Page 60768]]

IC3 data indicate that some Internet sellers fail to ship substantial
numbers of Internet merchandise orders on time or at all.\23\ Because
of the proliferation of Internet access by cable, satellite, optical-
fiber, and other non-telephonic means, many of these purchases
undoubtedly involved access to the Internet using a means other than
the telephone. Therefore, the Commission concludes that, although many
Internet retailers are highly reliable, there is reason to believe that
the merchandise shipment and refund problems are prevalent regardless
of the means of Internet access. Explicitly covering all Internet order
sales regardless of the means of access to the Internet is consistent
with the Commission's longstanding intent to address all Internet
merchandise orders.
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\22\ IC3's report highlights two criminal prosecutions related
to non-delivery of merchandise purchased on the Internet. Id. at 13.
Additionally, several states have filed failure to deliver or
untimely delivery cases for a variety of products sold through the
Internet. Complaint for Injunctive Relief, Restitution, Civil
Penalties and Other Relief, Florida v. Lyne, 16-2008-CA-2759 (Fla.
Cir. Ct. Mar. 3, 2008); Complaint for Permanent Injunctive Relief,
Civil Penalties and Other Relief, Florida v. Showbiz Promotions,
LLC, 2009-CA-005681 (Fla. Cir. Ct. Apr. 9, 2009); Complaint for
Injunctive and Other Relief, People of State of Illinois ex. rel.
Madigan v. United World Exchange, No. 07CH16005 (Cook County Cir.
Ct. June 18, 2007); Complaint for Injunctive and Other Relief,
People of State of Illinois v. Meyer, No. 2007CH003506 (Dupage
County Cir. Ct. Dec. 28, 2007); Complaint for Declaratory Judgment,
Injunctive Relief, Consumer Restitution, and Civil Penalty, State of
Ohio ex. rel. Cordray v. Decorate With Style, Inc. d/b/a USA
WallPaper, Case No. 2009CV0885 (Ct. Common Pleas Erie County, Oct.
19, 2009).
\23\ This is an unfair or deceptive practice, as the Commission
indicated when it promulgated the initial Rule.
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Furthermore, because sellers cannot determine how buyers access
their Web sites, sellers that comply with the Rule do not distinguish
between access methods and comply with the Rule for all Internet
orders. Thus, explicitly covering all Internet transactions provides
clarity without imposing new costs on these sellers. Moreover,
consumers have no reason to expect that their legal protections depend
on how they access the Internet. Therefore, the Commission proposes
amending the Rule's name, coverage section, and the ``order sales''
definition by inserting the word ``Internet'' where appropriate.

B. Permit New Refund Delivery Options

The Commission proposes amending the Rule to allow sellers to
deliver refunds ``by any means at least as fast and reliable as first
class mail.'' Currently, sellers must send refunds and charge reversal
notices by first class mail. 16 CFR 435.1(b).\24\ When the Commission
promulgated the Rule, first class mail was the most reliable method of
ensuring timely refunds. In the ANPR, the Commission requested comment
on changing the first class mail requirement in light of new refund
methods, such as electronic transfer. ANPR, 72 FR at 51730.
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\24\ Specifically, Sec. 435.1(b) states that Prompt refund
shall mean: Where a refund is made pursuant to paragraph (d)(1) or
(2)(iii) of this section, a refund sent to the buyer by first class
mail within seven (7) working days of the date on which the buyer's
right to refund vests under the provisions of this part; where a
refund is made pursuant to paragraph (d)(2)(i) or (ii) of this
section, a refund sent to the buyer by first class mail within one
(1) billing cycle from the date on which the buyer's right to refund
vests under the provisions of this part.
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In response, two commenters favored, and none opposed, amending the
Rule to provide sellers with more flexibility when delivering refunds.
DMA suggested amending the Rule to ``embrace new practicable means of
sending refunds.'' DMA at 3. It stated that such a change would advance
the Rule's original intent of ensuring buyers receive refunds quickly
without unduly burdening sellers. Id. at 3-4 (citing Promulgation of
Rule: Correction, 40 FR at 51593.) Nwokeji commented that legal
requirements should recognize technological changes, and suggested
amending the Rule to permit refunds via electronic transfers and e-mail
notification of charge reversals or refunds. Nwokeji at 2.
This proposed amendment would also harmonize the Rule with
Regulation Z, which implements the Truth In Lending Act (``TILA''), 15
U.S.C. 1601 et seq. Regulation Z requires third party credit card
refunds to occur ``through the card issuer's normal channels for credit
statements.'' 12 CFR 226.12(e)(1). The proposed amendment should
eliminate potential inconsistency between the requirements of the Rule
and Regulation Z when the card issuer's normal channel does not include
first class mail.
Although DMA suggested that private couriers or electronic
transfers are at least as fast and reliable as first class mail for
providing refunds, the Commission's proposal does not identify specific
permissible methods other than first class mail. DMA at 4. Instead the
Commission proposes providing sellers flexibility to use any refund
delivery method they can demonstrate is as fast and reliable as first
class mail. This flexibility will allow sellers to incorporate new
delivery methods in the future.

C. Clarify Sellers' Obligations for Sales Using Non-Enumerated Payment
Methods

The Commission proposes amending the Rule to identify sellers's
obligations for sales made using all payment methods. The Rule's'
``mail or telephone order sales'' definition already explicitly covers
all mail or telephone order sales ``regardless of the method of
payment.'' 16 CFR Sec. 435.1(a).\25\ However, the Rule's definitions
tie sellers' shipment, notification, and refund obligations to payment
methods in just two categories: (1) Cash, check, or money order; or (2)
credit.\26\ Consequently, the Rule does not delineate sellers'
obligations when buyers pay by methods not enumerated in the Rule, such
as debit card, prepaid gift card, or payroll card payments.
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\25\ Specifically, Sec. 435.1(a) states:
Mail or telephone order sales shall mean sales in which the
buyer has ordered merchandise from the seller by mail or telephone,
regardless of the method of payment or the method used to solicit
the order.
\26\ Under the ``refund'' definition, if the buyer paid by cash,
check, or money order, the seller must send the buyer a refund by
cash, check, or money order. 16 CFR 435.1(d). If the buyer paid by
authorizing the seller to charge the buyer's charge account (i.e.,
by credit), the seller must act to remove or reverse the charge. Id.
Under the ``prompt refund'' definition, the seller must send
refunds by cash, check, or money order by first class mail within
seven working days after a buyer's right to a refund vests. 16 CFR
435.1(d)(1) and (2)(iii); 16 CFR 435.1(b)(1). If the buyer paid by
credit, the seller must send the charge reversal notice (i.e., the
refund) to the buyer by first class mail within one billing cycle of
a buyer's right to a refund vesting. 16 CFR 435.1(d)(2)(i) & (ii);
16 CFR 435.1(b)(2).
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To clarify sellers' obligations, the Commission suggested possible
solutions and asked for comment in the ANPR. Below, the Commission
describes: (1) The responsive comments, and (2) the Commission's
proposed amendments.
1. ANPR Comments
In the ANPR, the Commission sought comment to help identify the
appropriate requirements for sales made using newly developed payment
methods. ANPR, 72 FR at 51729. Specifically, the Commission asked
``into which of the two categories [(1) cash, check, or money order; or
(2) credit] the new payment methods best fall, or whether they should
be placed in a third category.'' Id.
Two commenters supported, and none opposed, amending the Rule to
delineate sellers' obligations.\27\ DMA suggested amending the Rule to
identify obligations for ``new forms of payment, including, but not
limited to, debit cards and demand drafts.'' DMA at 3. Nwokeji
suggested that ``[c]reating an expanded list [of payment methods] with
open-ended options may be preferable; that way consumers and merchants
are not trapped in a morass of administrative rigidity.'' Nwokeji at 2.
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\27\ NRF did not oppose expressly identifying the Rule's
obligations that apply when new payment methods are used, but as
discussed below, did raise concerns about sellers' refund
obligations triggered by the different payment methods. NRF at 3-4.
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The commenters, however, expressed conflicting opinions about how
to categorize payment methods that currently are not enumerated in the
Rule (``non-enumerated methods''). DMA advocated placing demand drafts
and debit card payments in the same category as cash, checks, or money
orders because doing so would

[[Page 60769]]

appropriately treat them ``in the same manner as check payment
methods.'' DMA at 3. In contrast, NRF recommended placing third party
card payment methods, i.e., payment methods where a party other than
the seller issues the payment card, in the same category as credit card
payments because sellers often cannot readily distinguish between debit
and credit card transactions. NRF at 4. It stated that placing
different requirements on debit card, payroll card, or third party gift
card payments than on credit card payments would be ``unnecessarily
cumbersome'' because it would force merchants to distinguish these
payments from credit card payments in order to meet the Rule's
requirements. NRF at 5.
NRF therefore recommended that transactions appearing to sellers to
operate as credit cards be subject to the same one billing cycle refund
requirement as credit transactions. NRF argued that applying this
requirement to payments by non-enumerated methods would not, as a
practical matter, inconvenience buyers because ``currently most
customers' [credit or debit] accounts are not debited for payment until
merchandise is ready for shipping'' to engender good customer
relations, to simplify Rule compliance, and to avoid the need to
process refunds. Id. Thus, according to NRF, in most instances where a
merchant fails to ship merchandise there is no charge to reverse.
Nwokeji commented that the Rule should allow sellers flexibility.
He suggested amending the Rule to require that ``refunds be made in the
manner in which payments were received with the exception of Western
Union, MoneyGram, escrow, Paypal, gift card, or other universally
accepted method of payment.'' Nwokeji at 3-4. For these exceptions, he
recommended refunds by check or, ``if the merchant is likely to incur
burdensome expense, the next best option * * *.'' Id.
2. FTC Proposal
Based on the comments, the Commission proposes amending the Rule to
create explicit requirements for sellers when buyers use non-enumerated
methods. Specifically, the Commission proposes creating a third payment
category, distinct from both the ``cash, check, or money order''
category, and from the ``credit'' category. The proposal requires
sellers to make prompt refunds of such payments by either reversing the
payment or sending a cash, check, or money order refund within seven
working days.
To effectuate these requirements, the Commission proposes amending
the definitions for: ``Receipt of a properly completed order,''
``Refund,'' and ``Prompt Refund.''
a. ``Receipt of a Properly Completed Order''
The current ``receipt of a properly completed order'' definition
establishes the starting point for calculating the time by which
sellers must ship orders, notify consumers of shipment delays, offer to
cancel orders, or make refunds. 16 CFR 435.1(c). Specifically, the Rule
times these obligations from the point when the buyer tenders payment
``in the form of cash, check, money order, or authorization from the
buyer to charge an existing charge account.'' Id. The Commission
proposes amending this definition to expressly include other payment
methods that are not enumerated in the Rule. The proposed amendment
would add that a seller also has receipt of a properly completed order
when the buyer tenders payment by ``other payment methods.'' The
amended definition would establish a clear starting point for
calculating the time by which sellers must ship or take other action,
regardless of the method of payment.
b. ``Refund''
The current ``refund'' definition prescribes the payment method for
refunding cash, check, or money order sales (Sec. 435.1(d)(1)), and
for credit sales (Sec. 435.1(d)(2)).\28\ The Commission proposes
amending this definition to establish the payment method sellers can
use to refund sales made with other methods of payment.\29\ The
proposed amendment would require sellers to refund such payments by
reversing the transaction or, where appropriate, by cash, check, or
money order.\30\ Alternatively, if sellers have not yet accessed the
buyers' funds, they must notify the buyers that they have not done so,
will not do so, and have cancelled the orders.
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\28\ The present ``refund'' definition provides that: (1) Where
the seller is the creditor, a seller can make a refund by sending
``an account statement reflecting the * * * absence of any remaining
charge''; and (2) where a third party is the creditor, a seller can
make a refund by sending ``a statement from the seller acknowledging
the cancellation of the order and representing that it has not taken
any action regarding the order which will result in a charge to the
buyer's account with the third party.'' 16 CFR 435.1(d)(2)(i)-(ii).
\29\ After considering the comments, the Commission no longer
proposes requiring that all non-enumerated payment method refunds be
made by cash, check, or money order. Requiring debit card, payroll
card, or gift card payment refunds to be made by cash, check, or
money order would require sellers to distinguish between electronic
payment methods in order to process refunds in accordance with the
Rule. NRF commented sellers cannot readily do so. The Commission's
proposal therefore avoids placing this additional burden on sellers.
\30\ For some payment methods, regulations or contractual
obligations may require sellers to reverse transactions rather than
issue refunds by cash, check, or money order. The proposed
amendments do not override such requirements.
---------------------------------------------------------------------------

Under this proposal, sellers would be able to use the same payment
method as the buyer to refund non-enumerated payments when that is the
simplest or cheapest means available.\31\ For example, sellers could
reverse debit card payments without distinguishing them from credit
card payments. This addresses NRF's concerns about the costs and
burdens of making such a determination.
---------------------------------------------------------------------------

\31\ The proposed amendment provides that, when sellers provide
refunds using the same non-enumerated payment method as the buyer,
``refund'' shall mean instructions sent to the entity that
transferred payment to the seller instructing that entity to return
to the buyer the amount tendered in the form tendered and a
statement sent to the buyer setting forth the instructions sent to
the entity, including the date of the instructions and the amount to
be returned to the buyer.
Proposed 16 CFR 435.1(d)(3)(i).
---------------------------------------------------------------------------

In addition, where appropriate, sellers could make refunds by cash,
check, or money order. This would provide flexibility where refunding:
(1) By the original payment method is not possible (e.g., because the
buyer has closed his or her debit card account, or value cannot be
returned to the buyer's prepaid gift card); or (2) by cash, check, or
money order is cheaper or easier (e.g., refunding by wire payment would
require a seller to pay wire fees).\32\
---------------------------------------------------------------------------

\32\ Contrary to NRF's recommendation, the Commission does not
propose requiring that sellers refund purchases made with non-
enumerated payment methods in the same manner as they refund credit
payments, by reversing such transactions. Some non-enumerated
payments, such as certain gift card payments, cannot be reversed,
and some non-enumerated payments may be expensive to reverse.
---------------------------------------------------------------------------

Finally, where a seller has not yet accessed a buyer's funds, a
seller could simply notify the buyer that it has cancelled the order.
This provision tracks an existing, similar provision dealing with
credit sales. 16 CFR 435.1(d)(2)(ii).
c. ``Prompt Refund''
The ``prompt refund'' definition sets the time frames and
identifies the recipients for prompt refunds of cash, check, money
order, and credit purchases.\33\ Sellers must refund cash, check, or
money order refunds within seven working days after a buyer's right to
a refund vests. For credit sales, sellers

[[Page 60770]]

must provide a refund within one billing cycle. The definition does not
specify the time frames or recipients for refunds for non-enumerated
payment method purchases.\34\
---------------------------------------------------------------------------

\33\ The Rule covers all sales ``regardless of the method of
payment'' and all sellers have an obligation to provide a ``prompt
refund'' within a reasonable time frame regardless of the buyer's
payment method. 16 CFR 435.1(a).
\34\ The ``prompt refund'' definition references subsections of
the ``refund'' definition that currently apply only to cash, check,
or money order payments, or to credit payments. The prompt refund
obligation is timed from the ``receipt of a properly completed
order.''
---------------------------------------------------------------------------

The Commission proposes amending the ``prompt refund'' definition
to require sellers to send refunds for transactions using non-
enumerated methods within seven working days of a buyer's right to a
refund vesting.\35\ Proposed 16 CFR 435.1(b)(1) and (d)(3). Under the
proposed amendment, when a seller learns that it cannot provide a
refund using the buyer's payment method, it must send a cash, check, or
money order refund within seven working days.\36\
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\35\ The Rule currently requires the seller to send the buyer
``a copy of an appropriate credit memorandum or the like to the
third party creditor.'' This requires the seller to send the
original credit memorandum to the third party creditor, and does not
set forth a time frame for sending the original. The Commission
proposes clarifying the Rule by amending the ``refund'' and ``prompt
refund'' definitions to explicitly require the seller to send the
original to the third party creditor within seven working days. The
Commission proposal further requires the seller to tell the buyer
the date that the seller sent the original to the third party
creditor and the amount of the charge to be removed.
\36\ For example, if a seller cannot reverse a debit card
payment because a buyer has closed his or her debit account, the
seller must send a cash, check, or money order refund within seven
working days.
---------------------------------------------------------------------------

The proposed amendment provides clarity, while imposing little
burden on sellers. Technological improvements make it easier for
sellers to process refunds within seven working days.\37\ The proposal
to permit prompt refunds by means at least as fast and reliable as
first class mail will permit sellers to take advantage of these faster
technologies. Moreover, when payment is made by credit or debit card,
sellers generally delay charging buyers' accounts until shipment to
avoid processing refunds. NRF at 5. Such a seller satisfies its refund
obligation by sending a notice informing the buyer that the seller has
cancelled the order and will not request payment.
---------------------------------------------------------------------------

\37\ See Nwokeji at 2.
---------------------------------------------------------------------------

D. Require Third Party Credit Sale Refunds Within Seven Working Days

The Commission proposes further amending the ``prompt refund''
definition to require sellers to provide refunds within seven working
days to buyers who purchased with third party credit cards (e.g., Visa,
MasterCard, or American Express cards).\38\ In addition to the obvious
benefit for consumers, the proposed amendment would also benefit
sellers in two ways.
---------------------------------------------------------------------------

\38\ As noted above, the Rule currently requires sellers to
provide refunds for all credit sales within one billing cycle. 16
CFR 435.1(b)(2) and (d)(2).
---------------------------------------------------------------------------

First, harmonizing the treatment of credit card sale orders and
sales by non-enumerated methods would provide simplicity for sellers.
NRF commented on the difficulty of distinguishing credit sales from a
number of other non-enumerated methods, such as debit card payments.
NRF at 4-5. The proposed amendment addresses this problem by setting
the same refund deadline for third party credit sales as for non-
enumerated methods, thereby limiting the need to distinguish between
different types of card payments.
Second, the seven working day time frame is consistent with current
credit card regulations and business practices. Regulation Z requires
that sellers make third party credit card refunds within seven business
days.\39\ 12 CFR 226.12(e)(1). Therefore, the proposed change should
have limited impact on sellers. Moreover, to avoid costs associated
with high chargeback rates, sellers have economic incentives to process
refunds immediately. For example, Visa advises merchants to process
refunds ``as quickly as possible, preferably the same day as the credit
transaction is generated'' to prevent chargebacks.\40\
---------------------------------------------------------------------------

\39\ Section 226.12(e)(1) of Regulation Z states: ``[w]hen a
creditor other than the card issuer accepts the return of property
or forgives a debt for services that is to be reflected as a credit
to the consumer's credit card account, that creditor shall, within 7
business days from accepting the return or forgiving the debt,
transmit a credit statement to the card issuer through the card
issuer's normal channels for credit statements.''
\40\ Preventing Chargebacks, http://usa.visa.com/merchants/operations/chargebacks_dispute_resolution/preventing_chargebacks.html.
---------------------------------------------------------------------------

The proposed amendment, however, recognizes that the Rule places
greater obligations on a seller creditor \41\ than on a seller using a
third party creditor (e.g., Visa). A seller creditor must remove a
charge within the time allotted by the Rule. A seller using a third
party creditor need only send timely notice to that third party.
Therefore, shortening the seller creditors' refund period to seven days
would create an additional burden, which the Commission declines to
propose at this time.\42\ However, the FTC seeks comment on whether
seller creditors should also be subject to the seven working day refund
deadline.
---------------------------------------------------------------------------

\41\ Seller creditors are merchants using their own store credit
or charge cards.
\42\ There is a huge disparity between the number of third party
creditor and seller creditor transactions. Retailer credit cards
where the retailer is the creditor appear to be less than 5 percent
of total debit and credit card sales. See http://www.creditcards.com/credit-card-news/retail-store-credit-card-comparison-table and http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt statistics. (2007 total
retail store credit card sales $138.8 million versus 2008 credit
card sales of $2.1 trillion, 2008 debit card sales of $1.33
trillion, and combined 2008 credit and debit card sales of $3.44
trillion.)
---------------------------------------------------------------------------

E. Demand Drafts as Check Payments

In the ANPR, the Commission sought comment on treating demand
drafts as checks. In the context of the MTOR, a demand draft is a check
created by the seller, with the buyer's authorization and the buyer's
checking account number, without a physical signature.\43\ As the
Commission noted in the ANPR, demand drafts allow sellers access to
buyers' bank accounts in the same manner as traditional checks.\44\
ANPR, 72 FR at 51729. Moreover, the Federal Reserve expressly
identifies a document with the attributes of a demand draft as a
``remotely-created check'' subject to Federal Reserve Regulation CC
governing the bank check clearing system. 12 CFR 229.2(fff); see also
Collection of Checks, 70 FR at 71218. Thus, the Commission considers
demand drafts to be checks, and refunds for payments made through
demand drafts should be processed in the same manner as checks. Because
the Rule already uses the term ``check,'' and the Commission's
interpretation clarifies but does not alter the substantive scope of
that term, the Commission finds it unnecessary to amend the Rule
further to reflect this interpretation.\45\
---------------------------------------------------------------------------

\43\ Other terms used include ``telechecks,'' ``preauthorized
drafts,'' and ``paper drafts.'' See Federal Reserve System:
Collection of Checks and Other Items by Federal Reserve Banks and
Funds Transfers Through Fedwire and Availability of Funds and
Collection of Checks: Final rule, 70 FR 71218 (``Collection of
Checks''), 71219, n.1. (Nov. 28, 2005).
\44\ Due to the substantial potential for fraud with demand
drafts, the Telemarketing Sales Rule prohibits the use of demand
drafts unless the telemarketer obtains an express verifiable
authorization (e.g., customer's express written authorization or
tape recorded oral authorization) from the consumer. 16 CFR
310.3(a)(3); see also ``Demand Draft Fraud,'' FTC Prepared Statement
Before the House of Representatives Banking Committee, April 15,
1996.
\45\ The Commission's definition of ``demand draft'' as a check,
if incorporated into the Rule as a formal amendment, would be an
interpretive rule not subject to notice and comment requirements.
See ANPR, 72 FR at 51728-29.
---------------------------------------------------------------------------

III. Request for Comment

You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before December 14,
2011. Write ``16 CFR part 435--Mail or Telephone Order Merchandise'' on
your comment. Your

[[Page 60771]]

comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to
remove individuals' home contact information from comments before
placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment doesn't include any
sensitive personal information, such as anyone's Social Security
number, date of birth, driver's license number or other state
identification number or foreign country equivalent, passport number,
financial account number, or credit or debit card number. You are also
solely responsible for making sure that your comment doesn't include
any sensitive health information, such as medical records or other
individually identifiable health information. In addition, don't
include any `[t]rade secret or any commercial or financial information
which is obtained from any person and which is privileged or
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, don't
include competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\46\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
---------------------------------------------------------------------------

\46\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
---------------------------------------------------------------------------

Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/MTORamendmentsNPRM, by following the instruction on the Web-based
form. If this Notice appears at http://www.regulations.gov/#!home, you
also may file a comment through that Web site.
If you file your comment on paper, write ``16 CFR Part 435--Mail or
Telephone Order Merchandise'' on your comment and on the envelope, and
mail or deliver it to the following address: Federal Trade Commission,
Office of the Secretary, Room H-113 (Annex N), 600 Pennsylvania Avenue,
NW., Washington, DC 20580. If possible, submit your paper comment to
the Commission by courier or overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before December 14, 2011. You can find more
information, including routine uses permitted by the Privacy Act, in
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Questions

The Commission seeks comments on all proposed Rule changes. The
Commission specifically solicits public comment on the costs and
benefits to buyers and sellers of each of the proposals. In addition,
the Commission solicits comments on the specific questions identified
below. These questions are designed to assist the public and should not
be construed to limit the issues about which the public may comment.
(1) In what ways, and to what extent, do buyers' experiences with
untimely shipments, notices of delay, and refunds for merchandise
ordered over the Internet through telephone connections resemble or
differ from their experiences for merchandise ordered over the Internet
through connections that use other means to access the Internet? What
evidence supports your answer?
(2) In what ways, and to what extent, do buyers' experiences with
untimely shipments, notices of delay, and refunds for merchandise
ordered using payment methods not specifically enumerated in the Rule
resemble or differ from their experiences for merchandise ordered using
cash, check, money order, or credit? What evidence supports your
answer?
(3) In the absence of express shipment representations, in what
ways and to what extent do buyers' expectations with respect to
shipment times or refunds for merchandise ordered using payment methods
not specifically enumerated in the Rule resemble or differ from their
expectations for merchandise ordered using cash, check, money order, or
credit? What evidence supports your answer?
(4) What usual or customary practices do sellers follow, and how
much time do they need, to make a ``prompt refund'' through first class
mail as required by the Rule? Would these practices and times differ
for refunds made by methods other than first class mail? If so, how? If
not, why not? What evidence supports your answer?
(5) What refund delivery means can sellers use that are at least as
fast and reliable as first class mail? What are the costs and benefits
of providing refunds by delivery means other than first class mail?
What evidence supports your answer?
(6) Would the following amendments impose costs or confer benefits
on buyers, especially small businesses? Would the amendments impose
costs or confer benefits on sellers, especially small businesses? If
so, how? If not, why not? What evidence supports your answers?
(a) Amending the Rule to explicitly cover all merchandise orders
placed over the Internet;
(b) Amending the ``prompt refund'' definition to permit sellers to
deliver refunds by any means at least as fast and reliable as first
class mail;
(c) Amending the ``receipt of a properly completed order''
definition to add that a seller has receipt of a properly completed
order when the seller receives ``authorization to access the buyer's
funds by other payment methods.''
(d) Amending the ``refund'' definition to require sellers, who
accept payment for mail, Internet, or telephone merchandise orders by
payment methods other than cash, check, money order, or credit, to make
required refunds by the same method that payment was tendered; or by
cash, check, or money order; or by sending a statement to the buyer
acknowledging the cancellation of the order and representing that the
seller has not accessed any of the buyer's funds;
(e) Amending the ``prompt refund'' definition to require sellers to
make refunds by cash, check, or money order within seven working days
of the date on which sellers discover they cannot provide a refund by
the same method as the customer tendered payment for mail, Internet, or
telephone merchandise orders made with non-enumerated payment methods;
(f) Amending the ``prompt refund'' definition to require sellers to
make

[[Page 60772]]

refunds within seven working days of the date on which the buyer's
right to a refund vests for mail, Internet, or telephone merchandise
orders, other than credit orders where the seller is the creditor; and
(g) Amending the ``prompt refund'' definition to require sellers to
make refunds within seven working days from the date on which the
buyer's right to a refund vests for mail, Internet, or telephone
merchandise orders, including credit orders where the seller is the
creditor.
(7) What methods of payment other than check, cash, money order or
credit do sellers accept as payment for mail, Internet, or telephone
merchandise orders? For each of these payment methods, identify whether
a seller can provide a refund in the form tendered? If so, how? If not,
why not? What evidence supports your answer?
(8) When a purchase is made using a debit card, credit card, or
prepaid card, to what extent do sellers delay accessing the buyer's
assets to remove funds for payment until the merchandise is shipped? Do
sellers delay accessing the buyer's funds when accepting any other
payment method(s)? What evidence supports your answer?
(9) General Questions: To maximize the benefits and minimize the
costs for buyers and sellers (including specifically small businesses),
the Commission seeks views and data on the following general questions
for all the proposed changes described in this document:
(a) What benefits would the proposed changes confer, and on whom?
(b) What paperwork burdens would the proposed changes impose, and
on whom?
(c) What other costs or burdens would the proposed changes impose,
and on whom?
(d) What regulatory alternatives to the proposed changes are
available that would reduce the burdens of the proposed changes while
providing the same benefits?

IV. Communications to Commissioners and Commissioner Advisors by
Outside Parties

Pursuant to Commission Rule 1.18(c)(1), the Commission has
determined that communications with respect to the merits of this
proceeding from any outside party to any Commissioner or Commissioner
advisor shall be subject to the following treatment. Written
communications and summaries or transcripts of oral communications
shall be placed on the rulemaking record if the communication is
received before the end of the comment period on the staff report. They
shall be placed on the public record if the communication is received
later. Unless the outside party making an oral communication is a
member of Congress, such communications are permitted only if advance
notice is published in the Weekly Calendar and Notice of ``Sunshine''
Meetings.\47\
---------------------------------------------------------------------------

\47\ See 15 U.S.C. 57a(i)(2)(A); Federal Trade Commission: Oral
Presentations Before the Commission and Communications With
Commissioners and Their Staffs in Trade Regulation Rulemaking
Proceedings: Proposed Rule, 45 FR 50814 (1980); Federal Trade
Commission: Oral Presentations Before the Commission and
Communications With Commissioners and Their Staffs in Trade
Regulation Rulemaking Proceedings: Final Rules, 45 FR 78626 (1980).
---------------------------------------------------------------------------

V. Preliminary Regulatory Analysis and Regulatory Flexibility Act
Requirements

Under Section 22 of the FTC Act, 15 U.S.C. 57b, the Commission must
issue a preliminary regulatory analysis for a proceeding to amend a
rule only when it: (1) Estimates that the amendment will have an annual
effect on the national economy of $100 million or more; (2) estimates
that the amendment will cause a substantial change in the cost or price
of certain categories of goods or services; or (3) otherwise determines
that the amendment will have a significant effect upon covered entities
or upon consumers. The Commission has preliminarily determined that the
proposed amendments to the Rule will not have such effects on the
national economy; on the cost of ordering merchandise by mail,
telephone, or over the Internet; or on covered parties or consumers.
The comments indicate that sellers already treat Internet orders in the
same manner as mail or telephone orders, and do not charge buyers'
debit cards until the time of shipment, so the proposed amendments
would not require sellers to alter their behavior and would not impose
additional costs on sellers. The Commission, however, requests comment
on the economic effects of the proposed amendments.
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612,
requires that the Commission conduct an analysis of the anticipated
economic impact of the proposed amendments on small entities. The
purpose of a regulatory flexibility analysis is to ensure that an
agency consider the impacts on small entities and examines regulatory
alternatives that could achieve the regulatory purpose while minimizing
burdens on small entities. Section 605 of the RFA, 5 U.S.C. 605,
provides that such an analysis is not required if the agency head
certifies that the regulatory action will not have a significant
economic impact on a substantial number of small entities.
The Commission believes that the proposed amendments to the Rule
would not have a significant economic impact upon small entities,
although it may affect a substantial number of small businesses.
Specifically, the Commission is proposing a few limited amendments
designed to clarify the Rule and defining for sellers how to satisfy
the Rule's refund requirement. In the Commission's view, the proposed
amendments should not have a significant or disproportionate impact on
the costs of small entities that solicit orders for merchandise to be
ordered through the mail, by telephone, or via the Internet. To the
extent that the proposed amendments expand the Rule's coverage, the
proposed amendments do so in a way that will not result in
significantly higher costs because sellers generally have already
aligned their practices with the proposed amendments. Specifically,
expanding the Rule to clarify its application to all Internet
merchandise orders will not result in significantly higher costs as the
comments indicate that sellers currently treat all Internet orders as
being subject to the Rule. Dearing at 2, DMA at 3, NRF at 3, Nwokeji at
1. Moreover, defining the timing and method of refunding non-enumerated
payment methods should not have a significant cost impact on small
entities because sellers typically do not access buyer funds until
merchandise shipment, and thus there are only a limited number of
refunds issued. NRF at 5. For the same reason, requiring refunds for
third party credit sales within seven working days should not have a
significant impact on small entities. Therefore, based on available
information, the Commission certifies that amending the MTOR as
proposed will not have a significant economic impact on a substantial
number of small businesses.
Although the Commission certifies under the RFA that the proposed
Rule would not, if promulgated, have a significant impact on a
substantial number of small entities, the Commission has determined,
nonetheless, that it is appropriate to publish an Initial Regulatory
Flexibility Analysis in order to inquire into the impact of the
proposed Rule on small entities. Therefore, the Commission has prepared
the following analysis:

[[Page 60773]]

A. Description of the Reasons That Action by the Agency Is Being Taken

In response to public comments, the Commission proposes amending
the Rule to respond to the development of new technologies and changed
commercial practices.

B. Statement of the Objectives of, and Legal Basis for, the Proposed
Rule

The objective of the proposed Rule is to clarify that the Rule
covers all Internet merchandise orders, allow sellers to provide
refunds and refund notices to buyers by any means at least as fast and
reliable as first class mail, clarify sellers' obligations under the
Rule for sales made using payment methods not specifically enumerated
in the Rule, and require sellers to process any third party credit card
refund within seven working days of a buyer's right to a refund
vesting. Section 18(b)(3) of the FTC Act, 15 U.S.C. 57a(b)(3) provides
the Commission with authority to issue a notice of proposed rulemaking
where it has reason to believe that the unfair or deceptive acts or
practices which are the subject of the proposed rulemaking are
prevalent.

C. Small Entities to Which the Proposed Rule Will Apply

Under the Small Business Size Standards issued by the Small
Business Administration, Mail-Order Houses qualify as small businesses
if their sales are less than $ 35.5 million annually. The Commission
estimates that the proposed Rule will not have a significant impact on
small businesses because, according to comments, sellers already comply
in many respects with the requirements of the proposed Rule. The
Commission seeks comment and information with regard to the estimated
number or nature of small business entities for which the proposed Rule
would have a significant impact.

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements, Including Classes of Covered Small Entities and
Professional Skills Needed To Comply

As explained earlier in this document, the proposed amendments will
clarify that the Rule covers all Internet merchandise sales regardless
of how buyers access the Internet, will allow sellers to provide
refunds and refund notices by means at least as fast and reliable as
first class mail, and will clarify sellers' obligations under the Rule
for sales made using non-enumerated payment methods. The small entities
potentially covered by these amendments will include all such entities
subject to the Rule (e.g., for purposes of the proposed amendment,
entities selling merchandise ordered by mail, Internet, or telephone
and paid for using non-enumerated payment methods). The professional
skills necessary for compliance with the proposed amendments would
include clerical personnel. The Commission invites comment and
information on these issues.

E. Duplicative, Overlapping, or Conflicting Federal Rules

The Commission has not identified any other Federal statutes,
rules, or policies that would duplicate, overlap, or conflict with the
proposed Rule. The Commission invites comment and information on this
issue.

F. Significant Alternatives to the Proposed Rule

The Commission has not proposed any specific small entity exemption
or other significant alternatives, as the proposed amendments simply
clarify the scope of the rule (i.e., Internet sales), provide
additional compliance options (e.g., for refunds and refund notices),
and require certain actions (e.g., refunds) consistent with the Rule's
existing requirements. Under these limited circumstances, the
Commission does not believe a special exemption for small entities or
significant compliance alternatives are necessary or appropriate to
minimize the compliance burden, if any, on small entities while
achieving the intended purposes of the proposed amendments.
Nonetheless, the Commission seeks comment and information on the need,
if any, for alternative compliance methods that would reduce the
economic impact of the Rule on small entities. If the comments filed in
response to this Notice identify small entities that would be affected
by the proposed Rule, as well as alternative methods of compliance that
would reduce the economic impact of the proposed Rule on such entities,
the Commission will consider the feasibility of such alternatives and
determine whether they should be incorporated into the final Rule.

VI. Paperwork Reduction Act

The MTOR contains various information collection requirements for
which the Commission has obtained clearance under the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq. (``PRA''), Office of Management
and Budget (``OMB'') Control Number 3084-0106. OMB renewed 3-year PRA
clearance for the MTOR on February 16, 2010, effective through February
28, 2013.
As discussed above, the Commission is proposing a limited number of
amendments designed to clarify the Rule and provide sellers with
methods for satisfying the Rule's refund requirement. As described
above, to the extent that the proposed amendments expand the Rule's
coverage, the proposed amendments do so in a way that will not result
in significantly higher costs because sellers have already aligned
their practices with the proposed amendments. Dearing at 2, DMA at 3,
NRF at 3, Nwokeji at 1.
In the Commission's view, there are no additional ``collection of
information'' requirements included in the proposed amendments to
submit to OMB for clearance under the PRA. Consequently, the proposed
amendments would not affect the PRA ``burden'' associated with the
Rule's requirements.

VII. Proposed Rule Language

List of Subjects in 16 CFR Part 435

Mail order merchandise, Telephone order merchandise, Trade
practices.

For the reasons set out in the preamble, the Commission is
proposing to amend 16 CFR part 435 as follows:

PART 435--MAIL, INTERNET, AND TELEPHONE ORDER MERCHANDISE

1. The authority citation for part 435 continues to read as
follows:

Authority: 15 U.S.C. 57a.

2. Revise the heading of part 435 to read as set forth above.
3. Amend Sec. 435.1 by revising paragraphs (a) through (d) to read
as follows:

Sec. 435.1 Definitions.

* * * * *
(a) Mail, Internet, or telephone order sales shall mean sales in
which the buyer has ordered merchandise from the seller by mail, via
the Internet, or by telephone, regardless of the method of payment or
the method used to solicit the order.
(b) Prompt refund shall mean:
(1) Where a refund is made pursuant to paragraph (d)(1),
(d)(2)(ii), (d)(2)(iii), or (d)(3) of this section, a refund sent by
any means at least as fast and reliable as first class mail within
seven (7) working days of the date on which the buyer's right to refund
vests under the provisions of this part. Provided, however, that where
the seller cannot provide a refund by the same method payment was
tendered, prompt refund shall mean a refund sent in the form of cash,
check, or money order, by any means at least as fast and reliable as
first

[[Page 60774]]

class mail, within seven (7) working days of the date on which the
seller discovers it cannot provide a refund by the same method as
payment was tendered;
(2) Where a refund is made pursuant to paragraph (d)(2)(i) of this
section, a refund sent by any means at least as fast and reliable as
first class mail within one (1) billing cycle from the date on which
the buyer's right to refund vests under the provisions of this part.
(c) Receipt of a properly completed order shall mean, where the
buyer tenders full or partial payment in the proper amount in the form
of: cash, check, or money order; authorization from the buyer to charge
an existing charge account; or other payment methods, the time at which
the seller receives both said payment and an order from the buyer
containing all of the information needed by the seller to process and
ship the order. Provided, however, that where the seller receives
notice that a payment by means other than cash or credit as tendered by
the buyer has been dishonored or that the buyer does not qualify for a
credit sale, receipt of a properly completed order shall mean the time
at which:
(1) The seller receives notice that a payment by means other than
cash or credit in the proper amount tendered by the buyer has been
honored;
(2) The buyer tenders cash in the proper amount; or
(3) The seller receives notice that the buyer qualifies for a
credit sale.
(d) Refund shall mean:
(1) Where the buyer tendered full payment for the unshipped
merchandise in the form of cash, check, or money order, a return of the
amount tendered in the form of cash, check, or money order sent to the
buyer;
(2) Where there is a credit sale:
(i) And the seller is a creditor, a copy of a credit memorandum or
the like or an account statement sent to the buyer reflecting the
removal or absence of any remaining charge incurred as a result of the
sale from the buyer's account;
(ii) And a third party is the creditor, an appropriate credit
memorandum or the like sent to the third party creditor which will
remove the charge from the buyer's account and a copy of the credit
memorandum or the like sent to the buyer that includes the date that
the seller sent the credit memorandum or the like to the third party
creditor and the amount of the charge to be removed, or a statement
from the seller sent to the buyer acknowledging the cancellation of the
order and representing that it has not taken any action regarding the
order which will result in a charge to the buyer's account with the
third party;
(iii) And the buyer tendered partial payment for the unshipped
merchandise in the form of cash, check, or money order, a return of the
amount tendered in the form of cash, check, or money order sent to the
buyer.
(3) Where the buyer tendered payment for the unshipped merchandise
by any means other than those enumerated in paragraph (d)(1) or (2) of
this section:
(i) Instructions sent to the entity that transferred payment to the
seller instructing that entity to return to the buyer the amount
tendered in the form tendered and a statement sent to the buyer setting
forth the instructions sent to the entity, including the date of the
instructions and the amount to be returned to the buyer; or
(ii) A return of the amount tendered in the form of cash, check, or
money order sent to the buyer; or
(iii) A statement from the seller sent to the buyer acknowledging
the cancellation of the order and representing that the seller has not
taken any action regarding the order which will access any of the
buyer's funds.
* * * * *
4. Amend Sec. 435.2 by revising the introductory text of the
section and the introductory text of paragraph (a)(1) to read as
follows:

Sec. 435.2 Mail or telephone order sales.

In connection with mail, Internet, or telephone order sales in or
affecting commerce, as ``commerce'' is defined in the Federal Trade
Commission Act, it constitutes an unfair method of competition, and an
unfair or deceptive act or practice for a seller:
(a)(1) To solicit any order for the sale of merchandise to be
ordered by the buyer through the mail, via the Internet, or by
telephone unless, at the time of the solicitation, the seller has a
reasonable basis to expect that it will be able to ship any ordered
merchandise to the buyer:
* * * * *

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2011-24354 Filed 9-29-11; 8:45 am]
BILLING CODE 6750-01-P