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FTC Proposes to Extend Consumer Protections in “Mail or Telephone Order Merchandise Rule” to All E-Commerce and Payment Methods

Posted in Regulatory and Compliance

On Dec. 14, 2011, the public comment period for the Federal Trade Commission’s proceeding to “update” the “Mail or Telephone Order Merchandise Rule” (MOTM Rule) closed, setting the stage for the FTC to potentially expand the reach of the MOTM Rule to impose certain shipping, customer notification and refund requirements on essentially every Internet merchandise sale, regardless of the payment method used. Moreover, the revised rule would make it an “unfair and deceptive act or practice” to solicit any Internet merchandise sale without a reasonable basis to expect that ordered merchandise can be shipped.

Since 1975 (as amended in 1993), the MOTM Rule has established certain minimum consumer protections for mail and telephone sales. (The recent 2011 amendment reorganized the definitions in alphabetical order, but did not make substantive changes.) These minimum requirements include rules governing when a seller must ship its merchandise to a consumer, the consequences for not meeting the anticipated shipping date, and the time by which the seller must issue a refund. eFailure to comply with these and other MOTM Rule requirements is an “unfair and deceptive act or practice” subject to the FTC’s enforcement jurisdiction.

However, the MOTM Rule currently only applies to merchandise sales made through the mail or over the telephone, which includes Internet sales but only to the extent that the consumer accesses the Internet via a dial-up service (i.e., through a “telephone” line modem). Thus, transactions made over broadband and wireless services (which today facilitate the vast majority of Internet sales) are not currently covered by the MOTM Rule. Moreover, while the rule covers transactions “regardless of payment or the method used to solicit the order,” the shipping, notification and refund provisions are only triggered by sales involving cash, check, money orders or credit cards. Sales made using a debit card or prepaid access device, for example, are not covered.

Under the revised MOTM Rule, nearly all Internet merchandise sales involving any type of payment method would be covered. The following chart summarizes the more notable changes to the MOTM Rule proposed by the FTC, as compared to the current rule.

Not all proposed changes are reflected in the above chart. The FTC’s press release is available here, and the full text of the proposed rules can be found here. The full text of the current MOTM Rule (as amended in 2011) is available here. For additional guidance on the current MOTM Rule, the FTC’s Business Guide to the FTC’s Mail or Telephone Order Merchandise Rule is available here.