The Federal Trade Commission is considering putting more teeth into the regulations that protect consumers who experience problems with late deliveries, deliveries of the wrong items, merchandise orders they have not received and refunds that have not been made.
This story first appeared in the January 23, 2008 issue of WWD. Subscribe Today.
The National Retail Federation and the Direct Marketing Association are advocating expansion of the Mail or Telephone Order Merchandise Rule to regulate all orders placed online by consumers, a change that would be chief among those the FTC could implement to the regulation. Any changes in the regulations are expected to come during the first half of 2008.
Most big merchants generally are complying with the direct order merchandise rule, government and trade association officials said. Nonetheless, consumer complaints about merchandise orders placed by phone, catalogue and online were the second most numerous ones made to the FTC in 2006, totaling 46,995. They ran a distant second to the most common complaint, identity theft, about which 246,035 were registered.
With the rule’s last revision, in 1993, to include goods ordered on the phone, items bought via dial-up Internet links were also protected by virtue of their phone connections. In the 15 years since then, dial-up connections have shrunk to represent about 35 percent of the country’s online population, while broadband connections account for about 65 percent of Internet users in the U.S., noted Ken Cassar, vice president of custom analytics at Nielsen/NetRatings. The number of broadband users surpassed those with narrow-band, phone-based access back in May 2004, Cassar said.
“If you want consumers to trust shopping online, you want them to have the same protections, regardless of the method [of Internet connection,]” said Mallory Duncan, NRF’s senior vice president and general counsel. “What you don’t want is for online to become a haven for bad actors.”
Any changes made by the government would follow the FTC’s current review of comments on the rule and the agency’s renewal of the regulation, which was implemented in 1975 in response to people’s complaints about mail-order merchandise deliveries and refunds. Also under consideration is whether purchases made with newer forms of payment such as debit cards and Internet payment services like PayPal should be covered, and whether refunds should be made to shoppers by any means other than first-class mail, such as UPS or Federal Express.
People shopping smaller catalogues, online stores and telemarketers as well as those purchasing artisanal and one-of-a-kind items are among those most likely to experience problems with deliveries and refunds, according to government and trade association officials.
“Delivery often becomes the most important part of the online shopping process, given how many people are getting their purchases immediately,” said Lauren Freedman, president of consultant The E-tailing Group. “We’re living in a FedEx culture. It’s like, ‘I’m waiting this long to get it?'” In the group’s 10th annual customer service survey of 100 online stores during the fourth quarter, two delivery glitches popped up: packages dropped by third-party shippers at post offices, where they were delayed until more items destined for the same area arrived and could be delivered at the same time, and to a lesser extent, orders placed for goods that were not yet available, unbeknownst to the purchaser.
It took an average of “slightly over four days,” Freedman said, for the 100 sites surveyed to deliver the goods ordered.
Shoppers unable to resolve delivery and refund problems with merchandise ordered can file a complaint with the FTC or their state attorney general, seeking a consumer injury award or civil penalties. Pursuit of civil penalties is now the most common route taken, a combination of federal laws and regulations providing for penalties that can range as high as $11,000 per violation of the merchandise order rule, said Joel Brewer, an attorney at the FTC’s Bureau of Consumer Protection. “Civil penalties have gone up year-by-year since the first year of the rule, 1975,” Brewer said. “Violations are not viewed as forgivingly anymore.”
Brewer said a direct order merchandise rule case is pending, but he declined to specify. The second-largest civil penalty ever assessed under the merchandise order regulation, $850,000, was levied in May 2003 against Staples, when the FTC settled a complaint that the office supply chain misled customers on its Web site about the “real time” availability of its products and the site’s ability to deliver them in the time promised.
In speaking of compliance with the merchandise order rule, Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association, observed, “The thing that’s most at stake is the customer relationship. Good word of mouth is vital for direct marketers — people aren’t holding the goods in their hands physically as they are in a store. It’s part of the trust.”
Keeping the Customer Satisfied
77%: Share of people in 10 countries inclined to keep doing business with a company that gives them good service.
57%: Share of U.S. consumers for whom customer service is the top factor when seeking a new retailer to shop.
44%: Portion of people in the U.S. who expect more from stores, catalogues and online shops than they did five years ago.
23%: Portion of people in the U.S. who expect more from stores, catalogues and online shops than they did one year ago.
Source: Accenture 2007 Global Customer Service Satisfaction Report, polling 3,500 adults in 10 countries, including the U.S., Canada, Brazil, China, Australia and the U.K.
Shoppers’ prospects of resolving delivery problems — a key aspect of customer service — could improve if the FTC expands its direct order merchandise rule.