FTC Revisits Mail or Telephone Order Rule

By Jeffrey D. Knowles

On September 5, 2007, the Federal Trade Commission announced in the Federal Register that it would accept public comments on the Mail or Telephone Order Merchandise Rule (MTOR) as part of the Commission's periodic review of each of its regulations to ensure that the costs and benefits of the regulations remain relevant to current marketing and technological practices. The FTC will accept public comment on the rule through November 7, 2007. During the review process, the FTC will examine the relevance of the MTOR and decide whether the regulation should be retained, modified or rescinded.

BACKGROUND
The rule now known as the MTOR was originally promulgated in 1975 as the "Mail Order Rule" in response to complaints from consumers with regard to merchants that had failed to ship merchandise ordered via mail in a timely manner, failed to ship the merchandise at all, and/or failed to provide refunds for merchandise that was not shipped. In 1993, the FTC updated the Mail Order Rule due to similar complaints from consumers who had ordered products via telephone. In 1994, the updated rule, renamed the Mail or Telephone Order Merchandise Rule, went into effect. The expanded rule covered not only products ordered via mail, but also products ordered via telephone, fax machine or by computer through the use of a modem.

UPDATING THE RULE
Since the FTC will almost certainly decide to retain the MTOR, the substantive questions about the review process revolve around how the rule will be updated to accommodate changes in business and consumer behaviors over the past 13 years. The FTC's questions essentially boil down to these four:

• Should the rule be revised to clarify how it applies to all orders made via the Internet?
• Should the rule be updated to reflect the broad array of payment options now available to consumers, and how should inconsistencies in the procedures for handling payments via credit accounts and checks or money orders be reconciled to apply to payment options--such as debit cards--that straddle the line between the two types of payment currently included in the rule?
• Should the rule be modified to address new technologies such as electronic funds transfer and e-mail that are now available to marketers and consumers?
• What are the costs and benefits of each of the rule's requirements to consumers and the companies that must bear the costs of compliance with the rule?

CATCHING UP WITH THE INTERNET REVOLUTION
When the MTOR took effect in 1994, the rule covered almost all merchandise purchased by telephone. Under the rule, "telephone" meant any direct or indirect use of the telephone. This definition effectively covered orders made via fax machine and computer, which almost all used telephone-based dial-up services. Although it is clear that the original intent of the FTC was to include all Internet-based transactions under the purview of MTOR, the language of the rule--coupled with the introduction of technologies such as wireless Internet, cable-based modems and broadband over power lines--has created the possibility for confusion over whether large numbers of Internet transactions fall under the purview of MTOR.

The FTC seeks comment on whether it should amend the rule to expressly cover all merchandise ordered using a computer or via the Internet and, if so, what language should be included in the text of the amended rule.

CASH, CHARGE OR OTHER
The rise of alternative forms of payment such as debit cards, draft on demand and pay by phone also have created the potential for confusion with regard to whether certain transactions fall under the purview of the MTOR.

The first area of interest to the FTC is the inconsistent definitions found in the rule. While Section 435.2(a) of MTOR clearly states that mail or telephone sales are sales in which "the buyer has ordered merchandise from the seller by mail or telephone, regardless of the method of payment," the definitions of several terms, including "receipt of a properly completed order," "refund" and "prompt refund" mention only payments by "cash, check, money order" or authorized charges to "an existing charge account."

To rectify this issue, the FTC is seeking comment on whether Section 435.2 (a) should be amended to replace the phrase "cash, check, money order" with "other than credit."

Another issue the FTC will examine in its review of the MTOR is how to deal with payment options such as debit cards and demand drafts, which do not fit neatly into the rule's current categories of payment. This is a particular problem because the MTOR treats credit and other ("cash, check, money order") transactions differently and creates different responsibilities on the part of the merchant for each of these transactions.

For instance, under MTOR, merchants must provide refunds for transactions paid with cash, check or money order via first-class mail within seven business days. However, merchants have a full billing cycle, often 28 calendar days, in which to provide a requested refund for a credit transaction.

In the Federal Register solicitation, the FTC seems to advocate the view that debit and draft-on-demand transactions should be treated as "other" transactions because they give the merchant direct access to funds in the consumer's bank account.

FINDING BETTER WAYS TO DO BUSINESS
The FTC also is soliciting public comment on ways in which the rule should be updated to take advantage of technologies and practices that could increase merchants' efficiencies and provide better service to consumers. One example cited in the Federal Register solicitation is whether MTOR's requirement to provide refunds or notification of refunds (in the case of a credit transaction) via first-class mail should be amended to allow methods of delivery that are at least as fast and reliable as first-class mail. Examples cited in the document include use of parcel services such as UPS and FedEx, delivery of notification of refund via e-mail, and delivery of refunds directly to consumers' bank accounts via technologies such as electronic funds transfer.

INDUSTRY PARTICIPATION
It is important for electronic retailers and other members of the direct marketing community to examine the rule and participate in the public comment process, as it is certain the consumer advocate groups will provide comments, and a lack of industry representation could result in changes to MTOR that are detrimental to the business practices of companies that market and sell products by mail, telephone or the Internet.

Public comments may be filed via the Internet at https://secure.comment works.com/ftc-MTORComment.

Jeffrey D. Knowles manages Venable LLP's Government Division and heads the firm's Advertising and Marketing Practice Group. Knowles is the immediate past chairman of the ERA Board. He can be reached at (202) 344-4860.