[Federal Register Volume 76, Number 190 (Friday, September 30, 2011)]
[Rules and Regulations]
[Pages 60715-60720]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24352]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

16 CFR Part 435


Mail or Telephone Order Merchandise Rule

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

ACTION: Final rule amendments.

-----------------------------------------------------------------------

SUMMARY: The FTC announces it is retaining the Mail or Telephone Order 
Merchandise Rule (``MTOR'' or ``Rule''). Based on previous Rule 
proceedings and after reviewing public comments received regarding the 
Rule's overall costs, benefits, and regulatory and economic impact, the 
Commission concludes that the Rule continues to benefit consumers and 
the Rule's benefits outweigh its costs. For clarity, the Commission is 
reorganizing the Rule by alphabetizing the definitions at the beginning 
of the Rule.

DATES: Effective Date: September 30, 2011.

ADDRESSES: Requests for copies of the Final MTOR should be sent to: 
Public Reference Branch, Federal Trade Commission, 600 Pennsylvania 
Avenue, NW., Room 130, Washington, DC 20580. The complete record of 
this proceeding is also available at that address. Relevant portions of 
this proceeding, including the public comments received in response to 
the Advance Notice of Proposed Rulemaking are available at: http://www.ftc.gov/os/comments/mailortelephoneorder/index.shtm and the related 
News Release is available at: http://www.ftc.gov/opa/2007/09/fyi07262.shtm.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    The MTOR prohibits sellers from soliciting mail or telephone order 
sales unless the sellers have a reasonable basis to expect that they 
will be able to ship the ordered merchandise within the time stated on 
the solicitation, or, if no time is stated, within 30 days of receipt 
of an order. 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.
    The Commission originally promulgated the Mail Order Rule (as the 
Rule was originally known) 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\
---------------------------------------------------------------------------

    \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., 1981 U.S. Dist. LEXIS 
15444 at *8 (N.D. Ga. 1981). The Mail Order Rule took effect 
February 2, 1976.
---------------------------------------------------------------------------

    A second proceeding, ending 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 and renamed the Rule the ``Mail or 
Telephone Order Merchandise Rule.'' \2\
---------------------------------------------------------------------------

    \2\ Federal Trade Commission: Trade Regulation Rule; Mail or 
Telephone Order Merchandise: Final Trade Regulation Rule, 58 FR 
49096, 49097 (Sept. 21, 1993).
---------------------------------------------------------------------------

    The Commission reviews all its rules and guides periodically to 
obtain information about their costs and benefits and their economic 
and regulatory impact. As part of this review process, the Commission 
published a request seeking public comments on the costs and benefits 
of the Rule and the continuing need for the Rule.\3\ In

[[Page 60716]]

addition, the Commission suggested technical revisions reversing the 
order of MTOR sections 435.1 and 435.2 and organizing the Rule's 
definitions alphabetically. Id.
---------------------------------------------------------------------------

    \3\ Federal Trade Commission: Mail or Telephone Order 
Merchandise: Request For Public Comment, 72 FR 51728 (Sept. 11, 
2007). The Commission also sought public comments, assuming the 
Commission retained the Rule, on how it might change the Rule to 
reflect changes in technology and commercial practices. Id. In a 
separate Notice of Proposed Rulemaking (``NPRM''), the Commission 
proposes amending the MTOR 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, such as debit cards; and (4) requiring sellers to provide 
refunds within seven working days where the buyer uses a third party 
credit card, such as Visa or MasterCard.
---------------------------------------------------------------------------

II. Retention of the MTOR

    The Commission received four comments, all identifying a continuing 
need for the Rule.\4\ Two major trade associations representing direct 
marketers affected by the Rule, the National Retail Federation 
(``NRF'') \5\ and the Direct Marketing Association (``DMA''),\6\ 
supported retaining the MTOR. According to NRF, the MTOR ``creates 
explicit competition among retailers to minimize and validate shipping 
times for consumers' benefit.'' NRF at 2. NRF further stated that 
``[i]n short, the Rule is a well designed balance of competitive 
incentives that benefits retailers and their customers alike.'' Id. DMA 
strongly supported ``the continued uniform FTC regulation of 
merchandise orders by mail, telephone, fax, computer, and the 
Internet.'' DMA at 2. DMA commented that the Rule has ``been effective 
in enhancing consumer confidence in the growth of distance selling, 
which is critical to the development of electronic commerce,'' and that 
the Rule's requirements ``make good business sense and are well-
integrated into the business practices of our members.'' Id.
---------------------------------------------------------------------------

    \4\ All comments 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.
    \5\ NRF identifies itself as the world's largest retail trade 
association with membership from all retailing formats and 
distribution channels (e.g., catalog, Internet). NRF at 1. NRF's 
membership comprises more than 1.6 million U.S. retail 
establishments with 2006 sales of $4.7 trillion. Id.
    \6\ DMA is a global trade association 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.
---------------------------------------------------------------------------

    The Commission also received comments supporting the Rule from two 
individuals, Paul T. Dearing (``Dearing'') and Oriyomi Nwokeji 
(``Nwokeji''). Dearing commented that the Rule provides buyers with 
``basic rights and expectations regarding the receipt of their 
merchandise'' ordered by mail, telephone, or the Internet. Dearing at 
1. Similarly, Nwokeji commented that the Rule ``safeguards the rights 
of * * * customers'' and is a ``cautionary restraint against * * * 
overzealous merchants.'' Nwokeji at 1. He also commented that 
``[c]onsumers need [the] MTOR'' because it provides for prompt refunds 
and ascertainable shipment dates, thereby enhancing easy, fast, 
affordable, varied, and convenient shopping by mail or telephone. Id.
    The Commission requested comments on the costs associated with the 
Rule, but none of the commenters identified any specific costs or 
burdens associated with complying with the Rule's requirements. This 
absence of comments identifying specific costs or burdens, coupled with 
the support for the Rule voiced by two major trade associations 
representing industry members, suggests that the Rule's benefits to 
industry members significantly outweigh its costs.\7\ The Commission 
thus concludes there is a continuing need for the Rule.
---------------------------------------------------------------------------

    \7\ Similarly, in 2009 and 2010, the Commission published its 
most recent estimates of the information collection burdens the Rule 
imposes on industry under the Paperwork Reduction Act, 44 U.S.C. 
secs. 3501-3521. See Federal Trade Commission: Agency Information 
Collection Activities; Proposed Collection; Comment Request, 74 FR 
53500 (Oct. 19, 2009) and Federal Trade Commission: Agency 
Information Collection Activities; Proposed Collection; Comment 
Request, 75 FR 2142 (Jan. 14, 2010). The Commission did not receive 
any public comments on its MTOR cost estimates of annual labor costs 
of $47,108,000 and annual non-labor costs of $0 during 2010-2012. On 
February 16, 2010, OMB approved the Commission's estimates without 
change and authorized extension of the Rule's information collection 
requirements to February 28, 2013.
---------------------------------------------------------------------------

III. Reorganizing the MTOR

    The Commission also invited comments regarding reorganizing the 
Rule by: (1) Alphabetizing the definitions, and (2) placing the 
definitions before the Rule's substantive provisions. DMA stated that 
such a change would make the Rule easier to navigate, DMA at 4, and no 
commenters opposed the proposed reorganization. The Commission 
therefore amends the Rule as proposed.\8\
---------------------------------------------------------------------------

    \8\ The Commission is also correcting internal inconsistencies 
in the Rule language and punctuation at renumbered 435.1(c), (c)(1)-
(2), (d)(1), (d)(2)(iii), (g)(1)-(2); 435.2(a)(1)(ii), (a)(3), 
(a)(3)(i), (b)(1)(iv), (b)(2), (b)(2)(ii), (c)(2); and 435.3(a)(1)-
(3) (e.g., numbering the subordinate paragraphs for the definition 
of ``Receipt of a properly completed order'' as ``(1),'' ``(2),'' 
and ``(3)'') to conform the numbering with the other subordinate 
Rule paragraphs. These are technical corrections and do not change 
the Rule's substantive requirements. Although neither previously 
proposed by the Commission nor suggested by commenters, the 
Commission has also determined to delete 435.4, reciting the prior 
effective dates of the rule and its 1994 amendment, as unnecessary. 
Likewise, the Commission is deleting the Freedom of Information Act, 
5 U.S.C. 552, from the authority citation for the rules, as that 
statute does not authorize the rules, but merely requires generally 
that agencies publish their binding substantive regulations in the 
Federal Register.
---------------------------------------------------------------------------

    Pursuant to the Administrative Procedure Act (``APA''), the 
Commission finds ``good cause'' for foregoing public comment because 
the rule amendments are technical and public comment is 
``unnecessary.'' 5 U.S.C. 553(b)(3)(B). In addition, because the rule 
revisions do not change the obligations of entities subject to the 
Rule, there is ``good cause'' for the revisions to take effect 
immediately. See 5 U.S.C. 553(d)(3).

IV. The Commission Declines To Propose Changes Suggested by NRF

    In its request for public comments, the Commission invited the 
public to suggest Rule changes. In response, NRF proposed amending the 
Rule to: (1) Allow sellers to substitute materially different 
merchandise from what the buyer ordered in certain circumstances, and 
(2) exempt sellers of custom-made or occasionally produced merchandise 
from the Rule's requirements. In the absence of any evidence supporting 
the need for NRF's suggested changes, and because the Commission has 
previously determined that these practices cause buyer injury, the 
Commission is not proposing the changes advocated by NRF.

A. Unilateral Substitution of Materially Different Merchandise

    NRF suggested that the Commission amend the Rule to permit sellers 
to substitute, without buyers' consent, merchandise that materially 
differs from what buyers ordered for: (1) ``seasonal substitutions,'' 
and (2) ``gifts with purchase'' (``GWPs'').
1. Seasonal Substitutions
    NRF suggested that the Commission amend the Rule to allow sellers 
to ship substitute merchandise without the buyer's prior express 
agreement to the substitution when there is: (1) Unanticipated demand 
during ``a particular season for certain goods,'' and (2) ``it may be 
too late for a customer who receives a delay notice to select another 
item.'' NRF at 6.
    Substitution of materially different merchandise is a unilateral 
alteration of a material term of the sale.\9\ In fact, the

[[Page 60717]]

Commission previously brought an action identifying substitution as 
violating the Rule. See United States v. Smith d/b/a Salesco, No. 01-
10962 (C.D. Cal. 2001). Nothing in the record supports changing the 
Commission's approach. Thus, the Commission does not propose amending 
the Rule as NRF suggests.
---------------------------------------------------------------------------

    \9\ See A Business Guide to the Federal Trade Commission's Mail 
or Telephone Order Merchandise Rule, http://business.ftc.gov/documents/bus02-business-guide-mail-and-telephone-order-merchandise-rule.pdf, and DMA, January 2002.
    The Business Guide also says:
    For backorders, the Rule provides only two [alternatives]: 
obtain the customer's agreement to delayed shipment or provide a 
full and prompt refund. Unless the customer expressly agrees to the 
substitution beforehand, you do not have the option of substituting 
merchandise that is materially different from your advertised 
merchandise. Id.
---------------------------------------------------------------------------

2. Substitute Gifts With Purchase
    NRF also suggested that the Rule permit unilateral substitutions 
when a seller: (1) Offers a specific GWP, (2) clearly discloses that 
the GWP supply is ``limited,'' (3) has exhausted its GWP supply, and 
(4) wants to provide buyers with a GWP of equal or greater value than 
what it initially offered. NRF at 6.
    Where buyers order merchandise with a GWP, the GWP is a material 
part of the merchandise order. Indeed, in 1975 the Commission 
identified many complaints about unsent GWPs worth less than $10 and 
rejected a suggestion that the Rule exempt such GWPs. Promulgation of 
Rule: Correction, 40 FR at 51594. Since then, the Commission has 
enforced the Rule against sellers for violations related to GWPs. 
United States v. Iomega Corp., No. 98-00141C (D. Utah 1998); United 
States v. Ralston Purina Co., No. 92-01088 (E.D. Mo. 1992); and United 
States v. Del Monte Corp., No. 85-5213 (N.D. Calif. 1985).
    The unilateral substitution of GWP merchandise violates the Rule. 
Nothing in the record indicates that prohibiting unilateral 
substitutions creates burdens on sellers that are not outweighed by the 
benefits to buyers. Thus, the Commission does not propose amending the 
Rule to permit sellers to substitute GWPs without buyers' prior express 
consent.

B. Custom-Made Merchandise

    NRF also suggested that the Commission amend the Rule to permit 
indefinite shipment representations for: (1) Custom-made or handcrafted 
merchandise; or (2) merchandise produced by the supplier occasionally 
within a given year. NRF at 7. NRF said that marketers of these items 
find it difficult to determine accurate shipment times and risk either 
overstating shipment time and unnecessarily discouraging sales, or 
understating shipment time and running afoul of the Rule. Id. NRF 
suggested distinguishing these products from other merchandise by 
identifying them as ``artisanal, custom, or infrequently produced.'' 
Id.
    Manufacturers of made-to-order and customized merchandise made 
similar arguments while seeking exemption from the Rule during the 
original 1975 rulemaking proceeding. Promulgation of Rule: Correction, 
40 FR at 51595. The Commission rejected their request, finding that 
``no industry spokesman explained persuasively why such merchandisers 
cannot affirmatively disclose the estimated shipping time in their 
solicitations.'' Id. NRF has not presented evidence of changed 
circumstances, and the Commission therefore does not propose such an 
exemption now.\10\
---------------------------------------------------------------------------

    \10\ Moreover, creating an exemption based on the seller's 
designation of the product as ``artisanal, custom, or infrequently 
produced'' would invite evasion of the Rule.
---------------------------------------------------------------------------

V. Preliminary Regulatory Analysis and Regulatory Flexibility Act 
Requirements

    As explained above, these final amendments are purely technical and 
non-substantive in nature. They do not expand or otherwise 
substantively alter the Rule's requirements, and thus do not require 
notice and comment under section 18 of the FTC Act or the APA. See 
section 18(d)(2)(B) of the FTC Act, 15 U.S.C. 57a(d)(2)(B) (prescribing 
procedures for ``substantive'' amendments); APA, 5 U.S.C. 553(b)(B) 
(notice and comment not required where impracticable, unnecessary, or 
contrary to the public interest). Further, the Commission believes the 
amendments will have no economic or other impact on the economy, 
prices, or regulated entities or consumers. For these reasons, no 
regulatory analysis is required by section 22 of the FTC Act. See 15 
U.S.C. 57b-3. For the same reasons, no regulatory flexibility analysis 
is required by the Regulatory Flexibility Act (``RFA''). See 5 U.S.C. 
601(2), 604(a).
    Under section 22 of the FTC Act, 15 U.S.C. 57b, the Commission must 
issue a 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 $100,000,000 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. Because the Commission retains the MTOR as 
previously promulgated without making any substantive change, it has 
determined that the amendments to the Rule will not have such effects 
on the national economy, on the cost of ordering merchandise by mail or 
telephone, or on covered parties or consumers.
    The RFA, 5 U.S.C. 601-612, also does not require that the 
Commission conduct an analysis of the anticipated economic impact of 
the amendments on small entities. Section 605 of the RFA, 5 U.S.C. 605, 
provides that the agency need not perform the analysis normally 
required under the Act if the agency head certifies that the regulatory 
action will not have a significant economic impact on a substantial 
number of small entities, or where public notice and comment on the 
amendments is not required under the APA, see 5 U.S.C. 601(2), 604(a). 
The Commission certifies that amending the MTOR will not have a 
significant economic impact on a substantial number of small 
businesses, because the technical reorganization of the rules' 
provisions, as explained earlier, imposes no significant economic 
impact, if any, on small entities. As noted earlier, public notice is 
not required under the APA because the Commission has found ``good 
cause'' to forego that requirement. Accordingly, for these reasons, no 
regulatory analysis under the RFA is required.

VI. Paperwork Reduction Act

    The MTOR contains various information collection requirements for 
which the Commission has obtained clearance under the Paperwork 
Reduction Act (``PRA''), 44 U.S.C. 3501 et seq. (see note 6). As 
discussed above, the Commission amends the Rule by reorganizing it. The 
amendments do not impose any additional ``collection of information'' 
requirements. Consequently, the amendments will not affect the PRA 
burden associated with the Rule's requirements.

VII. 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 revising 
16 CFR part 435 to read as follows:

PART 435--MAIL OR TELEPHONE ORDER MERCHANDISE

Sec.
435.1 Definitions.
435.2 Mail or telephone order sales.
435.3 Limited applicability.

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


Sec.  435.1  Definitions.

    For purposes of this part:

[[Page 60718]]

    (a) 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.
    (b) Prompt refund shall mean:
    (1) 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;
    (2) 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.
    (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, money order, or authorization from the buyer to charge 
an existing charge account, 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 the check 
or money order 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 check or money order for 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;
    (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 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, a copy of an appropriate 
credit memorandum or the like to the third party creditor which will 
remove the charge from the buyer's account or 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;
    (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.
    (e) Shipment shall mean the act by which the merchandise is 
physically placed in the possession of the carrier.
    (f) Telephone refers to 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.
    (g) The time of solicitation of an order shall mean that time when 
the seller has:
    (1) Mailed or otherwise disseminated the solicitation to a 
prospective purchaser;
    (2) Made arrangements for an advertisement containing the 
solicitation to appear in a newspaper, magazine or the like or on radio 
or television which cannot be changed or cancelled without incurring 
substantial expense; or
    (3) Made arrangements for the printing of a catalog, brochure or 
the like which cannot be changed without incurring substantial expense, 
in which the solicitation in question forms an insubstantial part.


Sec.  435.2  Mail or telephone order sales.

    In connection with mail 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 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:
    (i) Within that time clearly and conspicuously stated in any such 
solicitation; or
    (ii) If no time is clearly and conspicuously stated, within thirty 
(30) days after receipt of a properly completed order from the buyer, 
Provided, however, where, at the time the merchandise is ordered the 
buyer applies to the seller for credit to pay for the merchandise in 
whole or in part, the seller shall have fifty (50) days, rather than 
thirty (30) days, to perform the actions required in this paragraph 
(a)(1)(ii).
    (2) To provide any buyer with any revised shipping date, as 
provided in paragraph (b) of this section, unless, at the time any such 
revised shipping date is provided, the seller has a reasonable basis 
for making such representation regarding a definite revised shipping 
date.
    (3) To inform any buyer that it is unable to make any 
representation regarding the length of any delay unless:
    (i) The seller has a reasonable basis for so informing the buyer, 
and
    (ii) The seller informs the buyer of the reason or reasons for the 
delay.
    (4) In any action brought by the Federal Trade Commission, alleging 
a violation of this part, the failure of a respondent-seller to have 
records or other documentary proof establishing its use of systems and 
procedures which assure the shipment of merchandise in the ordinary 
course of business within any applicable time set forth in this part 
will create a rebuttable presumption that the seller lacked a 
reasonable basis for any expectation of shipment within said applicable 
time.
    (b)(1) Where a seller is unable to ship merchandise within the 
applicable time set forth in paragraph (a)(1) of this section, to fail 
to offer to the buyer, clearly and conspicuously and without prior 
demand, an option either to consent to a delay in shipping or to cancel 
the buyer's order and receive a prompt refund. Said offer shall be made 
within a reasonable time after the seller first becomes aware of its 
inability to ship within the applicable time set forth in paragraph 
(a)(1) of this section, but in no event later than said applicable 
time.
    (i) Any offer to the buyer of such an option shall fully inform the 
buyer regarding the buyer's right to cancel the order and to obtain a 
prompt refund and shall provide a definite revised shipping date, but 
where the seller lacks a reasonable basis for providing a definite 
revised shipping date the notice shall inform the buyer that the seller 
is unable to make any representation regarding the length of the delay.
    (ii) Where the seller has provided a definite revised shipping date 
which is thirty (30) days or less later than the applicable time set 
forth in paragraph (a)(1) of this section, the offer of said option 
shall expressly inform the buyer that, unless the seller receives, 
prior to shipment and prior to the expiration of the definite revised 
shipping date, a response from the buyer rejecting the delay and 
cancelling the order, the buyer will be deemed to have consented to a 
delayed shipment on or before the definite revised shipping date.
    (iii) Where the seller has provided a definite revised shipping 
date which is

[[Page 60719]]

more than thirty (30) days later than the applicable time set forth in 
paragraph (a)(1) of this section or where the seller is unable to 
provide a definite revised shipping date and therefore informs the 
buyer that it is unable to make any representation regarding the length 
of the delay, the offer of said option shall also expressly inform the 
buyer that the buyer's order will automatically be deemed to have been 
cancelled unless:
    (A) The seller has shipped the merchandise within thirty (30) days 
of the applicable time set forth in paragraph (a)(1) of this section, 
and has received no cancellation prior to shipment; or
    (B) The seller has received from the buyer within thirty (30) days 
of said applicable time, a response specifically consenting to said 
shipping delay. Where the seller informs the buyer that it is unable to 
make any representation regarding the length of the delay, the buyer 
shall be expressly informed that, should the buyer consent to an 
indefinite delay, the buyer will have a continuing right to cancel the 
buyer's order at any time after the applicable time set forth in 
paragraph (a)(1) of this section by so notifying the seller prior to 
actual shipment.
    (iv) Nothing in this paragraph shall prohibit a seller who 
furnishes a definite revised shipping date pursuant to paragraph 
(b)(1)(i) of this section, from requesting, simultaneously with or at 
any time subsequent to the offer of an option pursuant to paragraph 
(b)(1) of this section, the buyer's express consent to a further 
unanticipated delay beyond the definite revised shipping date in the 
form of a response from the buyer specifically consenting to said 
further delay. Provided, however, that where the seller solicits 
consent to an unanticipated indefinite delay the solicitation shall 
expressly inform the buyer that, should the buyer so consent to an 
indefinite delay, the buyer shall have a continuing right to cancel the 
buyer's order at any time after the definite revised shipping date by 
so notifying the seller prior to actual shipment.
    (2) Where a seller is unable to ship merchandise on or before the 
definite revised shipping date provided under paragraph (b)(1)(i) of 
this section and consented to by the buyer pursuant to paragraph 
(b)(1)(ii) or (iii) of this section, to fail to offer to the buyer, 
clearly and conspicuously and without prior demand, a renewed option 
either to consent to a further delay or to cancel the order and to 
receive a prompt refund. Said offer shall be made within a reasonable 
time after the seller first becomes aware of its inability to ship 
before the said definite revised date, but in no event later than the 
expiration of the definite revised shipping date. Provided, however, 
that where the seller previously has obtained the buyer's express 
consent to an unanticipated delay until a specific date beyond the 
definite revised shipping date, pursuant to paragraph (b)(1)(iv) of 
this section or to a further delay until a specific date beyond the 
definite revised shipping date pursuant to paragraph (b)(2) of this 
section, that date to which the buyer has expressly consented shall 
supersede the definite revised shipping date for purposes of paragraph 
(b)(2) of this section.
    (i) Any offer to the buyer of said renewed option shall provide the 
buyer with a new definite revised shipping date, but where the seller 
lacks a reasonable basis for providing a new definite revised shipping 
date, the notice shall inform the buyer that the seller is unable to 
make any representation regarding the length of the further delay.
    (ii) The offer of a renewed option shall expressly inform the buyer 
that, unless the seller receives, prior to the expiration of the old 
definite revised shipping date or any date superseding the old definite 
revised shipping date, notification from the buyer specifically 
consenting to the further delay, the buyer will be deemed to have 
rejected any further delay, and to have cancelled the order if the 
seller is in fact unable to ship prior to the expiration of the old 
definite revised shipping date or any date superseding the old definite 
revised shipping date. Provided, however, that where the seller offers 
the buyer the option to consent to an indefinite delay the offer shall 
expressly inform the buyer that, should the buyer so consent to an 
indefinite delay, the buyer shall have a continuing right to cancel the 
buyer's order at any time after the old definite revised shipping date 
or any date superseding the old definite revised shipping date.
    (iii) Paragraph (b)(2) of this section shall not apply to any 
situation where a seller, pursuant to the provisions of paragraph 
(b)(1)(iv) of this section, has previously obtained consent from the 
buyer to an indefinite extension beyond the first revised shipping 
date.
    (3) Wherever a buyer has the right to exercise any option under 
this part or to cancel an order by so notifying the seller prior to 
shipment, to fail to furnish the buyer with adequate means, at the 
seller's expense, to exercise such option or to notify the seller 
regarding cancellation.
    (4) Nothing in paragraph (b) of this section shall prevent a 
seller, where it is unable to make shipment within the time set forth 
in paragraph (a)(1) of this section or within a delay period consented 
to by the buyer, from deciding to consider the order cancelled and 
providing the buyer with notice of said decision within a reasonable 
time after it becomes aware of said inability to ship, together with a 
prompt refund.
    (c) To fail to deem an order cancelled and to make a prompt refund 
to the buyer whenever:
    (1) The seller receives, prior to the time of shipment, 
notification from the buyer cancelling the order pursuant to any 
option, renewed option or continuing option under this part;
    (2) The seller has, pursuant to paragraph (b)(1)(iii) of this 
section, provided the buyer with a definite revised shipping date which 
is more than thirty (30) days later than the applicable time set forth 
in paragraph (a)(1) of this section or has notified the buyer that it 
is unable to make any representation regarding the length of the delay 
and the seller:
    (i) Has not shipped the merchandise within thirty (30) days of the 
applicable time set forth in paragraph (a)(1) of this section, and
    (ii) Has not received the buyer's express consent to said shipping 
delay within said thirty (30) days;
    (3) The seller is unable to ship within the applicable time set 
forth in paragraph (b)(2) of this section, and has not received, within 
the said applicable time, the buyer's consent to any further delay;
    (4) The seller has notified the buyer of its inability to make 
shipment and has indicated its decision not to ship the merchandise;
    (5) The seller fails to offer the option prescribed in paragraph 
(b)(1) of this section and has not shipped the merchandise within the 
applicable time set forth in paragraph (a)(1) of this section.
    (d) In any action brought by the Federal Trade Commission, alleging 
a violation of this part, the failure of a respondent-seller to have 
records or other documentary proof establishing its use of systems and 
procedures which assure compliance, in the ordinary course of business, 
with any requirement of paragraph (b) or (c) of this section will 
create a rebuttable presumption that the seller failed to comply with 
said requirement.


Sec.  435.3  Limited applicability.

    (a) This part shall not apply to:
    (1) Subscriptions, such as magazine sales, ordered for serial 
delivery, after the initial shipment is made in compliance with this 
part;

[[Page 60720]]

    (2) Orders of seeds and growing plants;
    (3) Orders made on a collect-on-delivery (C.O.D.) basis;
    (4) Transactions governed by the Federal Trade Commission's Trade 
Regulation Rule entitled ``Use of Negative Option Plans by Sellers in 
Commerce,'' 16 CFR part 425.
    (b) By taking action in this area:
    (1) The Federal Trade Commission does not intend to preempt action 
in the same area, which is not inconsistent with this part, by any 
State, municipal, or other local government. This part does not annul 
or diminish any rights or remedies provided to consumers by any State 
law, municipal ordinance, or other local regulation, insofar as those 
rights or remedies are equal to or greater than those provided by this 
part. In addition, this part does not supersede those provisions of any 
State law, municipal ordinance, or other local regulation which impose 
obligations or liabilities upon sellers, when sellers subject to this 
part are not in compliance therewith.
    (2) This part does supersede those provisions of any State law, 
municipal ordinance, or other local regulation which are inconsistent 
with this part to the extent that those provisions do not provide a 
buyer with rights which are equal to or greater than those rights 
granted a buyer by this part. This part also supersedes those 
provisions of any State law, municipal ordinance, or other local 
regulation requiring that a buyer be notified of a right which is the 
same as a right provided by this part but requiring that a buyer be 
given notice of this right in a language, form, or manner which is 
different in any way from that required by this part. In those 
instances where any State law, municipal ordinance, or other local 
regulation contains provisions, some but not all of which are partially 
or completely superseded by this part, the provisions or portions of 
those provisions which have not been superseded retain their full force 
and effect.
    (c) If any provision of this part, or its application to any 
person, partnership, corporation, act or practice is held invalid, the 
remainder of this part or the application of the provision to any other 
person, partnership, corporation, act or practice shall not be affected 
thereby.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2011-24352 Filed 9-29-11; 8:45 am]
BILLING CODE 6750-01-P