In my previous posts, I discussed online deceptive sales and pricing practices. This post continues my series on e-commerce deceptive practices by focusing on refund and shipping practices liability.

There is no federal or state law that absolutely requires you to accept returns, make exchanges or provide refunds without legal justification. Outside of general principles of contract law (i.e. fraud, material misrepresentation, mistake, unconscionable contracts, breach of warranty, etc.) your Internet sales can be made final. There are some state statutory cancellation rights (i.e. time shares, credit repair services, health club contracts, etc.) But, these laws generally don’t apply to the sale of goods or most services through the Internet. You are basically free to design your own refund and exchange policies and provide a “no return” or “all sales are final” type of policy.

But, you are required by law to post the details of these policies conspicuously, so that consumers can read them before making a purchase. If a company does not properly post the specifics of its refund policy, the policy may not be able to be enforced. Worse, in some cases an unclear policy can be grounds for deception under both the FTC Act and state deception laws. If you don’t follow what you say, you will run the risk your refund or return practices are deceptive (false advertising). Lately, many website operators have landed into trouble with the FTC and some stated agencies for failing to comply with their own refund/return policies, or making it difficult to return items in spite of written policies accepting returns. These operators want the benefit of marketing a return policy without having to comply, which is deceptive.

Simply put, you must do what you say and state clearly and conspicuously on your website how you intend to handle returns, refunds, exchanges and/or cancellations. Laws for the posting of refund and exchange policies vary from state to state, but most laws require the policy to be posted conspicuously at all registers. Under state laws, it is unfair and deceptive trade practice to fail to clearly and conspicuously disclose to a buyer, prior to purchase, the exact nature and extent of the seller’s refund, return, or cancellation policy, or to misrepresent the nature and terms of the policy, or fail to perform any promises made to a buyer in connection with the refund or cancellation rights. Even If you don’t plan on accepting returns, you should still have a written policy contained on your website stating this.

You should detail the procedures that must be followed if your customers are allowed to return items. For instance, will you accept opened or used merchandise? All refund and return policies should be included clearly and conspicuously in your terms of sale.Otherwise, you are asking for problems as you run the risk of future disputes.


Credit Card Chargebacks

Another reason to use a written refund/return policy and display it prominently on your website is to avoid credit card fraud and chargebacks. A chargeback reverses the payment from the vendor back to the credit card company giving the customer a refund. Credit card companies will generally honor your websites refund policy if it is in writing and clearly posted on your website. This makes written refund policies an especially important tool to combat fraud and customer abuse. The best prevention is a clear, detailed policy.

You can use a link to a separate page containing your refund policy or you can include it in your terms and sale. The best practice is to include the policy in the terms of sale and make the customer signify acceptance before purchase (more on this later).

This means that any extra charges for shipping or return shipping should be clearly indicated during the ordering process. (Return shipping instructions should be set forth in the terms of sale). Remember, deception is found in any statements or practices that materially lead your consumers. This is a pretty broad standard that includes how you bill and ship items. If there are any costs or fees associated with the purchase, no matter how minor, these must be disclosed prominently before purchase. That is probably the most basic and common sense rule you can follow. The other is to ship when you say you will, or within 30 days in most cases.

Violating FTC & State Mail or Telephone Order Merchandise Rules (“Mail Order Rule”)

The shipping time frame for merchandise should be conspicuously stated in your advertisement or offering and you should always ship within the time stated. The FTC has set forth what is known as the Mail or Telephone Order Merchandise Rule, which applies to Internet sales. Under the Rule, your business must have a reasonable basis for believing that it can ship a product within the time period stated in the advertisement. If your ads don’t specify (or imply) that the products will be shipped within a certain time period, the company must have a reasonable basis for believing that it can ship within 30 days. Also known as the “30-Day Rule”, it is designed to protect consumers from unexpected delays in receiving merchandise. When there is a shipping delay in the promised shipping date or within 30 days after the order was received, you will be required to notify customers and obtain their express consent to the delay. The notice of delay must provide the customer with the option of canceling the order and receiving a full refund, or consenting to the delay.


The FTC Mail Order Rule does not cover:

  • magazine subscriptions and similar serial and recurring deliveries, except for the first shipment;
  • sales of seeds and growing plants;
  • orders made on a “C.O.D.” basis;
  • transactions covered by the FTC’s Negative Option Rule;
  • the Rule does not cover services.


TIP! You should review the FTC’s Business Guide to the Mail and Telephone Order Merchandise Rule and comply with all requirements. There are procedures and rules associated with what notices should say, later notices, how quickly you must make a refund and how much, when you must cancel, etc. The Rule poses special requirements for businesses that provide in-house credit to its customers.

Finally, state laws are in place that are similar to the mail order rule requiring that Internet sellers provide a refund or allow cancellation upon any shipping delays after 30 days from the order date, or after the time conspicuously stated in an advertisement.

Lesson: The bottom line is you can avoid all of these laws if you ship when you say you will or within 30 days.


Sending Merchandise Not Ordered & Charging For It!

As the FTC points out in their business guide, whether or not the Mail and Telephone Order Rule is involved, you must obtain the customer’s prior express agreement to receive any merchandise. Otherwise, this practice will be considered deceptive. Probably nothing is more unscrupulous then sending someone something they do not expect to receive and then charge them for the item(s). I have seen this frequently with items such as “trade show directory listings” and similar subscription type services. The “customer” is completely unaware anything has even been sent to them in most cases. Notice of the “sale” is contained in fine print on the materials they have tossed out with the other junk mail.


Thankfully, according to the FTC it is unlawful to:

  • Send any merchandise by any means without the express request of the recipient unless the merchandise is clearly identified as a gift, free sample, etc.; or
  • Try to obtain payment for or the return of the merchandise never ordered.


If you ship merchandise not actually ordered by the recipient with knowledge that it is unlawful, you can be subject to civil penalties of up to $16,000 per violation. This practice can also violate U.S. Postal laws. Also, the customer is entitled to keep the goods as a gift or free sample. Also, most states expressly prohibit sending unordered merchandise as well. All in all, you obviously should avoid this practice unless you truly intend to send free samples and don’t seek payment.


Summary of Billing & Shipping Practices You Should Avoid:

  • Obtaining customers bank account information and debiting their accounts without their express informed consent by having the customer do some affirmative action to show consent (i.e. click on an “I Accept” button);
  • Failing to clearly and conspicuously disclose to consumers that they are being charged by your business, not the “initial merchant,” and obtaining their express informed consent;
  • Failing to clearly and conspicuously disclose to customers all material terms of any type of negative option plan according to the 5 FTC principles;
  • Bundling one service/product with another service/product which auto-renews each month with a charge;
  • Automatically extending trial offers the customer is unaware of and that results in recurring billing unless the customer cancels;
  • Providing false contact information or otherwise making the cancellation of some membership plan or subscription difficult or impossible;
  • Concealing refund or return language, such as innocuous language somewhere in the terms and conditions stating that refunds can only be made during a certain time;
  • Failing to post a refund/return policy on your website;
  • Falsely promising refunds to consumers and not providing the refunds;
  • Conspicuously disclose the shipping time on your website and ship within the time you say you will, or within 30 days from the date the order was placed. If your website is silent on the issue, you must ship the merchandise within 30 days;
  • Sending “unordered merchandise.”

My next post will discuss negative option plans liability, including free trial offers and automatic renewals.