The FTC has been fighting COVID-related deception on multiple fronts. We’ve challenged bogus claims for “treatments.” We’ve taken action against companies that targeted cash-strapped small businesses. And we’ve sued defendants that failed to honor shipment promises for personal protective equipment. In separate actions, federal courts have entered judgments against California-based QYK Brands LLC d/b/a Glowyy and Louisiana-based American Screening, LLC, ruling that they violated the Mail Order Rule in their marketing of PPE. In a time of continued supply chain uncertainties, the implication of these two actions extends beyond the sale of COVID-related products.
First, a refresher on the requirements of the Mail, Internet, or Telephone Order Merchandise Rule. Under the Mail Order Rule, at the time sellers solicit an order, they must have a reasonable basis they will be able to ship: 1) within the stated time; or 2) if no time is stated, within 30 days. If a shipment is delayed, the Rule lays out sequential if-then steps sellers must take to ensure buyers aren’t left in the lurch. One key consumer protection built into the Rule is that if sellers can’t ship within the required time, they must send a shipping delay notice that offers the buyer a choice either to consent to wait or to cancel the order and get a prompt refund.
For people placing online orders, speedy shipping can be a material consideration. But think back to the early days of COVID when PPE essentials were hard to come by. It’s no wonder that consumers and small businesses responded to Glowyy’s claims that they had hand sanitizer in stock and would ship the same day. According to the FTC, the defendants created shipping labels shortly after an order was received, but didn’t actually ship products for weeks or even months. The complaint also alleges Glowyy failed to give buyers the consent-or-refund option required by the Rule. In addition, the FTC challenged COVID prevention claims and FDA approval representations the defendants made in English and in Vietnamese for a product called Basic Immune IGG.
In granting the FTC’s Motion for Summary Judgment, the Court ruled that the defendants failed to have a reasonable basis for their shipping claims, didn’t give buyers the choice of waiting or getting their money back, and didn’t honor the Rule’s “prompt refund” requirement. The Court further held that the defendants’ ads “misleadingly implied that Basic Immune IGG users would stay safe from COVID-19 and that it was FDA approved for that purpose.” Among other things, the order imposes a $3.08 million judgment, and prohibits the defendants from selling or marketing any product or service that claims to prevent, treat or protect against COVID-19 or any other infection or disease. The FTC will use any recovered funds to provide refunds to consumers.
Online retailer American Screening marketed hand sanitizer, masks, gowns, and PPE in bulk to hospitals, nursing homes, and local governments, as well as to individual consumers. The defendants promised on their website that items were “in stock” and would be shipped “within 24-48 hours.” But according to the complaint, in many instances, the defendants didn’t ship until weeks later. They also failed to follow the procedures in the Mail Order Rule for delayed shipments. In granting the FTC’s summary judgment motion, the Court ruled that American Screening and its owners didn’t have a reasonable basis for their shipment promises, didn’t give customers the consent-or-refund option the Mail Order Rule requires, and didn’t give “prompt refunds.” The impact on consumers and small businesses was undeniable. As the Court stated in its findings, “Throughout 2020, American Screening received thousands of complaints related to shipping delays or refunds. The company received over 500 complaints per day throughout 2020.”
Citing “[t]he egregious nature of Defendants’ conduct,” the Court concluded that injunctive relief was warranted and appropriate. The order also included a $14.6 million financial remedy. The FTC will use the money collected to provide consumer refunds.
Even if you don’t sell COVID-related products, the decisions suggest Mail Order Rule compliance guidance for companies facing supply chain delays.
There is no “COVID exception” to the Mail Order Rule. Certainly the pandemic has had an impact on the supply chain. But as the Court in the American Screening case observed, “[T]he law provides no exceptions for sellers that do their ‘best’ during pandemics, particularly when consumers paid upfront for PPE they need to maintain their own lives and livelihood.” That’s because the Mail Order Rule presciently built in procedures for times such as these. Assuming a seller had a reasonable basis to make a shipping claim in the first place, the Mail Order Rule includes step-by-step instructions on how to address an unanticipated shipment delay and still comply with the law.
Conduct a Mail Order Rule compliance check. If supply chain issues have led your company to seek out new suppliers, make sure your procedures for tracking customer orders remain operational. Accurate recordkeeping serves a dual purpose. It can make it easier to respond to customer service inquiries and it can streamline Mail Order Rule compliance. If a company fails to have “records or other documentary proof establishing its use of systems and procedures which assure compliance,” the Rule establishes “a rebuttable presumption that the seller failed to comply with said requirement.” Read Business Guide to the FTC's Mail, Internet, or Telephone Order Merchandise Rule for compliance guidance.
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