$100,000 Civil Penalty Against Mail Order Seller Reminds Mailers to Monitor Fulfillment Houses

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The Federal Trade Commission has obtained an agreement from American Direct Marketing, Inc. and its president to pay a $100,000 civil penalty as part of a settlement of allegations that they shipped consumer-ordered products late and failed to properly notify consumers of their option to delay or cancel late orders, in violation of the FTC's Mail/Telephone Order Rule. In many instances, the FTC alleged, the refund checks the defendants sent pursuant to the rule bounced. In addition to requiring the payment of a civil penalty, the settlement would prohibit the defendants from violating the rule in the future.

American Direct Marketing is a Nashville, Tennessee-based firm that markets consumer goods, including pantyhose, television antennas, battery-operated hand-held mixers, window cleaner and other products ranging in price from $9 to $30. The company markets its products through print ads in general circulation newspapers, television spots and infomercials on cable networks, and takes and fills consumer orders through an unaffiliated fulfillment house. Both American Direct Marketing and its president, Herman S. Howard, are named as defendants in the FTC complaint detailing the charges in this case.

According to the complaint, the defendants violated the FTC's Mail/Telephone Order Rule numerous times. The rule requires those who sell merchandise over the phone or through the mail to ship consumers' orders to them within the time frame specified in the sellers' advertising or catalog or, if no time frame is specified, within 30 days of receiving the consumer's properly completed order. If a seller later learns it will be unable to meet shipping deadlines, it must notify the consumers before the deadlines and give them the option of agreeing to a revised shipment date or canceling the order for a full, prompt refund. If consumers do not respond to initial delay notices within 30 days, sellers can assume they agree to the revised shipment date, and the notice must state this fact. The delay notice also must give consumers a cost-free method of responding.

The FTC alleged that American Direct Marketing and Howard failed to provide delay notices before shipping deadlines had elapsed, failed to advise buyers that if they failed to respond to delay notices that American Direct Marketing could presume they had consented to the revised shipping date, and failed to give consumers a prepaid means of responding to delay notices. In addition, the defendants issued rule-required refund checks drawn on accounts with insufficient funds, the FTC alleged.

"The large civil penalty in this case signals how important compliance with this rule is, both to consumers and to the industry, because it gives consumers confidence that what they purchase through the mail or by phone will arrive within expected time frames," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, in announcing today's settlement. Bernstein also said the case should serve as a reminder to direct marketers to monitor their fulfillment houses. "The seller must ensure that its advertising clearly specifies a shipping deadline if the time frame is something other than 30 days. And it must meet its shipping deadlines or give consumers the option of agreeing to a delay or canceling their order. This requirement applies whether the seller actually fills consumers' orders or hires another firm to do so. The American Direct Marketing case is the nineteenth we have brought to enforce these important rule provisions in the last five years, and we will continue to closely monitor consumer complaints regarding delayed shipments of mail order goods."

The Commission received assistance in its investigation from the Division of Consumer Affairs in the Tennessee Attorney General's Office.

The Commission vote to refer the complaint and proposed consent decree to the Department of Justice for filing was 5-0. The proposed consent decree settling the FTC charges requires the court's approval to become binding. The documents were filed yesterday by the Justice Department on the FTC's behalf, in U.S. District Court for the Middle District of Tennessee, in Nashville.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.

A free FTC brochure for consumers titled "Shopping by Phone and Mail" spells out consumers' rights under the Mail/Telephone Order Rule, offers suggestions on resolving complaints and lists entities consumers can call for assistance. Copies of the brochure and the complaint and proposed consent decree in this case are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC's World Wide Web site at http://www.ftc.gov

(FTC File No. 942 3196)
(Civil Action No. CV 3-96-0160 )

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