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Seven online e-tailers, including Macys.com, Toysrus.com and CDNOW, will pay fines totaling $1.5 million (US$) to settle a Federal Trade Commission (FTC) lawsuit over late deliveries made during the 1999 holiday season. The companies have also agreed to change their shipping procedures.
According to the FTC, the e-tailers promised delivery dates when fulfillment was not possible and failed to notify customers when shipments would be late. Under the agency's mail-and-telephone order rule, an order must be shipped within 30 days. If the delivery cannot be made on time, the consumer must be told and given the option of agreeing to a new shipping date -- or canceling the order.
FTC spokesperson Eric London told the E-Commerce Times that "The mail and telephone order rule is not a requirement for brick-and-mortar companies or catalogs only, but applies to e-commerce as well. The strict penalties were designed to put e-commerce on notice that the FTC will continue to monitor their actions."
The other e-tailers who settled with the FTC are KBkids.com (Nasdaq: KBKD), MiniDiscNow.com,, Patriot Computer Company and Honey Baked Ham.
Too Little, Too Late
In December, the FTC received numerous consumer complaints that prominent e-tailers repeatedly shipped express deliveries late after continued promises to meet certain deadlines. In response, the FTC launched a probe called "ProjectTooLate.com" to investigate e-tailers, focusing on major online companies that were making express delivery claims, to determine whether the companies were violating the mail order rule.
All of the defendants except CDNOW were accused of failing to cancel orders in the absence of a notice to the buyer, while four defendants -- Kbkids.com, Macys.com, Toysrus.com and MiniDiscNow.com -- were charged with taking orders without a reasonable basis for their shipping promises. All seven companies were charged with failing to offer consumers the opportunity to either agree to the delayed shipments or cancel and receive refunds.
Stiff Penalties
ProjectTooLate.com culminated when the FTC obtained the seven settlements in the form of consent decrees signed by the e-tailers.
Macys.com, KBkids.com, and Toysrus.com received the stiffest penalties, and must pay fines of $350,000 each. CDNOW was fined $300,000, which was later reduced to $100,000 due to the company's financial condition.
Patriot Computers was fined $200,000, and Honey Baked Ham was fined $45,000. MinDiscNow.com was required to reimburse each consumer who did not receive the products ordered.
The amount of each fine was determined according to the volume sales of each company, the number of consumers harmed, and the dollar value of the items sold.
Getting It Right
The companies did not admit liability by signing the consent decrees, but nevertheless did agree to take action to mend their ways. Macys.com, for example, agreed to fund an online education campaign about consumer rights.
The companies must also file reports showing that they have come into compliance with the delivery law. The reports must include copies of advertising materials describing the e-tailers' shipping guarantees and must also describe company procedures for issuing refunds.
The consent decrees entered into between the FTC and the e-tailers will be filed this week by the Department of Justice and are subject to court approval.
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