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FTC Settles with Fashion Retailer in $9.3 Million Dollar Mail Order Rule Violation

Client Alert | 2 min read | 04.27.20

On April 20, 2020, the Federal Trade Commission (FTC) announced a consent order that imposed $9.3 million in consumer refunds to settle allegations that Fashion Nova, Inc. violated the agency’s Mail, Internet, or Telephone Order Merchandise Rule (the “Mail Order Rule”), which applies to merchandise sold to consumers, online, by mail, or by phone. 16 C.F.R. Part 435. The Mail Order Rule is a longstanding FTC rule that takes on added significance for online sellers during the COVID-19 pandemic. It requires retailers who accept orders from U.S. customers to ship each order within the time stated in their ad or on their website. If the shipping date is not clearly stated, the seller is deemed to have provided no shipment representation and must ship within 30 days. If shipping obligations cannot be met, the company must provide the customer with timely notice and the option to either agree to a delay or cancel the order and obtain a refund. Because of supply chain and shipping delays brought on by COVID-19, we are seeing an increased number of retailers unable to fulfill shipping promises in compliance with the Mail Order Rule, putting them at peril of landing in the shoes of Fashion Nova.

The FTC’s Fashion Nova complaint alleged that Fashion Nova, an online fashion retailer, regularly failed to meet its shipping promises to customers, despite advertising language claiming “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!” It also alleged that Fashion Nova failed to notify consumers of shipping delays and to give them the option to cancel; it also failed to cancel orders and provide refunds when it did not offer consumers delay option notices. Further, the complaint stated that Fashion Nova failed to refund consumers for items that didn’t ship, and instead chose to issue gift cards, which are not considered refunds under the Mail Order Rule.

The settlement prohibits Fashion Nova from any further violations of the Mail Order Rule, and requires the company to ship ordered merchandise within one day of receipt of an order when the company doesn’t specify a shipping date. From the $9.3 million payout, $7.04 million will be sent to the FTC for use in refunding consumers and Fashion Nova is required to refund $2.26 million directly to consumers. Lastly, past customers who received gift cards instead of refunds during the relevant time period of the alleged violation will be eligible for refunds under the settlement.

What Does This Mean for Stakeholders?

Online retailers need to keep a rigorous schedule and calendar for shipping orders. If they cannot fulfill orders in the time promised on their website, and in any event within 30 days, they must comply with the Mail Order requirements for notification of cancellation rights. The ins and outs of Mail Order Rule compliance can be tricky. However, understanding the requirements of the Mail Order Rule takes on new significance for online retailers during this time of supply chain disruption, which can result in delays in fulfillment. The Fashion Nova case shows the potential significance of violating these requirements. 

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Client Alert | 1 min read | 07.08.26

CAS Board Publishes Final Rule Rescinding CAS 404, 408, 409, and 4117

As part of its ongoing effort to conform the Cost Accounting Standards (“CAS”) to generally accepted accounting principles (“GAAP”), the CAS Board published a final rule rescinding CAS 408 (Accounting for costs of compensated personal absence) and CAS 411 (Accounting for acquisition costs of material).  The CAS Board also rescinded CAS 404 (Capitalization of tangible assets) and CAS 409 (Depreciation of tangible capital assets) but retained certain requirements of CAS 404 and 409, which will be located in new paragraphs of CAS 405 (Accounting for unallowable costs).  Specifically, the CAS Board retained the requirements currently located at CAS 404-50(d)(1), CAS 409-50(e)(5), CAS 409-50(j)(1), and CAS 409-50(j)(4), which the CAS Board explained are necessary to protect the Government’s interests.  Otherwise, the CAS Board determined that the requirements of CAS 404, 408, 409, and 411 overlapped with GAAP such that GAAP “may be applied reasonably as a substitute for CAS to support contract cost and pricing.”...

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