Yesterday, the FTC announced that online retailer Fashion Nova had agreed to pay a record $9.3 million to settle charges that it violated the Mail Order Rule by failing to properly notify customers and give them the chance to cancel their orders when the company couldn’t ship items on time, and that it unlawfully used gift cards to compensate customers for unshipped items, instead of providing refunds.

As we discussed in our detailed post about the Mail Order Rule last month, the Rule generally requires companies to have a reasonable basis for any shipping representations they make. If a company can’t ship within the time promised – or within 30 days, if it didn’t promise a specific time – the company must notify customers and give them the option to cancel an order and obtain a full refund. The Rule describes what must be included in the first delay notice and any subsequent notices.

According to the FTC, Fashion Nova failed to meet these requirements. Although the company used phrases like “Fast Shipping” and “2-Day Shipping,” it frequently failed to meet these expectations, either by shipping items late or by shipping items that were different than what customers ordered.  Fashion Nova also failed to provide customers with the option to cancel orders and get a refund.  When the company did provide refunds, it provided them as gift cards, something that isn’t allowed under the Rule.

Under the terms of the proposed settlement, Fashion Nova will have to pay $9.3 million that will be used to refund customers. The company must have a reasonable basis for any shipping representations it makes and ship items within one day – a much faster timeframe than dictated by the Rule – unless they specify another timeframe. In addition, Fashion Nova agreed to implement procedures to allow customers to easily cancel delayed orders and to stop offering gift cards in lieu of refunds for unshipped items.

There are at least two lessons to learn from this settlement. First, and most obvious, you should comply with the Rule. Second, you should pay attention to customer complaints. According to the FTC, many of Fashion Nova’s customers complained directly to the company – by phone, e-mail, and social media – and other customers complained to the BBB. Big FTC investigations rarely come without warning signs. If you pay attention to those signs, you may be able to stop problems before they escalate.

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