Markets Wired

Online fashion retailer Fashion Nova will pay $9.3 million to settle Federal Trade Commission charges that it didn’t properly notify consumers and give them the chance to cancel their orders when it failed to ship merchandise in a timely manner, and that it illegally used gift cards to compensate consumers for unshipped merchandise instead of providing refunds.

Under the terms of Fashion Nova’s proposed settlement with the FTC, the money will be used to refund consumers who were harmed by the company’s violations.

The FTC’s complaint against Fashion Nova alleges that it 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.

“The same rules that we have enforced for nearly 50 years against catalogers and other mail-order companies also apply to online sellers,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection.  “Online retailers need to know that our Mail Order Rule requires them to notify customers in the event of shipping delays and offer the right to cancel with a full refund—not just a gift card or a store credit.”

According to the complaint, Fashion Nova violated the Rule in two ways. First, the company made clear promises to consumers for years that they offer fast shipping of their products. This includes using phrases like “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!” In fact, the company regularly failed to meet its shipping promises to consumers, and failed to meet the Mail Order Rule’s requirement that consumers be notified of shipping delays and given the chance to cancel orders and receive prompt refunds.

The complaint also alleges that Fashion Nova at times failed to refund consumers for the items that it did not ship. Instead, it was the company’s policy to issue gift cards, which are not considered refunds under the Mail Order Rule. The company also failed to cancel orders and provide refunds when it did not offer consumers delay option notices.

Under the terms of the proposed settlement, Fashion Nova will be required to pay $9.3 million to be used to refund consumers who were harmed by the company’s violations of the Mail Order Rule. Of that, $7.04 million will be sent to the FTC for use in refunding consumers and $2.26 million must be refunded directly by the company to consumers. Consumers who received gift cards instead of refunds when the company violated the Mail Order Rule will be eligible for refunds under the settlement.

The settlement also 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.

The Commission vote authorizing the staff to file the complaint and proposed stipulated order was 5-0. The FTC filed the complaint and final judgment in the U.S. District Court for the Central District of California.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated orders have the force of law when approved and signed by the District Court judge.