Fashion Nova is expected to pay $9.3 million for “failing to properly notify customers and give them the chance to cancel their orders when [it] failed to ship merchandise in a timely manner.” In furtherance of a proposed settlement with the Federal Trade Commission (“FTC”), which was announced on Tuesday, the California-based retailer is also allegedly on the hook for “illegally using gift cards to compensate consumers for unshipped merchandise instead of issuing refunds,” which similarly runs afoul of federal rules.
According to proposed settlement, which consists of an order for permanent injunction and monetary judgment, as filed with the U.S. District Court for the Central District of California on Monday, the FTC alleges that Fashion Nova violated the federal Mail, Internet, Or Telephone Order Merchandise Rule (“Mail Order Rule”) when it did not ship orders that consumers placed on its e-commerce site within the estimated time frame it provided to consumers, and then failed to engage in the legally-mandated measures in connection with such delays, namely, to provide those consumers with “a revised shipping date which is no more than 30 days later than the original shipment date” and to give them the opportunity to cancel the order.
According to the FTC’s Mail Order Rule – which applies to merchandise sold to consumers online, by mail, or by phone – when a retailer “is unable to ship merchandise by the original shipment date,” it must “offer to the buyer, clearly and conspicuously and without prior demand, an option either to consent to a delay in shipping or to cancel the buyer’s order and receive a Prompt Refund.” Fashion Nova allegedly did no such thing, as it failed to notify consumers of the delays and did not give them the opportunity to cancel their existing orders in light of such delays.
More than that, though, the FTC points to the unwillingness of the Southern California-based fast fashion brand, which came under fire late last year for its alleged reliance on domestic sweatshops to produce its cheap, trendy garments and accessories, to provide consumers with proper refunds even for items that they had paid for but that Fashion Nova did not ship to them, “including where such item was out of stock or where [it] shipped a materially different item,” as required by law.
Instead of providing a refund in the same form as the original payment, “it was the company’s policy to issue gift cards, which are not considered refunds under the Mail Order Rule,” according to the FTC.
Still yet, in addition to failing to ship products as promised, and thereafter, failing to notify consumers of shipping delays and provide them with the option to cancel the orders in exchange for a refund, the FTC claims in a statement released on Tuesday that Fashion Nova further misled consumers by using specific phrases – such as “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!” – in connection with its online shipping, and then “failing to meet [any of those] shipping promises to consumers.”
In accordance with the proposed settlement, which must be signed off on by a U.S. District Court for the Central District of California judge, Fashion Nova will be required to pay $9.3 million in order to refund consumers who were damaged by its alleged violations of the Mail Order Rule. “Of that nearly $10 million sum, $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,” according to FTC, which states that “consumers who received gift cards instead of refunds when the company violated the Mail Order Rule will be eligible for refunds under the settlement.”
In terms of equitable remedies, the settlement calls for Fashion Nova to be legally barred from “soliciting any order for the sale of merchandise unless, at the time of solicitation, [it] has a reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer by that original shipment date, which is either: within that time clearly and conspicuously stated in any such solicitation; or if no time is clearly and conspicuously stated, within 1 day after Receipt of a properly completed order from the buyer.” The company will also be prohibited from “providing any buyer with any revised shipping date, unless, at the time the representation is made, [it] has a reasonable basis for making such representation,” and engaging in any other acts that violate the Mail Order Rule.
Speaking of the proposed settlement on Tuesday, Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, stated, “The same rules that we have enforced for nearly 50 years against catalogers and other mail-order companies also apply to online sellers. 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.”
The settlement comes on the heels of a similar investigation and settlement that saw Fashion Nova reach a nearly $2 million deal with prosecutors in four counties in California in December 2019 after repeatedly running afoul of a state law that requires companies to ship orders to consumers within 30 days. In furtherance of that settlement,Fashion Nova agreed to pay $250,000 in restitution to the customers effected, along with $1.5 million in penalties and costs in order to shake the charges brought against it by the District Attorneys of Los Angeles, Alameda, Napa and Sonoma counties.
*The case is Federal Trade Commission v. Fashion Nova, Inc., 2:20-cv-03641 (C.D.Cal.).