The Federal Trade Commission (“FTC”) is distributing more than $6 million to Fashion Nova customers after the popular retailer did not “properly notify [them] or give them the chance to cancel their orders when [it did not] ship merchandise in a timely manner.” On the heels of a settlement entered into between the FTC and the Southern California-based fast fashion company almost a year ago, the government agency revealed that it “is sending refunds to more than 500,000 people,” noting that in addition to failing to ship products within the “fast shipping” time frame it promised, Fashion Nova further ran afoul of federal law when it “did not offer customers the option to cancel [the delayed] orders, and opted to issue gift cards to compensate customers for unshipped merchandise instead of providing refunds.”
In a statement on Thursday, the FTC asserted that it is “providing more than $6.5 million in payments to 518,552 consumers, including more than 40,000 consumers who live outside the United States in 169 different countries.” The distribution of the refunds – which amount to $12.60 per individual consumer – follows from an agreement between Fashion Nova and the FTC that settled charges lodged against Fashion Nova.
The settlement – which was filed with, and approved by, the U.S. District Court for the Central District of California in April 2020 – called for Fashion Nova to pay millions to consumers who purchased products from its website after it failed to make good on its offers of “Fast Shipping” and “2-Day Shipping,” and advertisement that consumers could “Expect Your Items Quick!” (Under the terms of the settlement, “Fashion Nova will be required to pay $9.3 million to be used to refund consumers who were harmed by the company,” the FTC stated last year. “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, whereas consumers who received gift cards instead of refunds when the company violated the Mail Order Rule will be eligible for refunds under the settlement.”)
More than that, the out-of-court resolution also resulted in the entry of an order for permanent injunction barring Fashion Nova from engaging in behavior that violates the federal Mail, Internet, or Telephone Order Merchandise Rule (“Mail Order Rule”), such as failing to ship orders that consumers placed on its e-commerce site within the estimated time frame it provided to consumers and then failing to observe the legally-mandated measures in connection with such delays, namely, providing those consumers with “a revised shipping date which is no more than 30 days later than the original shipment date” and giving them the opportunity to cancel the order.
In announcing the settlement last year, the FTC asserted that it had “received thousands of complaints about Fashion Nova’s shipping and refund practices from American consumers, as well as hundreds from consumers located in Canada and more than fifty other countries, [who were] affected by the company’s actions.”
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,” a retailer 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.
Reflecting on the settlement, which demonstrates “the potential significance” that violations of the Mail Order Rule can have for retailers, Crowell & Moring attorneys Christopher Cole and Helen Osun assert that “online retailers need to keep a rigorous schedule and calendar for shipping orders.” If they cannot fulfill orders “within the time frame advertised promised on their website, and in any event within 30 days, they must comply with the Mail Order requirements for notification of cancellation rights.”