Online fast-fashion retailer Fashion Nova will pay $9.3 million to settle Federal Trade Commission (FTC) 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 giving 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 alleged that it violated the agency’s Mail, Internet or Telephone Order Merchandise Rule (the Mail Order Rule) that applies to merchandise sold to consumers online or by mail or phone.
“The same rules that we have enforced for nearly 50 years against catalogers and other mail-order companies also apply to online sellers,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said. “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. The first is that the company made clear promises to consumers for years that they offer fast shipping. This includes using phrases like “Fast Shipping,” “2-Day Shipping” and “Expect Your Items Quick!” However, in reality 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.
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The complaint also charged 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 FTC vote authorizing the staff to file the complaint and proposed stipulated order was five to zero. The FTC filed the complaint and final judgment in the U.S. District Court for the Central District of California.