Mail Order Laws And Regulations

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INTRODUCTION

The intent of this report is to give the newcomer to the mail
order business an overview of those laws and regulations that
most affect the small mail order operator. The intent is not to
give legal advice. Such advice should always be sought from an
attorney. Only those laws and regulations that apply to the
small operator most directly are covered. Advice is given from
the perspective of an operator of a mail order business rather
than from a legal perspective.

For those interested in an in-depth review of the laws which
affect the mail order industry, it is recommended that you read
the following book: The Direct Marketer's Legal Advisor, by
Robert J. Bosch, McGraw Hill Book Company.

THE 30 DAY RULE

To protect the consumer the FTC has enacted the Mail Order
Merchandise rule which is generally referred to as the 30 Day
Rule. Many states have enacted similar laws. some of those laws
have a more narrow definition than the federal law; the most
notable is New York State.

The 30 Day Rule requires the seller to deliver the order within a
30 day period, unless otherwise stated in the sales literature.
if the seller, for example, states in the order form that
delivery takes 4 to 6 weeks, he has effectively insulated himself
from the law. In a practical matter, however, he may have also
affected his business in a negative way.

The 30 day period begins when an order arrives and has been
properly paid for.

The 30 Day Rule is an easy regulation with which to comply. It
should rarely take longer than 30 days to fill an order. If it
does, the seller must notify the buyer of the delay and the
reason for it.

Some mail order companies delay shipment of orders until checks
rendered for payment have cleared. This should generally not
take longer than 10 days. If the seller wishes to follow such a
policy, he should so state in his literature. From the
perspective of a mail order operator, I do not consider this to
be a sound policy. NSF and ACCOUNT CLOSED checks are relatively
rare and can be minimized with proper controls. If you practice
such a policy, you may save a few dollars but in return you will
make customers unhappy. I personally do not buy from companies
that state in their literature that they hold checks for
clearance. Most mail order companies experience very small bad
debt ratios. It is recommended that you call the bank the check
is drawn on to verify funds on larger amounts; as for example, on
orders over $50.

Once the buyer has been notified that an order has been delayed,
the seller is automatically granted an additional 30 day delay
unless the customer advises the seller that the delay is not
acceptable. If he does not reply to the notification, it
constitutes legal acceptance of the delay. In general, and in
most states, the seller may obtain a second 30 day delay as long
as there is a good enough reason.

The New York law differs from the federal law in that it
stipulates a maximum period of 65 days (including delays) for an
order to be filled. Newcomers to the mail order field residing
in New York State should obtain a copy of the New York
regulations.

The 30 Day Rule does not pertain to credit card sales. Credit
card charges should be processed when an order is filled. If a
mail order credit card sale is cancelled, the seller must issue a
credit against the account of the buyer within one billing cycle
following receipt of the cancellation request.

UNORDERED MERCHANDISE

The federal law pertaining to unordered merchandise is simple.
It strictly forbids this practice. Free samples, if so
identified, are exempted.

MERCHANDISE SUBSTITUTION

Most states, including New York, as well as the federal law
permit sellers to substitute merchandise of similar or superior
quality. The law requires it, and it is also a good business
practice, to advise the buyer when making a substitution that he
may return the merchandise free of charge if he is not satisfied.
Certain items, such as merchandise which has artistic value,
cannot be substituted. In this regard, for example, a book on
how to start a given business may be substituted by a similar
book on the same subject, but a book of literature by a renown
author may not be substituted.

RETURN OF MERCHANDISE

Unless the seller specifically states that he does not offer a
moneyback guarantee or offers, for example, a 30 day money back
guarantee, he is required to make a full refund for a period of
60 days if the material is returned in good condition.

My own experience with returned merchandise indicates that it is
quite rare. Our company, as an example, receives no more than
1-2 returns for every 120-150 orders. If you are a seller of
information products and you sell reports or other information
which can be easily copied, you may wish to enact a policy
stating that there is a no return policy for reports, etc.

The above laws are the only federal regulations pertaining to the
sale of merchandise which are unique to the mail order industry.

HEADLINERS IN ADVERTISING AND SALES LITERATURE

A few words should be said about the proper usage of some of the
most common headlines used in advertising. Again, for an
in-depth review of laws pertaining to advertising, refer to the
book as listed above.

The most common and most effective of these terms are: SALE, NEW
and most of all FREE. FREE is a magic word in American
advertising used by giant companies and small ones alike. By all
means, these terms should be used since they do produce sales.
and if the advertiser follows a simple rule of honesty in the
usage of these and other advertising terms, he will stay out of
trouble.

SALE

A sale is a reduction from the seller's own former selling price
of a given article. The seller must have sold, not just offered
the article, for a reasonable period of time. This simply means
if a 50% discount is offered on a $10 book, the book at some
previous time must have actually been sold at $10. If it just
has a cover price of $10 but was always sold at $7, a $5 price is
not a 50% discount.

FREE

Free means it is free. To reemphasize, the term is very
successful and will generate sales. But if something is offered
for free, it should be free. the value of the free item cannot
be hidden in another part of the offer, such as charging more for
the other items than you would normally charge.

NEW

Here is another straight-forward term. It should only be used
when new items are advertised. A new book is one which came out
in the last 6 months (maybe 12 months, and that would be
stretching it) but definitely not 2 years.

HOW TO START YOUR OWN COMPANY

Once you have decided you want to go into business, you must set
yourself up to get started. this is not al all difficult. You
should have no concerns on this matter. It is easy and
inexpensive to do. There are no unusual legal requirements to
sell by mail.

There are generally three ways to structure a business entity.
the sole proprietorship, the corporation, and a partnership. The
sole proprietorship is the easiest, fastest and least expensive
way to set yourself up. In most cases this would be the way to
start out for a small business.

Corporations have tax benefits that can be more advantageous than
a proprietorship, but they also have strict record keeping
requirements. As a rule of thumb, a business should be
incorporated if it has annual sales in excess of $250,000. It is
against the law in most states to use the abbreviation inc.
unless the business is incorporated. But you can use Co.
Partnerships also have specific legal requirements. Forming a
partnership is generally necessary when going into business with
someone else. There are advantages and disadvantages in doing
this. Besides sharing workloads and profits, the partners must
get along well. It is almost always necessary to obtain legal
counsel in order to set up a corporation or a partnership.

D.B.A. AND/OR BUSINESS LICENSE

In most cities or towns it is required that a business license be
obtained. In addition, you generally need to register your
business name if you are using a fictitious name If you are
using your own name, it is not required. Call your local city or
county clerk's office to obtain the necessary information.

A SUMMARY OF COPYRIGHT LAWS

For those interested in becoming self publishers either by
creating their own work or using someone else's, here is a short
summary of copyright law.

WHAT COPYRIGHT IS

Copyright is a form of protection provided by the laws of the
United States (Title 17, U.S. Code) to the authors of "original
works of authorship," including literary, dramatic musical,
artistic, and certain other intellectual works. Under the
copyright law, copyright protection (for printed works) pertains
only to the words and their sequence; it does not pertain to any
idea, process, system, etc., regardless of the form in which it
is described. that is, you copyright the words contained in the
copy, not the content. The copyright law generally gives the
owner the exclusive right to do and authorize others to do the
following: In the case of printed works, to reproduce the work
in various forms such as copying, etc. It also gives the owner
the right to display the copyrighted work publicly.

The way copyright protection is secured under the present law is
frequently misunderstood. No publication or registration or
other action in the copyright office is required to secure a
copyright. there are, however, definite advantages in doing so
since, in the case of a litigation, it is substantially easier to
prove copyright if registration has taken place.

Under the present law, copyright is secured automatically when
the work is created, and work is "created" when it is fixed in a
copy for the first time.

REGISTRATION PROCEDURES

Registration procedures are simple. In general, to register a
work three elements have to be sent to the Copyright Office in
Washington, D.C. An application (proper for can be obtained
from the Copyright Office), a $10 fee, and a non-returnable
deposit of the work to be copyrighted. For more specific
information, including a copy of the law, write to:
Register of Copyrights
Copyright Office
Library of Congress'
Washington, D.C. 20559

U.S. POSTAL LAWS

In general, it is against the postal regulations to utilize the
U.S. mail service to transport hazardous materials, pornographic
materials and chain letters involving money. For more specific
information, write to:

Consumer Advocate
U.S. Postal Service
475 L'Enfant Plaza West, WW
Washington, D.C. 20260

You may also obtain a free copy of the Consumer's Resource
Handbook. It is designed to help consumers resolve complaints
about goods and services with local, federal and state agencies.
Write to:

Consumer Information Center
Department 532
Pueblo, Co 81009

Other free publications that may be of interest to you:

"Selling by Mail" can be obtained from:
Small Business Administration
Washington, D.C. 20416-1110

"The Mail Order Rule" can be obtained from:
Federal Trade Commission
Publishing Office, #130
6th and Pennsylvania Avenue
Washington, D.C. 20580-0001

A final thought: In the conduct of your business, let
common sense and honesty be your guide.