Mtor Ss 2006

Supporting Statement For
Mail or Telephone Order Merchandise Rule
16 C.F.R. Part 435
(OMB Control No. 3084-0106)
(1) Necessity for Collecting the Information
Under authority of the FTC Act, 15 U.S.C. § 41 et seq., the Federal Trade Commission
(“FTC” or “Commission”) promulgated the Mail Order Merchandise Trade Regulation Rule (the
“MOR”), 16 C.F.R. Part 435, on October 22, 1975 (40 Fed. Reg. 49,492). The MOR became
effective on February 2, 1976 (40 Fed. Reg. at 49,494). On September 21, 1993, the
Commission amended the MOR under authority of Section 18 of the FTC Act, 15 U.S.C. § 57a,
to include merchants who solicited orders for merchandise by telephone (including by telefax or
by computer through the use of a modem), and renamed it the “Mail or Telephone Order
Merchandise Rule” (the “MTOR” or “Rule”). 58 Fed. Reg. 49,096. The amended Rule took
effect on on March 1, 1994. 58 Fed. Reg. at 49,123.
The MTOR implements Section 5 of the FTC Act, 15 U.S.C. § 45, and is designed to
prevent interstate direct marketers from unilaterally changing the shipment time in a merchandise
sales contract, a material term. Without the Rule, consumers would be faced with unexplained
delays or failures of direct marketers to ship mail or telephone order merchandise, or failures to
provide refunds for unshipped mail or telephone order merchandise.
The rulemaking record for the MOR -- which included, among other things, thousands of
consumer complaints to state and federal authorities -- demonstrated that many merchants were
failing to: (a) ship mail order merchandise to consumers in the time they promised or in the time
consumers reasonably expected; (b) ship the merchandise at all; and/or (c) failing to provide
prompt or full refunds for unshipped merchandise.
The MTOR rulemaking record demonstrated that, as merchants increasingly turned to the
telephone for soliciting or taking orders for merchandise, the delayed shipment and refund
problems of the mail order industry had migrated to this segment of the direct marketing
industry. When the Commission issued the MTOR, it defined “telephone” and, by extension,
“telephone order sales,” in a manner that would encompass direct sales through facsimile and the
Internet.
The MTOR requires merchants to disclose to customers when shipment is delayed and,
absent customer consent to delayed shipment, to refund customer payments for unshipped
merchandise.1 All notices of delay must afford consumers the means to exercise their options at

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Merchants must seek customer consent for delayed shipment if they cannot ship within the time
initially stated or, if not stated, for delays exceeding 30 days after receiving a properly completed order from
(continued...)

Dated: January 2007

the merchant’s expense. The MTOR also requires the merchant, without being asked, to cancel
the order and make a full and prompt refund whenever (1) the merchant determines that it will
never be able to ship the merchandise, (2) the merchant fails to provide a required notice of delay
within the originally promised shipment time or within any revised shipment time, (3) the
consumer exercises any cancellation option before the merchant ships, or (4) the merchant is
unable to ship and the consumer fails to agree to delayed shipment within the time required for
expressly agreeing to delay. When the MTOR requires the merchant to make a refund, it also
requires disclosure of this fact, either by the act of making the refund itself (where the
merchandise was paid for originally by cash, check or money order), or by notifying the
consumer that any charge to the consumer’s charge account will be reversed or that the merchant
will take no action that will result in a charge.
The MTOR contains no recordkeeping requirements per se. However, it establishes a
rebuttable presumption against merchants who lack documentary proof of mechanisms to assure
timely shipments. Similarly, absent supportive records, it is presumed that a merchant has failed
to comply with the Rule’s requirements for timely delay option notices and refunds. See 16
C.F.R. §§ 435.1(a)(4) and 435.1(d).
The Rule’s reasonable basis requirements and associated rebuttable presumptions are
interpreted by prudent industry members as requiring merchants to keep records of at least the
merchant’s procedures for (1) estimating consumer demand for and securing adequate sources of
supply for each item of merchandise offered for sale by mail, telephone, or the Internet, (2)
receiving and fulfilling orders, (3) accurately recording information relating to each order, and
(4) assuring that the merchant’s usually automated communications with consumers about any
changing fulfillment circumstances comply with the notice and refund provisions of the MTOR.
Likewise, although there is no requirement that such records be maintained for any period,
prudent merchants likely interpret the five-year limitation period under 28 U.S.C. § 2462 as the
appropriate time for keeping these records for purposes of federal law.
(2) Use of the Information
The primary purpose of the Rule’s disclosure requirements is to provide consumers
timely information on the shipment status of their orders, and to afford them the power to
consent to any changed shipment time or to rescind the contract and promptly obtain the return of
their money. Using this information, consumers can seek alternative sources of the merchandise
and make time-effective purchasing decisions. The purpose of the Rule’s recordkeeping
provisions is to enable merchants to demonstrate compliance with the Rule and, absent such
substantiation, provide grounds for possible Commission enforcement action for noncompliance.

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(...continued)
the buyer or, regarding seller-financed orders, delays beyond 50 days thereafter. 16 C.F.R. § 435.1(a)(1)(i)(ii).

Dated: January 2007

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(3) Consideration of the Use of Improved Information Technology to Reduce Burden
Information processing hardware and software implicitly can be a part of the “systems
and procedures which assure compliance” alluded to by the rule’s rebuttable presumptions
relating to judicial enforcement of the MTOR, 16 C.F.R. §§ 435.1(a)(4) and 435.1(d). Most
merchants presently use -- or employ fulfillment houses that use -- advanced information
processing technology to comply with the rule. In compliance with the Rule, most merchants
record inventory and consumer order information in computers programmed to generate packing
slips and address labels in time for shipment. For goods that computer systems identify as being
on back order, the systems may also be programmed to generate rule-compliant delay notices or
refunds within the times required by the Rule. Additionally, many merchants and fulfillment
houses have acquired and integrated with their information processing technology bar code
scanner capabilities that provide information in real time on the status of each order, from
generating the packing slip to placing the order in the shipper’s hands. Thus, computerized
records of order receipt and timely shipment or delay notification or refund are the merchant’s
primary evidence of rule compliance.
Under the Commission’s rule review program, patterned loosely after the Regulatory
Flexibility Act, 5 U.S.C. § 601 et seq., the Commission periodically solicits comments on ways
to minimize the recordkeeping burden demonstrating rule compliance through the use of
automated collection techniques and other forms of information technology. Under its first
review of the MTOR (September 21, 1993), based on input from the direct marketing industry,
the Commission eliminated provisions in the MOR creating rebuttable presumptions of noncompliance where the merchant uses means other than first class mail to provide rule-required
delay option notices to consumers. By eliminating these presumptions the Commission indicated
that it would facilitate the use by industry of other or more convenient means to provide
notification, such as by telephone, 58 Fed. Reg. 49,096, 49,111-12. As Internet sales have
grown, so too has the use of the Internet by businesses to provide these rule-required notifications
to consumers.
The Commission has additionally solicited input on ways to reduce burden through its
Paperwork Reduction Act-required notices to the public when seeking OMB clearance to collect
information associated with the MTOR (see item #8 of this Supporting Statement). The instant
submission is the latest example of that. Finally, consistent with the Government Paperwork
Elimination Act, Pub. L. No. 105-277, Title XVII, 112 Stat. 2681-749, nothing in the Rule
prescribes that disclosures be made, records filed or kept, or signatures executed, on paper or in
any particular format that would preclude the use of electronic methods to comply with the Rule's
requirements.

Dated: January 2007

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(4) Efforts to Identify Duplication
The MOR has been in effect since February 2, 1976, and the MTOR has been in effect
since March 1, 1994. Throughout, FTC staff have worked closely with the industry. Staff
attorneys practicing in this area verify that the disclosure and substantiation requirements of the
rule do not duplicate any other requirements.
(5) Efforts to Minimize Burden on Small Organizations
The rule’s disclosure and substantiation requirements are designed to impose minimal
burden on affected members of the industry, regardless of size. The Commission’s 1986
Regulatory Flexibility Act review of the MOR found that, based on an industry-wide survey of
direct marketers, nearly half of all small and large firms surveyed reported no incremental
compliance costs and that an additional 27% reported compliance expenditures less than $500
annually. Among affected entities, 81% of small businesses and 65% of large businesses
reported that eliminating the MOR would not alter their business practices because “[m]ost mail
order firms, large and small, feel the concept of the [Mail Order] rule is sound business practice
that enhances the growth and development of a mail order business and they do not wish to have
the Rule eliminated.” 51 Fed. Reg. 1516, 1517 (1986). Moreover, when the Commission
promulgated the MTOR on September 21, 1993, it found during its Regulatory Flexibility Act
analysis of the proposed amendments to the MOR that the amended rule did not have a
significant impact upon a substantial number of small entities, 58 Fed. Reg. 49,095, 49,118-20.
The Commission continues to examine this and other rules regularly to determine, among
other things, whether new technology or changes in technology can be used to reduce regulatory
burdens that the rule may impose. As previously stated, the Paperwork Reduction Act requires
agencies to issue notices when seeking OMB clearance to collect information. These notices
provide added means to explore ways to reduce burdens relating to a given collection of
information.
(6) Consequences of Conducting the Collection Less Frequently
The substantiation requirements of the MTOR ensure that consumers are provided
reliable shipment information in the merchant’s solicitation of order sales and in required
notifications of delay. The disclosure and refund requirements ensure that consumers are notified
of delays and empowered to cancel orders and obtain prompt refunds in delayed shipment
situations. To do less than this would circumvent the Rule’s purpose.
(7) Circumstances Requiring Collection Inconsistent With Guidelines
The collection of information in the Rule is consistent with all applicable guidelines
contained in 5 C.F.R. § 1320.5(d)(2).

Dated: January 2007

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(8) Consultation Outside the Agency
The Commission’s staff have been in contact with interested industry members and trade
associations since before the 1975 MOR rulemaking to the present. During the Regulatory
Flexibility Act review of the Rule in the 1993 MTOR rulemaking, the Commission sought and
received comments from the public regarding the benefits and burdens attributable to the rule, 58
Fed. Reg. 49,096, 49,118-120. Representatives of the industry have informed the Commission
that the information collection burdens imposed by the MTOR have lessened over time as
technology has improved. In the years since, in connection with its periodic PRA clearance
requests for the Rule, FTC staff has sought public comment on the Rule’s information collection
requirements and on staff’s estimates of paperwork burden associated with it. No comments
were received in that regard. As a prelude to this request, the Commission again sought such
public comment. Again, no comments were received.2 Pursuant to the OMB regulations that
implement the PRA (5 CFR Part 1320), the FTC is providing a second opportunity for public
comment while seeking OMB approval to extend the existing paperwork clearance for the Rule.
(9) Payments and Gifts to Respondents
Not applicable. The Rule contains no provisions for payments or gifts to respondents.
(10) & (11) Assurances of Confidentiality/Matters of a Sensitive Nature
To the extent that the Commission collects information for law enforcement purposes
under the Rule’s aforementioned recordkeeping provisions, the confidentiality measures of
Section 21 of the FTC Act, 15 U.S.C. § 57b-2, will apply.
(12) Estimated Burden/Associated Labor Costs
Estimated total annual hours burden: 3,083,000 hours (rounded up to the nearest
thousand).
In its 2003 PRA-related Federal Register Notices3 and corresponding submission to
OMB, FTC staff estimated that 53,600 established companies each spend an average of 50 hours
per year on compliance with the Rule, and that approximately 1,800 new industry entrants spend
an average of 230 hours (an industry estimate) for compliance measures associated with start-up.4

2

3

See 71 Fed. Reg. 60,530 (October 13, 2006).

68 FR 58683 (Oct. 10, 2003); 68 FR 74580 (Dec. 24, 2003).

4

Most of the estimated start-up time relates to the development and installation of computer
systems geared to more efficiently handle customer orders.

Dated: January 2007

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Thus, the total estimated hours burden was 3,094,000 hours, rounded up to the nearest thousand
[(53,600 established companies x 50 hours) + (1,800 new entrants x 230 hours)].
No provisions in the Rule have been amended or changed since staff’s prior submission
to OMB. Thus, the Rule’s disclosure and recordkeeping requirements remain the same. Since
then, however, the number of businesses engaged in the sale of merchandise by mail or by
telephone has increased. Comparing data from the U.S. Department of Commerce 2002
Statistical Abstract with data from the 2006 Statistical Abstract,5 between 1999 and 2002 the
number of businesses subject to the MTOR grew from 51,800 to 54,500, or an average increase
of 675 new businesses a year [(54,500 businesses in 2002 - 51,800 businesses in 1999) ÷ 4
years]. Assuming this growth rate continues, the average number of established businesses
during the three-year period for which OMB clearance is sought for the Rule would be 58,550.6
Conversely, based on the 2002 and 2006 Statistical Abstract data, FTC staff is reducing
its estimate of new businesses per year from 1,800 to 675. Thus, staff estimates that the average
number of affected entities during the three-year OMB clearance period will be approximately
59,225 (58,550 established companies + 675 new entrants).
Accordingly, staff estimates total industry hours to comply with the MTOR by then will
be 3,083,000 hours [(58,550 established companies x 50 hours) + (675 new entrants x 230
hours)], rounded to the nearest thousand.7
This is a conservative estimate. Arguably much of the estimated time burden for
disclosure-related compliance would be incurred even absent the Rule. Industry trade
associations and individual witnesses have consistently taken the position that compliance with
the MTOR is widely regarded by direct marketers as being good business practice. The Rule's
notification requirements would be followed in any event by most merchants to meet consumer
expectations regarding timely shipment, notification of delay, and prompt and full refunds.

5

Comparing Table 1000, “Retail Trade – Establishments, Employees and Payroll: 1999 and
2000,” Statistical Abstract of the United States, 122nd edition, 2002, U.S. Department of Commerce,
Economics and Statistics Administration, with Table 1015, “Retail Trade – Establishments, Employees
and Payroll: 2000 and 2002,” Statistical Abstract of the United States, 125th edition, 2006, U.S.
Department of Commerce, Economics and Statistics Administration.
6

As discussed above, the existing OMB clearance for the Rule expires on January 31, 2007 and
the FTC is seeking to extend the clearance through January 31, 2010. The average number of established
businesses during the three-year clearance period was determined as follows: [(54,500 businesses in 2002 +
(675 new entrants per year x 5 years)) + (54,500 businesses in 2002 + (675 new entrants per year x 6 years)) +
(54,500 businesses in 2002 + (675 new entrants per year x 7 years))] ÷ 3 years.
7

Staff estimates that approximately 90% of the burden incurred by covered entities is due to
compliance with the Rule’s disclosure requirements, with the remaining burden attributed to compliance with
the Rule’s implicit recordkeeping requirements.

Dated: January 2007

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Providing consumers with notice about the status of their orders fosters consumer loyalty and
encourages repeat purchases, which are important to direct marketers’ success. Thus, it appears
that much of the time and expense associated with Rule compliance may not constitute “burden”
under the PRA8 although the above estimates account for it as such.
The mail-order industry has been subject to the basic provisions of the Rule since 1976
and the telephone-order industry since 1994. Thus, businesses have had several years (and some
have had decades) to integrate compliance systems into their business procedures. Since staff’s
preceding PRA submission to OMB for the Rule, many businesses have upgraded the
information management systems they need, in part, to comply with the Rule, and to track orders
more effectively. These upgrades, however, were needed to deal with growing consumer demand
for merchandise resulting, in part, from increased public acceptance of making purchases over
the telephone and, more recently, the Internet.
Accordingly, most companies now maintain records and provide updated order
information of the kind required by the Rule in their ordinary course of business. Nevertheless,
staff continues to conservatively assume that the time devoted to compliance with the Rule by
existing and new companies remains unchanged from its preceding estimate.
Estimated labor costs: $53,829,000, rounded to the nearest thousand.
Labor costs are derived by applying appropriate hourly cost figures to the burden hours
described above. According to the 2002 and 2006 Statistical Abstract, average payroll for
“electronic shipping and mail order houses,” “direct selling establishments,” and “other direct
selling establishments” rose from $14.41 per hour in 1999 to $15.92 per hour in 2002, an
increase of $1.51 per hour over four years ($15.92 per hour in 2002 - $14.41 per hour in 1999),
or an average of $0.378 per year ($1.51 increase over four years ÷ 4 years). Assuming average
payroll continues to increase an average of $0.378 per hour per year, the average payroll during
the three-year period for which OMB clearance is sought for the Rule would be $17.46 per hour.9
Because the bulk of the burden of complying with the MTOR is borne by clerical personnel, staff
believes that the average hourly payroll figure for electronic shipping and mail order houses and
direct selling establishments is an appropriate measure of a direct marketer’s average labor cost
to comply with the Rule. Thus, the total annual labor cost to new and established businesses for
MTOR compliance during the three-year period for which OMB approval is sought would be

8

Under the OMB regulation implementing the PRA, burden is defined to exclude any effort that
would be expended regardless of any regulatory requirement. 5 CFR 1320.3(b)(2).
9

The approximate payroll during the three-year clearance period was determined as follows:

[($15.19 payroll in 2002 + ($0.378 average increase per year x 5 years)) + ($15.19 payroll in 2002 + ($0.378
average increase per year x 6 years)) + ($15.19 payroll in 2002 + ($0.378 average increase per year x 7
years))] ÷ 3 years.

Dated: January 2007

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approximately $53,829,000 (3,083,000 hours x $17.46/hr.), rounded to the nearest thousand.
Relative to direct industry sales, this total is negligible.10
(13) Capital and Other Non-labor Costs
Estimated annual non-labor cost burden: $0 or minimal.
The applicable requirements impose minimal start-up costs, as businesses subject to the
Rule generally have or obtain necessary equipment for other business purposes, i.e., inventory
and order management, and customer relations. For the same reason, staff anticipates printing
and copying costs to be minimal, especially given that telephone order merchants have
increasingly turned to electronic communications to notify consumers of delay and to provide
cancellation options. Staff believes that the above requirements necessitate ongoing, regular
training so that covered entities stay current and have a clear understanding of federal mandates,
but that this would be a small portion of and subsumed within the ordinary training that
employees receive apart from that associated with the information collected under the Rule.
(14) Estimated Cost to the Federal Government
The estimated yearly cost to the Federal Government resulting from MTOR enforcement
activities is $266,223, which is based on the assumption that rule enforcement will entail one full
attorney/economist work-year ($174,000) and clerical and other support services ($72,223).
These salaries include a 22.7% benefit rate. Added to these salaries are estimated yearly
overhead costs of $20,000.
(15) Changes in Burden
The decrease in burden hours (from approximately 3,094,000 hours to approximately
3,083,000 hours) is solely a reflection of a decrease in the number of new businesses per year.
(16) Statistical Use of Information
There are no plans to publish for statistical use any information required by the Rule.
(17) Display of the Expiration Date for OMB Approval
Not applicable

10

Based on a $9.775 billion average yearly increase in sales for “electronic shopping and mail-order
houses” from 2000 to 2004 (according to the 2006 Statistical Abstract), staff estimates that total mail or
telephone order sales to consumers in the three-year period for which OMB clearance is sought will average
$187.4 billion. Thus, the projected average labor cost for MTOR compliance by existing and new businesses
for that period would amount to less than 0.029% of sales.

Dated: January 2007

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(18) Exceptions to the “Certification for Paperwork Reduction Act Submissions”
Not applicable.

Dated: January 2007

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