Mtor 2013 Ss - Final

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). 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 (September 21, 1993). The amended Rule took effect
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 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

1

Merchants must seek customer consent for delayed shipment if they cannot ship within the time
(continued...)

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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. It establishes, however, 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. §§ 435.2(a)(4) and 435.2(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.
Merchants customarily keep such records in the ordinary course of business, however;
consequently, their retention of these documents does not constitute a “collection of
information” under OMB’s regulations that implement the Paperwork Reduction Act (“PRA”).
See 5 C.F.R. 1320.3(b)(2).

(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 Rule’s recordkeeping

1

(...continued)
initially stated or, if not stated, for delays exceeding 30 days after receiving a properly completed order from
the buyer or, regarding seller-financed orders, delays beyond 50 days thereafter. 16 C.F.R. § 435.2(a)(1)(i)(ii).

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provisions enable merchants to demonstrate compliance with the Rule and, absent such
substantiation, provide grounds for possible Commission enforcement action for noncompliance.

(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 rebuttable presumptions regarding
judicial enforcement of the MTOR, 16 C.F.R. §§ 435.2(a)(4) and 435.2(d). Most merchants
currently use -- or employ fulfillment houses that use -- advanced information processing
technology to comply 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. (“RFA”), 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. In its first review
of the MTOR (September 21, 1993), the Commission, in response to input from the direct
marketing industry, eliminated provisions in the MOR that created rebuttable presumptions of
non-compliance where the merchant uses means other than first class mail to provide rulerequired 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 sought input on ways to reduce burden through its
PRA-required notices to the public when seeking OMB clearance to collect information
associated with the MTOR (see item #8 of this Supporting Statement). Finally, consistent with
the Government Paperwork Elimination Act, Pub. L. No. 105-277, Title XVII, 112 Stat. 2681749, apart from notifications concerning “prompt refunds” (16 C.F.R. § 435.1(b)), nothing in the
Rule prescribes that disclosures be made, records filed or kept, or signatures executed, on paper

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or in any particular format that would preclude the use of electronic methods to comply with the
Rule's requirements.2

(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 RFA
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.” See 51
Fed. Reg. 1516, 1517 (Jan. 14, 1986). Moreover, in promulgating the MTOR, the Commission
found during its related RFA analysis of the proposed amendments to the MOR that the amended
Rule would not have a significant impact upon a substantial number of small entities. See 58
Fed. Reg. at 49,118-20.
As part of an ongoing review of its rules, the Commission continues to examine the
MTOR to determine, among other things, whether new technology or changes in technology can
be used to reduce regulatory burdens that the Rule may impose.

(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

2

On September 30, 2011, the Commission issued a Notice of Proposed Rulemaking (76 Fed. Reg. 76
FR 60,765) regarding, among other things, alternatives to notifications by U.S. mail of “prompt refunds.”
Currently, FTC staff is reviewing public comments received.

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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).

(8) Consultation Outside the Agency
Commission staff have been in contact with interested industry members and trade
associations since before the 1975 MOR rulemaking to the present. During the RFA 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. See 58 Fed. Reg. at
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.
Based on a review of comments received to the 2007 Advance Notice of Proposed
Rulemaking, 72 Fed. Reg. 51,728 (Sept. 11, 2007), on September 30, 2011, the FTC published a
Federal Register Notice concluding that the Rule continued to benefit consumers and was being
retained. 76 Fed. Reg. 60,715. For clarity, the Commission reorganized the Rule by
alphabetizing the definitions at the beginning of the Rule.3
Also on September 30, 2011, in a separate Federal Register Notice, the Commission
issued a Notice of Proposed Rulemaking seeking comment on, among other things, possible
changes to the Rule to: clarify that the Rule covers all orders placed over the Internet; revise the
Rule to allow sellers to provide refunds and refund notices to buyers by any means at least as
fast and reliable as first-class mail; clarify sellers’ obligations when buyers use payment methods
not spelled out in the Rule, such as debit cards or prepaid gift cards; and require that refunds be
made within seven working days for purchases that are made using third-party credit, such as
Visa or MasterCard cards. 76 Fed. Reg. 60,765. The comment period ended on December 14,
2011. Staff has reviewed the comments and anticipates sending a recommendation to the
Commission by the middle of 2013.
In connection with the instant PRA clearance request, the FTC sought public comment on
the Rule’s information collection requirements and on the associated estimates of PRA burden.
See 77 Fed. Reg. 64,994 (October 24, 2012). No comments were received. Pursuant to the

3

The 2011 amendments did not impose any additional “collection of information” requirements.
Consequently, the amendments did not affect the PRA burden associated with the Rule’s requirements.

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OMB regulations that implement the PRA (5 C.F.R. 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 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: 1,764,390 hours.
In its 2009-2010 PRA-related Federal Register Notices4 and corresponding submission to
OMB, FTC staff estimated that established companies each spend an average of 50 hours per
year on compliance with the Rule, and that new industry entrants spend an average of 230 hours
(an industry estimate) for compliance measures associated with start-up.5 Thus, the total
estimated hours burden was calculated by multiplying the estimated number of established
companies x 50 hours, multiplying the estimated number of new entrants x 230 hours, and
adding the two products.
No substantive provisions in the Rule have been amended or changed since staff’s prior
submission to OMB.6 Thus, the Rule’s disclosure requirements remain the same. Moreover, no
public comments were received regarding the above-noted estimates; thus, staff will apply them
to the current PRA burden analysis.
4

74 Fed. Reg. 53,500 (Oct. 19, 2009); 75 Fed. Reg. 2,142 (Jan. 14, 2010).

5

Most of the estimated start-up time relates to the development and installation of computer systems
geared to more efficiently handle customer orders.
6

As part of the systematic review of all Commission rules, on September 30, 2011, the FTC
published a Federal Register Notice concluding that the Rule continued to benefit consumers and would be
retained. 76 Fed. Reg. 60,715. For clarity, the Commission reorganized the Rule by alphabetizing the
definitions at the beginning of the Rule. That amendment did not impose any additional “collection of
information” requirements.

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Since the prior submission to OMB, however, the number of businesses engaged in the
sale of merchandise by mail or by telephone has changed. Data from the U.S. Census Bureau7
indicates that between 2000 and 2008 the number of businesses subject to the MTOR grew from
11,800 to 21,900, or an average increase of 1,263 new businesses a year [(21,900 businesses in
2008 - 11,800 businesses in 2000) ÷ 8 years].8 Assuming this growth rate continued in 2009
through 2012, and continues in 2013 through 2016, the average number of established businesses
during the three-year period for which OMB clearance is sought for the Rule would be 29,478:9
Year:
2013
2014
2015

Established Businesses
28,215
29,478
30,741

New Entrants
1,263
1,263
1,263

Average:

29,478

1,263

In an average year during the three-year OMB clearance period, staff estimates that
established businesses and new entrants will devote 1,764,390 hours to comply with the MTOR
[(29,478 established businesses x 50 hours) + (1,263 new entrants x 230 hours) = 1,764,390].
The estimated PRA burden per merchant to comply with the MTOR is likely overstated.
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. Moreover,
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. Providing consumers with notice about the status of their orders
fosters consumer loyalty and encourages repeat purchases, which are important to direct
marketers’ success. Accordingly, 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. Thus, it appears that much of the time and expense

7

See Table 1048, “Retail Trade--Establishments, Employees, and Payroll,” U.S. Census Bureau,
“County Business Patterns,” July 2009 at www.census.gov/compendia/statab/2012/tables/12s1048.xls.
8

Conceptually, this might understate the number of new entrants in that it does not factor in the
possibility that established businesses from an earlier year’s comparison might have exited the market
preceding the later year of measurement. Given the virtually unlimited diversity of retail establishments, it is
very unlikely that there is a reliable external measure of such exit; nonetheless, as in the past, the Commission
invites public comment that might better inform these estimates.
9

As noted above, the existing OMB clearance for the Rule expires on February 28, 2013, and the
FTC is seeking to extend the clearance through February 28, 2016.

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associated with Rule compliance may not constitute “burden” under the PRA.10
Estimated annual labor costs: $31,830,000 (rounded to the nearest thousand).
FTC staff derived labor costs by applying appropriate hourly cost figures to the burden
hours described above. According to the most recent data available from the Bureau of Labor
and Statistics,11 the mean hourly income for workers in sales and related occupations was
$18.04/hour. The bulk of the burden of complying with the MTOR is borne by clerical
personnel along with assistance from sales personnel. Staff believes that the mean hourly
income for workers in sales and related occupations 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 approximately $31,830,000 (1,764,390 hours x $18.04/hr.), rounded
to the nearest thousand. Relative to direct industry sales, this total is negligible.12

(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
10

Conceivably, in the three years since the FTC’s most recent clearance request to OMB for this
Rule, many businesses have upgraded the information management systems needed to comply with the Rule
and to track orders more effectively. These upgrades, however, were primarily prompted by the industry’s
need 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 provide updated order information of the kind required by the Rule in their ordinary course of
business. 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).
11

See Table 1, National employment and wage data from the Occupational Employment Statistics
survey by occupation, May 2011, at http://www.bls.gov/news.release/pdf/ocwage.pdf.
12

Considering that sales for “electronic shopping and mail-order houses” grew from $80 billion in
1998 to $235.0 billion in 2009 (according to Table 1055 in the 2012 Statistical Abstracts; found on 12s10551.xls available at
http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/online_retail_sales.html), staff estimates
the annual mail or telephone sales to consumers in the three-year period for which OMB clearance is sought
will average $305 billion. Thus, the projected average labor cost for MTOR compliance by existing and new
businesses for that period would amount to 0.01% of sales.

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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, including benefits and overhead costs, is $270,000, which is based on the assumption
that the Rule’s enforcement will entail one full attorney/economist work-year ($175,000),
clerical and other support services ($75,000), and overhead costs ($20,000).

(15) Program Changes/Adjustments
The decrease in burden hours is a reflection of an adjustment to compensate for prior
inadvertent counting of some direct marketers (i.e., door-to-door direct sales) in the estimated
industry population. These types of sales are not covered by the MTOR.

(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.

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

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