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How legal is the following practice?:

A store takes pre-orders for physical items. The items take much longer to become available than estimated. The customers get frustrated and request refund/cancellation. The store holds processing refunds until the items materialize on the shelves.

Presumably, the store does so because it does not actually maintain sufficient cash balance for refunds: it puts the money into production and other business expenses. When an item is actually available, there will be new people willing to grab it, and their money will be used to refund the frustrated customer.

Assuming there is no actual malicious intent but just over-optimistic estimations, does the store break any laws? Are the refund terms lawful and enforceable in court?

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  • The question does not make it clear if orders are taken in person at the store, or by telephone, by mail, or online. This matters. Dec 12, 2021 at 0:36
  • @DavidSiegel Online only. Why would it matter though?
    – Greendrake
    Dec 12, 2021 at 1:00
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    Because the US Federal Mail, Internet, or Telephone Order Merchandise Rule (at 16 CFR Part 435 ) applies to internet orders, but not orders made in person at a retail store. That rule imposes limits and duties on sellers, which it seems the seller in the question has breached. , The seller cannot waive that rule by contract, and it mandates a "prompt refund" (defined as within 7 days by 1st class mail or a method at least as fast) if the buyer does not explicitly consent to a delay in the order. See my answer, which has a link to the rule. Dec 12, 2021 at 1:25

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Consumer Protection

In addition to whatever the provisions of the contract may be, consumer protection laws will apply to this transaction, and will override any contrary provisions in the contract. There are federal protections, mostly administered by the FTC. The State of California also has consumer protection statutes, the Unfair Competition Law (UCL), Consumer Legal Remedies Act (CLRA), and False Advertising Law (FAL).

Contracts may not override these laws except where a specific provision permits such contract terms.

Federal Rules

The official FTC page "What To Do If You’re Billed for Things You Never Got, or You Get Unordered Products" states:

The federal Mail, Internet, or Telephone Order Merchandise Rule applies to most things you order by mail, online, or by phone. It says:

  • Sellers have to ship your order within the time they (or their ads) say — that goes whether they say “2-Day Shipping” or “In Stock & Ships Today.” If they don’t give a time, they must ship within 30 days of when you placed your order.
  • If there’s a delay shipping your order, the seller has to tell you and give you the choice of either agreeing to the delay or canceling your order for a full refund.
  • If the seller doesn’t ship your order, it has to give you a full refund — not just a gift card or store credit.

...

Disputing credit card billing errors within the 60-day dispute period

By law, you have to dispute a credit card billing error in writing within 60 days of the date that the first statement that has the billing error was sent to you. Otherwise, you may get stuck with the bill.

...

Disputing credit card billing errors after the 60-day dispute period ends

What if you agreed to delivery on a date in the future that turns out to be more than 60 days after your statement showing the charge was sent to you — but the delivery didn’t arrive or you rejected it because it was not what you agreed to purchase? Can you still dispute the charge?

You’re likely outside the protection of the Fair Credit Billing Act. Still, some credit card issuers may extend the 60-day dispute period when a shipment is delayed. Send a dispute letter to your credit card company. Include copies of any documents showing the expected and actual delivery dates, including any notice the seller sent you about the shipment delay.

See also the official "Business Guide to the FTC's Mail, Internet, or Telephone Order Merchandise Rule"

The actual Federal Mail, Internet, or Telephone Order Merchandise Rule is at 16 CFR Part 435; relevant parts of this rule provide:

(435.1 (b)) "Prompt refund" shall mean:

(1) Where a refund is made pursuant to paragraph (d)(1), (d)(2)(ii), (d)(2)(iii), or (d)(3) of this section, a refund sent by any means at least as fast and reliable as first class mail within seven (7) working days of the date on which the buyer's right to refund vests under the provisions of this part. Provided, however, that where the seller cannot provide a refund by the same method payment was tendered, prompt refund shall mean a refund sent in the form of cash, check, or money order, by any means at least as fast and reliable as first class mail, within seven (7) working days of the date on which the seller discovers it cannot provide a refund by the same method as payment was tendered;

(§ 435.2) ... it constitutes an unfair method of competition, and an unfair or deceptive act or practice for a seller:

(a) (1) To solicit any order for the sale of merchandise to be ordered by the buyer through the mail, via the Internet, or by telephone unless, at the time of the solicitation, the seller has a reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer:

(a) (1) (i) Within that time clearly and conspicuously stated in any such solicitation; or

(a) (1) (ii) If no time is clearly and conspicuously stated, within thirty (30) days after receipt of a properly completed order from the buyer. Provided, however, where, at the time the merchandise is ordered the buyer applies to the seller for credit to pay for the merchandise in whole or in part, the seller shall have fifty (50) days, rather than thirty (30) days, to perform the actions required in this paragraph (a)(1)(ii).

(a) (2) To provide any buyer with any revised shipping date, as provided in paragraph (b) of this section, unless, at the time any such revised shipping date is provided, the seller has a reasonable basis for making such representation regarding a definite revised shipping date.

(a) (3) To inform any buyer that it is unable to make any representation regarding the length of any delay unless:

(a) (3) (i) The seller has a reasonable basis for so informing the buyer; and

(a) (3) (ii) The seller informs the buyer of the reason or reasons for the delay.

(a) (4) In any action brought by the Federal Trade Commission, alleging a violation of this part, the failure of a respondent-seller to have records or other documentary proof establishing its use of systems and procedures which assure the shipment of merchandise in the ordinary course of business within any applicable time set forth in this part will create a rebuttable presumption that the seller lacked a reasonable basis for any expectation of shipment within said applicable time.

(b) (1) Where a seller is unable to ship merchandise within the applicable time set forth in paragraph (a)(1) of this section, to fail to 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. Said offer shall be made within a reasonable time after the seller first becomes aware of its inability to ship within the applicable time set forth in paragraph (a)(1) of this section, but in no event later than said applicable time.

There are further provisions which deal with the situation where a delayed order is further delayed, and what consent the buyer may have already given to any delay.

In short, where the seller is unable to meet its estimated time for shipment of the order, the seller must promptly inform the buyer, in no case later than the original estimated shipment date, and must offer an option to cancel the order. Unless the buyer explicitly consents to the delay (definite or indefinite) the seller must send a prompt refund, which means within 7 working days. No contract purporting to waive or modify these rights is valid or enforceable on these points, although if the initial order explicitly states that the date of shipment is indefinite, and the customer agrees to this, no shipment date can be enforced under this rule.

California Laws

California Civil Code section 1723 requires that a retail store selling goods allow returns or exchanges for at least 7 days, or else prominently post its actual policy. But that does not apply to goods ordered for later delivery.

The California Business and Professions Code section 17500 makes it unlawful for:

any person, firm, corporation or association, or any employee thereof with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise, or anything of any nature whatsoever or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state, or to make or disseminate or cause to be made or disseminated from this state before the public in any state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet, any statement, concerning that real or personal property or those services, professional or otherwise, or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading

This would include advertising a shipment date which was not reasonably achievable, and which the seller knew or should have know was likely not to be met.

The California Civil code section 17770 makes unlawful:

(10) Advertising goods or services with intent not to supply reasonably expectable demand, unless the advertisement discloses a limitation of quantity.

This may not apply to the fact pattern described in the question, depending on what the seller knew and when.

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Assuming there is no actual malicious intent but just over-optimistic estimations, does the store break any laws?

Yes. At the outset, it is unclear why something the customer already paid should be called a "pre-order", or the difference between an order and a pre-order. Regardless, the store's failure to deliver the item as agreed upon constitutes breach of contract.

Especially if the store's estimate was a material factor for the customer's decision to enter the contract, the store's material delay seemingly contravenes a basic assumption under which that contract was formed. The factual departure from that basic assumption entitles the customer to void the contract. See Restatement (Second) of Contracts at §153.

Are the refund terms lawful and enforceable in court?

It is unclear what refund terms the contract provides. Generally speaking, a customer is not expected to be aware of a store's particular commercial practices.

Even if the contract terms imply that the customer bears the risk of mistake (see Restatement at §154), the language regarding the estimate might indicate constraints to the risk allocated to the client.

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  • "It is unclear what refund terms the contract provides" — that refunds are only processed once the item is available to be shipped, not immediately upon requesting a refund.
    – Greendrake
    Dec 11, 2021 at 13:24
  • @Greendrake In that case the matter boils down to the language regarding the estimated date of delivery. Dec 11, 2021 at 13:51
  • It is obvious that holding refunds until the estimated shipment date (or even until some reasonable time after it) is a lawful term. But the premise of the question is that refunds are requested much long after the estimated delivery date and when the item is still not available for shipping.
    – Greendrake
    Dec 11, 2021 at 14:09
  • @Greendrake "But the premise of the question is that refunds are requested much long after". Hence the need to scrutinize the exact language about "estimated", which might put a constraint --or imply a reasonable one-- on how much longer the customer ought to wait. Even if the language indicates no such constraint, the longer the delay, the likelier for the customer to prevail on the basis that the intent of the contract was not for the store to indefinitely postpone its obligation (which de facto is happening in the scenario you outline). Dec 11, 2021 at 14:45
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    A "pre-order" is an item orders when it is known that the item is not yet available. It may be paid-for in advance, or there may be an agreement to pay when the item is shipped or delivered. Dec 11, 2021 at 19:46

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