Hey Dude Settles FTC Mail Order Rule Charges for $1.95 Million

Hey Dude has agreed to pay $1.95 million to the Federal Trade Commission (FTC) in order to settle charges related to violations of the government organization’s Mail, Internet or Telephone Order Merchandise Rule.

According to the FTC, Hey Dude formerly known as Happy One LLC, violated its Mail Order Rule in several ways, including failing to issue shipping delay notices when it could not timely fulfill consumers’ orders; failing to cancel consumers’ orders and provide prompt refunds after failing to send such notices; and issuing consumers gift cards instead of sending prompt refunds of the original payment for merchandise ordered but not shipped, as required by the rule.

The FTC expects to use the collected fine to provide refunds to consumers harmed by Hey Dude’s alleged unlawful conduct.

What’s more, the FTC claimed on Monday that Hey Dude suppressed more than 80 percent of reviews that failed to provide four or more stars out of a possible five. From January 2020 to June 2022, the FTC said that the shoe company, which uses a third-party online management review interface, chose to have all five-star reviews (the best rating) posted on its website with little scrutiny. In many instances, however, it rejected and did not publish less-favorable reviews, the FTC said.

Before June 2022, the complaint further alleged that Hey Dude’s written policies and procedures instructed staff to publish certain types of reviews only if they were positive. According to the FTC, Hey Dude started publishing all consumer reviews only after finding out it was under investigation by the commission.

“As this case makes clear, when retailers publish consumer reviews online, they cannot suppress negative reviews to paint a deceptive picture of the consumer experience,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement. “And when retailers don’t ship merchandise on time, they must give buyers the option to cancel their orders and promptly get their money back. We will continue to hold online retailers accountable for violations of the FTC Act and other laws we enforce.”

The proposed court order, if approved by the court, will require Hey Dude to change its conduct going forward. First, the proposed court order will bar Hey Dude from future violations of the Mail Order Rule. Next, it will prohibit the company from making misrepresentations about consumer reviews by requiring it to publish all reviews it receives, including reviews previously withheld from publication, with limited exceptions related to moderation of inappropriate content.

In a statement sent to FN by Hey Dude’s parent company, Crocs Inc., a spokesperson confirmed that it has entered into a monetary settlement with the FTC based on alleged violations of the Mail Order Rule which primarily occurred over the holiday months in 2020, prior to Crocs’ acquisition of the company.

“Contrary to the statement released earlier by the FTC, the monetary portion of the settlement is not related in any way to review suppressions, but instead relates to fulfillment times of a small number of Hey Dude product orders placed online,” the Crocs spokesperson told FN. “Since our acquisition of the company, we have worked diligently with the FTC to come to a quick and satisfactory resolution, and we are pleased to put this behind us and move forward with the excellent customer experience, transparency and accountability for which Crocs’ brands are known.”

Hey Dude, which was acquired by Crocs Inc. in February 2022 in a deal valued at $2.5 billion, has undergone several changes under its new owner. Some of these include the debut of a new logo and brand identity, as well as reevaluating its wholesale strategy and launching sneakers.

But these moves have been hard for Wall Street to bet on. In July, Crocs Inc. shares fell after the shoe company cut its outlook for Hey Dude following its second quarter results. Although Hey Dude revenues were up 3 percent to $239.4 million in the quarter, wholesale revenues declined 8.4 percent to $148.8 million. This led parent company Crocs Inc. to downgrade its outlook for full-year growth at the Hey Dude brand and now expects revenues to grow between 14 percent and 18 percent in 2023, compared to its previously outlined mid-20 percent growth.