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Dozens of LuLaRoe sellers claim the multilevel marketing company charged them for products it never delivered and then failed to provide refunds for the missing goods.

Instead of refunds, LuLaRoe sometimes provided credits toward future purchases and sometimes offered nothing at all, according to internal LuLaRoe documents, interviews with 18 current and former LuLaRoe sellers, and more than 90 Federal Trade Commission complaints.

“They never issued a refund for missing items. It was always a credit,” said Danielle O’Meara, who closed her LuLaRoe business in October after more than a year selling the company’s clothing. “I recently canceled my business and have requested the credits be refunded to me and they refuse to refund to my card stating that is not policy, they will only send a check; however, they have yet to send a check.”

One LuLaRoe seller told Business Insider that she received an order from the company two weeks ago that contained just 20 of the 80 garments she purchased.

The seller’s order balance — worth more than $500 — was not refunded. Instead, she was given a credit toward a future purchase. A LuLaRoe credit receipt confirmed her account. This person, who asked to remain anonymous for fear of retribution, claimed this same scenario of getting shipped partial orders and receiving credits instead of refunds had played out repeatedly since she joined the company in mid-2017.

A LuLaRoe seller shares some of the slips she received in orders that were missing items.
Business Insider

Internal LuLaRoe emails and transcripts of remarks by the company’s executives suggest that LuLaRoe had charged some sellers up front for products and then not delivered their full orders since at least 2016.

Such a scenario essentially gives LuLaRoe an interest-free loan from its sellers’ wallets.

It also may violate a Federal Trade Commission rule called the Mail, Internet, or Telephone Order Merchandise Rule, according to Carolyn Carter, the deputy director of the National Consumer Law Center.

The rule requires companies to cancel orders and promptly provide a refund — not a credit — to the original form of payment if the goods can’t be delivered within 30 days (unless the buyer explicitly agrees to a delayed shipment).

“Giving a refund in the form of a credit for more or different merchandise … does not seem like a real refund,” Carter told Business Insider. “It seems like keeping your money.”

LuLaRoe representatives did not respond to multiple requests for comment.

The rule is enforced by the FTC, which can sue companies for up to $41,484 per violation.

A company called Discountmetalbrokers was fined $6.5 million last year for violating the rule by collecting payment on items that were delivered in part or not at all and for providing refunds only to customers who complained to government agencies, according to federal judge’s ruling on the case.

Read more: LuLaRoe supplier sues for $49 million and accuses the company’s founders of hiding assets in ‘shell’ companies

The FTC, which declined to comment on this story, received at least 90 complaints against LuLaRoe from July to September specifically citing issues with missing inventory and credits, according to documents obtained by Business Insider through a Freedom of Information Act request. (It’s possible there are additional related complaints. The FTC provided Business Insider with only 200 of about 1,500 complaints filed against LuLaRoe since January 2016).

This is a high number of FTC complaints for a single company, according to a source with more than two decades of experience with these matters, including 10 years spent working for the FTC.

Rachelle Dunne told Business Insider that when she was a LuLaRoe seller in 2017, the company repeatedly sent her orders with items missing, and she was only offered credit for those products.

One shorted order put her over the edge, she said. She spent $1,119.10 on a 30-item order on November 28, 2017. The company delivered only 19 items and issued a credit of $351.50 for 11 missing items, according to a credit receipt.

“That was the final straw … so I decided to end it,” she said. She canceled her LuLaRoe contract and demanded a refund for the $351.50 credit. Dunne is still waiting for her refund.

Some LuLaRoe sellers said getting credits instead of refunds made them feel forced to buy more goods from the company

Some sellers said issues with missing inventory locked them into a cycle of continually buying more goods to use up the credits they had accrued.

To meet LuLaRoe’s minimum order threshold, which at one point required purchases of at least 30 items, sellers often had to shell out their own cash with each new purchase to supplement the value of their credits, they said.

And with new purchases, more items were often discovered missing, and additional credits were generated, some said.

“There literally was not one shipment that I received that I didn’t have something missing,” said Susan Jennings, who said she ordered LuLaRoe inventory on a biweekly basis for nearly two years, until canceling her business this year. “I kept thinking from what everyone else was telling me that I’d eventually get the items mailed to me, but I never did. I eventually … submitted a request for all my items. All they did was credit me back, so I could order more items. And of course, those items would come in and I’d be missing items then, too. It was a vicious cycle.”

Read more: LuLaRoe is facing mounting debt, layoffs, and an exodus of top sellers, and sources say the $2.3 billion legging empire could be imploding

In some cases, the company automatically applied credits to sellers’ account for missing items. In other cases, sellers said they had to aggressively pursue the company to get credits they were owed by spending hours on hold with LuLaRoe’s service department, repeatedly filing claims forms online, and sending multiple emails to the company. Some of these emails were shared with Business Insider.

“You had to do your due diligence to know if anything was missing, and I would say 85-95% of my boxes were always missing something,” said one former seller, who was a consultant for 2 1/2 years until this past May. “Calling would help, but for many that was a dead end.”

Another former seller said: “On several occasions I asked for a refund and was told no, that the product would be filled … After fights and fights, I would get credit. I’m talking countless hours on the phone on hold. And many times I would get an order and out of 30-50 items ordered, I would get between 5-10 in a giant box with no back-order slip.”

More than 90 FTC complaints claiming issues with credits and obtaining refunds echoed the claims of sellers interviewed by Business Insider. Business Insider was unable to independently verify the FTC complaints because the agency redacted complainants’ identifying information.

LulaRoe did not respond to a request for comment about these claims but did send an email saying the company was “enthusiastic about the strength of the LuLaRoe brand” and consumer demand entering the holiday season.

Problems with incomplete orders started years ago and were never fully addressed

Widespread problems with missing and delayed shipments started appearing in 2016, according to internal company emails and interviews with current and former consultants.

A LuLaRoe seller shares some of the slips she received in orders that were missing items.
Business Insider

In October 2016, LuLaRoe CEO Mark Stidham urged sellers not to contact the company about their missing items, which he called “back orders.”

“There are some times when we don’t have the product to deliver and we get a back order,” he said during a company-wide meeting, according to a LuLaRoe-issued transcript of the meeting. “If you get a back order, please do not email, write, etc.”

Then on November 1, 2016, he announced in another meeting that LuLaRoe would start automatically applying credits to orders with missing items.

“I know you’re all frustrated, I don’t blame you … We created a bit of a monster,” Stidham said, after acknowledging that “people were frustrated and yelling trying to do business in a company that could not get the products shipped on time.”

“Our back-order process will be this: By the end of this week, you’ll have a credit on your order account that you can use to order new product,” he said.

A month later, LuLaRoe changed the process for dealing with missing items.

An email sent by the company on December 2, 2016, said: “If you have missing items and backorders, we ask that you send an email for your missing items to missingitems@lularoe.com. Then a separate email with your backorders to backorders@lularoe.com.”

A LuLaRoe seller shares some of the slips she received in orders that were missing items.
Business Insider

A couple of days later, Stidham said in a company-wide meeting that LuLaRoe would offer only credits for missing products.

“The fastest way to resolve this matter (back order or missing items) is to issue credits on your account,” he said, according to a LuLaRoe-issued transcript of the meeting. “Some would say, I want the product — but in order to solve a problem of this magnitude, in a timely manner, we need to put a credit on your account.”

He also urged people to not let the problem stress them out.

“Some of you are unable to receive the pieces you ordered,” he said. “Don’t make that the focus of what is going on in your life. Remember, you have plenty of other pieces people want.”

He added: “Don’t let it stress you out. Let it bring you joy, excitement, and fun!”

On December 20, 2016, LuLaRoe once again changed its process for handling missing items.

The new process required sellers to file tickets for undelivered goods using an online form, according to a transcript of the meeting in which LuLaRoe announced the new policy. An executive said credits for back orders would be issued within 30 days.

Ten months later, in October 2017, the company appeared to yank that credit processing system and instead told sellers it would send all their products once they became available.

“Going forward, all incomplete shipments will contain a ‘Not A Back Order’ form, indicating that one or more of your items could not be fulfilled by the initial Distribution Center and that the unfulfilled items have been submitted to another Distribution Center for fulfillment,” an email from the company said. “Please note, if you receive a shipment with this form — there is no need to submit a ticket.”

Eventually, the company went back to automatically providing credits for missing items, sellers said.

Some people who questioned the policy were shut down, while others successfully won refunds

Some people said they were afraid to question the policies around missing inventory.

Questioning company policies, in general, is highly frowned upon within LuLaRoe and can result in sellers being kicked off their “team” Facebook pages, which are critical to running their businesses, according to accounts from several current and former sellers.

“I got kicked out of all my team pages for asking questions,” said Adrianne Kuntz Merkling, who was missing several items from her initial order in August 2016 and eventually quit the business in May 2017. “I think they were really dependent on people not knowing how the industry works, which is why they tried to control communication. They knew if people got together and started brainstorming or sharing information, it wouldn’t take long to unravel it.”

Jennings, who recently quit her LuLaRoe business, said: “Any negativity would get you blocked and basically no support from anyone above you. You learned to not question things and go along with whatever they were saying: ‘Buy more! Everything sells! Recruit, everyone can sell this … Tell them how much the top earners make. This stuff sells itself.'”

Some said they fought the policy and failed to get a refund.

“My onboarding package was short 35 pieces and several orders after were missing items as well,” an FTC complaint filed in August said. “I spent hours on the phone for months trying to secure my missing items or a refund. After three months, LuLaRoe finally shipped my items and told me repeatedly that a refund was not an option.”

More recently, one seller has fought the policy successfully.

A current seller told Business Insider that when LuLaRoe recently issued her credits for missing items on two separate occasions, she called the company and demanded a refund, citing the FTC rule, and the company complied.

A former LuLaRoe seller, Danielle O’Meara, has sent several emails to the company demanding a refund for a $152.96 credit.
Business Insider

Dunne, who is still owed $351.50, might finally get her refund, as well.

On November 30, she got the most hopeful sign yet that she may get her refund: A company representative said in an email that the company had “initiated the process” for her to get a refund in the form of a mailed check. But she said she’s still not holding out hope that she’d get the money.

Danielle O’Meara got a similar email from LuLaRoe on October 29, after she demanded a refund for her LuLaRoe credit of $152.96, according to copies of the emails viewed by Business Insider. As of December 3, she still had not received payment, and five of her follow-up emails have gone unanswered.

Recently, she tried a new tactic: messaging the company’s founder, DeAnne Stidham, directly on Facebook.

“I hear you have such a big heart you would pay refunds out of your own pocket, and well since I still haven’t received my refund I figured I’d request it out of your pocket…. thanks. I dumped a lot of money into your pocket over the past two years and now my kids are hardly getting a Christmas because of it,” she wrote in a message on November 25.

O’Meara said the message was read immediately, and she was promptly blocked by Stidham’s Facebook account.

If you have information to share about LuLaRoe, email hpeterson@businessinsider.com.

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