Even though it’s been around for many years, there still seems to be confusion over the Federal Trade Commission’s 3-day Cooling-Off Rule, and similar state laws, for home solicitation sales. Reviewing electronic security contracts I am often surprised that some companies do not include the 3-day right to cancel language required by law, simply from oversight or misunderstanding the law. So, when do you have to comply with the three-day right to cancel? And how do you comply—especially in this age of digital contracts?
1. What is the Cooling-Off Rule?
The Federal Trade Commission’s Cooling-Off Rule gives consumers three days to cancel purchases over $25.
The Cooling-Off Rule applies to sales at the buyer’s home, workplace or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants. The Cooling-Off Rule applies even if the consumer invites the salesperson to make a presentation in their home.
Under the Cooling-Off Rule, the consumer’s right to cancel for a full refund extends until midnight of the third business day after the sale.
2. Are there exceptions to the Cooling-Off Rule?
Yes, the Cooling-Off Rule does not apply to sales that are:
- Under $25;
- For goods or services not primarily intended for personal, family or household purposes;
- Made entirely by mail or telephone, without any other contact before delivery of the goods or performance of services;
- The result of prior negotiations at the seller’s permanent business location where the goods are sold regularly;
- Needed to meet an emergency;
- Made as part of a request for the seller to do repairs or maintenance on personal property, but purchases made beyond the maintenance or repair request are covered.
3. What do you need to do to comply?
Under the Cooling-Off Rule, the salesperson must tell the consumer about the cancellation rights at the time of sale. The salesperson also must give the consumer two copies of a cancellation form (one to keep and one to send if they decide to cancel) and a copy of the contract. You should also have a third copy of the form that the customer signs acknowledging receipt of the form, which you keep.
Further, the contract itself should be dated, show the name and address of the seller, and explain the right to cancel. The explanation of the right to cancel must appear in the contract directly by the place for the customer’s signature, and be in at least 10-point, bold font. It should say this (or the state-mandated equivalent):
You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.
4. What could happen if you don’t comply?
If you fail to comply with the Cooling-Off Rule, your customer can make a complaint to the FTC and your state’s Attorney General. Repeated failure to comply could also be considered a deceptive trade practice, subjecting you to a civil lawsuit, or investigation or enforcement action by the FTC or your state’s Attorney General.
Moreover, failure to comply with the Cooling-Off Rule could allow your customer to cancel his/her contract at any time—potentially leaving you exposed without any limitations of liability or damages.
Finally, if you try to sell your company and assign your contracts, your compliance with the Cooling-Off Rule factors into the buyer’s decision about whether to move forward with the purchase. If you are not in compliance with the Cooling-Off Rule, a savvy potential buyer will likely walk away from the purchase.
Finally, here are answers to specific questions I hear most often about the Cooling-Off Rule:
I don’t sell door-to-door, do I still need to comply?
Yes, even if you don’t rely on the door-knocker sales model, you must still comply with the Cooling-Off Rule if your business model includes visiting the customer’s home before the sale (and, it should if you are doing a security assessment for the customer).
What about contracts that are signed and delivered electronically?
The Cooling-Off Rule has not caught up with the digital age yet. Did you catch the reference to a telegram in the Notice of Cancellation form? So, for now, you should still print off and leave two copies of the Notice of Cancellation form with your customer.
What should I do for customers that want an alarm system installed immediately?
The Cooling-Off Rule has an exception for emergencies, and allows a consumer to waive the three-day cancellation provision. It applies to transactions where “the buyer has initiated the contact and the goods or services are needed to meet a bona fide immediate personal emergency of the buyer, and the buyer furnishes the seller with a separate dated and signed personal statement in the buyer’s handwriting describing the situation requiring immediate remedy and expressly acknowledging and waiving the right to cancel the sale within 3 business days.”
Do not rely on the exception as a matter of course just so you can do same-day installations. But where a customer has an emergency—such as a burglary—and decides he/she needs an alarm installed immediately, feel free to get a waiver from the customer.
Does the Cooling-Off Rule apply to Commercial transactions?
No. The Cooling-Off Rule applies to good or services purchased, leased, or rented for personal, family, or household purposes only.
Once you know more about it, complying with the Cooling-Off Rule is actually very easy. Get to know your state’s version, which may be more restrictive than federal law, and start complying today.
© Wendy Carlisle 2014