FTC’s Cooling-Off Rule and Off-Site/Remote Sales

Let’s say you want to drive the vehicle a customer is interested in buying to the customer’s home, let the customer see and test-drive the car, negotiate the price of the car, present and offer F&I products, and then have the customer sign the purchase and financing documents. Does it matter that the negotiation and sale is being done at the customer’s home rather than at your dealership? Yes! Besides possibly violating state dealer licensing statutes that may restrict your sales to your dealership location and possibly violating your agreement with your financing source, you might be violating a federal law permitting a “cooling-off period” for sales made at a customer’s home. In addition, you may be violating a comparable state law on home solicitation sales.

The Federal Trade Commission’s Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations (“Rule”) regulates a dealer’s ability to engage in sales at places other than the dealer’s permanent place of business. The Rule requires disclosures in the sale contract, in a separate notice, and orally, gives a buyer a three-day right to cancel, prohibits misrepresentations regarding that right, and restricts a seller’s ability to assign the note or contract for a period of time.

The Rule applies to a “door-to-door sale,” defined as a “sale, lease, or rental of consumer goods [such as a car] or services in which the seller or his representative personally solicits the sale, including those in response to or following an invitation by the buyer, and the buyer’s agreement or offer to purchase is made at a place other than the place of business of the seller (e.g., sales at the buyer’s residence or at facilities rented on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants, or sales at the buyer’s workplace or in dormitory lounges), and which has a purchase price of $25 or more if the sale is made at the buyer’s residence or a purchase price of $130 or more if the sale is made at locations other than the buyer’s residence, whether under single or multiple contracts.” The term “personally solicits” is not defined. The term “place of business” is defined as the “main or permanent branch office or local address of a seller,” such as at your dealership.

There are some exceptions, however. The term “door-to-door sale” does not include certain transactions, including a transaction:

• made pursuant to prior negotiations in the course of a visit by the buyer to a retail business establishment having a fixed permanent location where the goods are exhibited or the services are offered for sale on a continuing basis; or

• in which 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 three business days; or

• conducted and consummated entirely by mail or telephone and without any other contact between the buyer and the seller or its representative prior to delivery of the goods or performance of the services.

The first exception for transactions “made pursuant to prior negotiations in the course of a visit by the buyer to a retail business establishment having a fixed permanent location where the goods are exhibited or the services are offered for sale on a continuing basis” may not provide much relief to dealers in those states with a Coronavirus stay-at-home or shelter-in-place order.

The second exception for a buyer emergency is very fact specific, requires the buyer to provide a separate date and signed statement in their own handwriting explaining the emergency and waive their right to cancel. Because the exception is so fact specific and requires the buyer take specific actions, this may not be a viable solution for all transactions.

As to the third exemption, for transactions “conducted and consummated entirely by mail or telephone and without any other contact between the buyer and the seller or its representative prior to delivery of the goods or performance of the services” if done correctly, a dealer should be able to apply this exemption to transactions that are conducted remotely with the customer by mail or telephone (provided there’s no other contact between the parties prior to delivery of the car).

And, even though the specific language in the Rule doesn’t include “online” sales in the third exemption, the FTC does recognize “online” sales as an exception to the Rule in its guidance: See https://www.consumer.ftc.gov/articles/0176-buyers-remorse-when-ftcs-cooling-rule-may-help#exceptions. It’s unclear if negotiations made between the parties via email would be akin to negotiations made by mail or online, but I think a dealer could make an argument that email was like “snail mail” or could argue that email negotiations meant the it was done via “online.”

What about those situations where a dealer delivers a vehicle to a customer’s home and then tries to “upsell” the customer? Or, where the customer is convinced or wants to add some additional voluntary protection products to their RISC when the dealer’s representative is at the customer’s house? In those cases where a dealership sends its licensed sales guy/gal out to deliver the car to the customer (which, I would not recommend), then I can see some serious challenges in trying to argue that the exemption for transactions that are “conducted and consummated entirely by mail or telephone and without any other contact between the buyer and the seller or its representative prior to delivery of the goods or performance of the services” would apply.

The Rule requires sellers to provide buyers with a copy of any contract pertaining to a door-to-door sale at the time of its execution. The contract must be in the same language as that principally used in the oral sales presentation, show the date of the transaction, and contain the name and address of the seller. In addition, the contract must contain, in immediate proximity to the space reserved for the buyer’s signature, a statement in bold face 10-point type informing the consumer that he or she has the right, prior to midnight of the 3rd business day after the date of the transaction, to cancel it. The Rule also requires sellers to furnish each buyer a completed form in duplicate, captioned either “NOTICE OF RIGHT TO CANCEL” or “NOTICE OF CANCELLATION.”

The Rule additionally requires sellers to inform each buyer orally, at the time the buyer signs the contract or purchases the goods or services, of the buyer’s right to cancel.
The Rule prohibits sellers from negotiating, transferring, selling, or assigning any note or other evidence of indebtedness to a finance company or other third party prior to midnight of the 5th business day following the day the contract was signed or the goods or services were purchased.

The FTC Act gives the FTC authority to seek civil penalties of up to $43,280 per violation. The FTC may also seek a cease-and-desist order in response to an alleged violation.
Also note that various states impose their own laws that do not necessarily mirror the federal Rule, so you’ll need to check your state’s law as well. When conducting a sale and delivering a vehicle at a place other than your dealership, proceed with caution!

©Copyright 2020 Eric L. Johnson. All rights reserved. Single print publication rights Dealer Compliance Today.

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Eric L. Johnson is a partner in the Oklahoma City, OK office of Hudson Cook, LLP. Eric can be reached at (405) 602-3812 or [email protected] This article is provided for informational purposes and is not intended nor should it be taken as legal advice. ©Copyright 2021 Eric L. Johnson. All rights reserved. Single print publication rights Dealer Compliance Today.