Consumer Rights: The Cooling Off Rule

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 What Is the Cooling-off Rule?

The Federal Trade Commission’s (FTC’s) “Cooling-Off Rule” authorizes a consumer to return an item purchased at a location that is not the seller’s permanent physical place of business. The Cooling-Off Rule is a form of consumer protection and is frequently applied to companies that operate through door-to-door sales.

For instance, if someone is watching an infomercial in their home, the Cooling-Off Rule gives that person three days to return the purchase or cancel a contract or other signed order. The sale must involve a purchase or contract worth $25 or more.

When Does the Cooling-off Rule Apply?

The FTC’s Cooling-Off Rule applies to any sales made at the buyer’s home or place of residence, workplace, or dormitory. It also applies in situations where the seller rents facilities short-term. Therefore, if the sale was made at a convention center, hotel, or fairgrounds, the buyer will have three days to return the product or cancel the contract. The Cooling-Off Rule even applies if the buyer invited the salesperson into their home to conduct a sale.

This federal regulation applies to network marketing companies that market products or services. Considering that most sales are not made door-to-door, the regulation calls all such sales door-to-door sales. In addition to door-to-door sales, these other places of business also apply:

  • Buyer’s workplace.
  • Restaurants.
  • Fairgrounds.
  • Convention centers.
  • Motel or hotels.
  • Offices rented on a short-term or temporary basis.

The seller must notify the consumer that that buyer has the right to revoke a contract within three business days from the date of the sale. The seller must also provide to the buyer a:

  • Copy of the sales contract.
  • Completed receipt.
  • Summary notice notifying the buyer of the right to cancel the transaction.

The rule distinguishes between transactions made at a buyer’s home versus those made at places outside the home. The definition retains coverage for all transactions made at the buyer’s home that are $25 or more and increases to $130 or more for all other covered sales.

The cooling-off rule applies to:

  • Leasing, sale, or rental.
  • Consumer services or goods.
  • Purchase prices of:
    • $130 or more for other locations.
    • $25 or more for the buyer’s house.
  • Cases where a representative or seller solicits the sale.
  • Cases when the sale is made someplace other than the seller’s place of business.

What Kind of Notice Is Needed for the Cooling-off Rule to Apply?

Per the Cooling-Off Rule, the seller must notify the buyer of their cancellation rights at the sale. They must also provide the buyer with two copies of a cancellation form, one for sending the item back and the other for the buyer’s records. The buyer must also be given a copy of their receipt and contract.

The receipt or contract should include a date and the name and address of the salesperson. The receipt must also plainly explain the buyer’s cancellation rights. The language in the receipt or the contract should be the same as that used in the sales transaction.

Are There any Exceptions to the Cooling-off Rule?

The Cooling-Off Rule does not apply if:

  • The sale or contract is for less than $25
  • The goods or services will not be used mainly for personal, household, or family objectives
  • The transaction was completed entirely by phone or mail
  • The transaction was primarily the result of a prior negotiation at the seller’s physical business location
  • The sale is for goods or services needed to remedy an emergency
  • The sale was made in connection with the buyer’s request that the seller perform maintenance or repairs on the property

The Cooling-Off Rule also does not apply to purchases involving insurance, securities, or real estate. Sales of cars and other motor vehicles are also exempt if the seller has at least one permanent location for business sales. Finally, the Rule does not apply to crafts or arts sold at temporary locations such as fairgrounds.

The seller must notify the consumer that that buyer has the right to revoke a contract within three business days from the date of the sale. The seller must also provide to the buyer a:

  • Copy of the sales contract.
  • Completed receipt.
  • Summary notice notifying the buyer of the right to cancel the transaction.

How Do I Cancel a Sale or Contract Under the Cooling-off Rule?

If the Cooling-Off Rule applies to a purchase, the buyer should fill out the cancellation notices they were given at the sale or contract signing. The next measure would be to mail one to the seller and keep the other copy for their records. Be sure that the mailing is postmarked before midnight of the 3rd business day after the sale.

Once the sale or contract is revoked, the seller has ten days to complete the cancellation and provide the buyer with a refund or exchange. The seller also has 20 days from the date of cancellation to pick up the canceled purchase or to provide the reimbursement, including any mailing expenses for the return.

What If the Seller Has Violated the Cooling-off Rule?

A seller may break the Cooling-Off Rule if they fail to provide a receipt or inform a buyer of their cancellation rights. Violations may also happen if the seller fails to cancel an order or provide the buyer with reimbursements.

If a violation has happened, the seller may be entitled to reimbursement for the product and possibly any losses associated with the seller’s violation. The seller could also potentially be liable under breach of contract rules.

What Are Some Common Penalties For Security Or Finance Violations?

Securities violations can often result in considerably heavy legal penalties, including federal charges associated with strict penalties. Some examples of penalties can include:

  • Either misdemeanor or felony charges;
  • Civil or criminal fines;
  • Jail or prison sentences, depending on the severity of the crime; and
  • Business penalties, such as a suspension of operating license or loss of broker certification.

Additionally, securities violations can result in class action lawsuits. An example of this would be when a company’s fraudulent stock issuing affects a whole group of stockholders who take legal action against the company as one plaintiff. These lawsuits can take several years to finish and, as such, can involve a significant amount of money.

Once again, in addition to criminal penalties, many types of securities violations can also result in a civil litigation claim. An example of this would be how it is common for the holder of securities to file a lawsuit against a trustee when they have failed to manage security assets according to professional standards. The trustee could then be required to pay damages to compensate the plaintiff for their economic losses associated with the trustee’s mismanagement.

Do I Need a Lawyer?

The Cooling-Off Rule is an essential mechanism for protecting consumer rights, and any violations may result in legal consequences. If your consumer rights have been violated under the Cooling-Off Rule, you should strongly consider contacting a consumer attorney for advice.

Your lawyer may be able to help you get compensation for the violation and possibly for other resulting losses. Use LegalMatch to find the right consumer protection attorney in your area and start resolving any of your consumer protection rights.

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