Customer contracts are agreements between customers (buyers) and merchandisers (sellers). Many of these contracts involve parties with unequal bargaining power. For example, a customer seeking to purchase a cell phone must choose from one of a finite number of carriers. The carriers are larger entities that tend to use “standard” contracts. This means that the contract seller offers the buyer does not afford the customer the opportunity to negotiate over the terms.
Consumer protection laws, which differ by state, protect customers from certain illegal seller activities, such as price gouging. If the terms of a customer contract are understood by both parties, and are not illegal, a court will generally enforce those terms if a party breaches the agreement.
Do Customers Have Any Protections When Contracting with a Merchandiser?
Contract law itself provides protection to customers doing business with merchants. For an agreement to constitute a legally binding contract, there must be an offer, acceptance of that offer, and a bargained-for exchange of value. This bargained-for change of value is called consideration.
The terms of the contract must be made clear to the consumer. These terms may generally not be unconscionable. In an unconscionable contract, the terms unilaterally favor the seller, while offering little to anything to the buyer in the way of favorable terms.
To ensure customer contracts are not unconscionable, and that terms are clear to consumers, state laws may impose minimum requirements prohibiting certain terms. For example, state and federal regulations protect consumers by:
- Requiring contracts to be printed in a sufficiently large font;
- Requiring a copy of the completed contract to be given to the buyer;
- Prohibiting acceleration clauses: Acceleration clauses require that if a single payment is missed, the entire amount of the contract becomes payable immediately. These clauses are not illegal per se. Some regulations, however, prohibit their use; and
- Requiring certain terms to not be unreasonable: If a seller seeks to enforce a contract in a court of law, a judge may decide that what the seller wants enforced is an unreasonable demand. Examples of unreasonable demands include a seller’s requiring a consumer to submit to price-gouging, which is jacking up the price of goods because the goods are in scarce supply.
What is the Federal Trade Commission and How Does it Protect Customers?
The Federal Trade Commission (FTC) is a federal agency tasked with administering and enforcing rules that protect consumers from unfair business practices. Two FTC rules play an important part in consumer protection. These rules are known as the “Cooling-Off” Rule and the “Mail, Internet or Telephone Order Rule.”
The “Cooling-Off” rule applies to transactions that are made at the buyer’s residence or place of work. The rule also applies to sales that are not made at the seller’s permanent place of business, such as a “door-to-door” sale or a tradeshow sale.
Under the “Cooling-Off”rule, a buyer has three days to return the product or cancel the services contract. Goods and services contracts subject to the rule seller require the seller to notify a buyer of the buyer’s rights to cancel the sale. This notification must be provided when the sale is made. Under the rule, the seller must also give the buyer two copies of a sale cancellation form. One is for the buyer’s personal records. The other is used by the buyer to return the item sold. The seller must also provide the buyer with a receipt and a copy of the contract.
The “Cooling-Off” rule requires the receipt or contract to spell out the buyer’s right to cancel, including how long the buyer has to cancel, as well as what the buyer must do in order to cancel.
Once a buyer cancels the sale or contract, the seller, under the rule, must finalize the cancellation within ten days, providing the buyer with an exchange of refund. The rule requires that the seller, from 20 days of the date of cancellation, either retrieve the merchandise or provide a reimbursement. Reimbursement costs must include mailing costs associated with the buyer’s return of goods.
Historically, not every contract for the sale of goods and services was subject to the Cooling-Off rule. The rule does not traditionally apply to:
- Sales that are not made at the buyer’s residence;
- Sales made by the seller at the seller’s permanent place of business;
- Sales or services contracts with a value of under $25;
- Sales for goods and services needed to handle an emergency;
- Sales for goods and services where the transaction was conducted entirely either by mail or phone; and
- Sales for goods and services that are not to be used primarily for household, personal, or family purposes of the consumer.
Some states have expanded the scope of the cooling-off rule. Some states apply the cooling-of rule to gym membership contracts, dating services, and weight loss programs. New York, for example, allows for any number of agreements to be cancelled, under its own version of the “cooling-off” rule. These include:
- Home Food Service Plan Sales (buyer has right to cancel until midnight of the third business day after the day on which the buyer signed the agreement);
- Social Referral (Dating Services) contracts (buyer has three days to cancel);
- Health club contracts (buyer may cancel within three days after receiving a copy of the written contract);
- Telephone sales contracts (buyer has 3 days to cancel); and
- Home improvement contracts (buyer has 3 days to cancel).
The FTC also protects consumers through the “Mail, Internet or Telephone Order Rule.” This rule is often referred to simply as the “Mail Order Rule.” The Mail Order Rule applies to most goods ordered by a consumer from a seller by mail, telephone, fax, or through the Internet. Under the Rule, a seller who advertises merchandise who states the seller will ship within a certain time, must have a reasonable (legitimate) basis for this belief. If a seller does not specify when it will make shipment, it must have a reasonable basis to believe it can ship within 30 days.
If a seller, after taking an order, discovers they cannot ship within either the time stated or within 30 days, the seller must obtain consent from the customer to ship the item “late.” If a customer refuses to give consent, the seller must promptly issue a refund of all money the buyer paid for the unshipped merchandise.
The Mail Order Rule applies to merchandise (goods). Services are not covered under the Mail Order Rule. As long as a product has been sold by mail, phone, fax, or online, the Rule applies, regardless of how the goods were advertised, how the customer pays, or who initiates the contact.
What If a Customer Contract Has Been Violated?
If a seller breaches the terms of a contract, the buyer may be able to obtain a refund by suing for breach of contract. The FTC rules require that the buyer be given a refund. If the seller does not give the buyer a refund, a buyer may complain with the FTC and the FTC may order the seller to pay the refund.
In certain cases involving contract fraud, where the buyer is promised something the seller had no intent to deliver (such as where a buyer contracts to buy a leather handbag and the seller deliberately provides the buyer with a “fake”), the buyer may file a lawsuit in court. The buyer may assert that the seller not only breached the contract, but that the seller committed fraud. The buyer may be able to obtain money damage as a result of the fraud.
Do I Need the Help of a Lawyer with a Customer Contract?
If you believe your rights have been violated under a customer contract, you should contact a contract attorney near you. An experienced contract attorney can review the facts of your case, explain your rights, and represent you in a lawsuit.