Cooling Off Laws: Everything You Need to Know
Contract cooling off laws let people cancel certain types of contracts and the sales of certain goods for any reason, even as simple as regretting the purchase.4 min read
Contract cooling off laws let people cancel certain types of contracts and the sales of certain goods for any reason, even as simple as regretting the purchase. Cooling-off laws give consumers up to three days to cancel sales of certain goods and services. Sellers of these goods are required by the Federal Trade Commission to honor this cooling-off period.
Federal Cooling-Off Law/Rule
Cooling-off laws are a federal trade regulation rule announced by the Federal Trade Commission (FTC) to prevent deceptive and unfair practices made outside of the seller's official place of business during the course of a sale. The law allows consumers to return merchandise that was bought at a place other than the seller's business address.
When Does the Cooling-Off Rule Apply?
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.
- Convention centers.
- Motel or hotels.
- Offices rented on a short-term or temporary basis.
It is mandatory for the seller to inform 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 new rule revised the definition of "door-to-door sales." It distinguishes between transactions made at a buyer's home versus those made at locations outside of the home. The new 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 is applicable 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 somewhere other than the seller's place of business.
Steps in Canceling a Sale or Contract Under the Cooling-Off Rule
The cooling-off rules require a seller and their representatives to take the following nine steps:
- The seller must provide a receipt or a copy of the contract, which:
- Must be written in the identical language as the oral presentation.
- Must identify the date of the sale.
- Must contain the name and address of the selling party.
- The seller must present the buyer with two copies of the notice of cancellation form at the time the buyer purchases the goods or services, .
- The seller must fill in both copies of the notice of cancellation with the seller's information before presenting them to the buyer. The contact information should include:
- Name of the seller.
- Date of transaction.
- Seller's business address.
- Current date.
- The last date at which the buyer may be granted a notice of cancellation.
- The seller is not allowed to manipulate any receipt or contract in order to prohibit the buyer from receiving the protection of the cooling-off rules.
- The seller must orally notify the buyer of their right to cancel.
- The seller may not orally or in a written statement attempt to misrepresent the buyer's right to cancel.
- The seller must honor all requests to cancel by the buyer within 10 business days following the request.
- The seller may not assign, sell, transfer, or negotiate any note or any other level of indebtedness to a third party prior to the fifth business day after the day sale was made.
- Upon the seller being notified of a notice of cancellation, the seller must notify the buyer within 10 business days regarding their intent to abandon or repossess any delivered or shipped goods.
Exceptions to the Cooling-Off Rule
Cooling-off laws do not apply when:
- The services or goods won't be primarily used for personal, family, or household purposes.
- The sales regarding services or goods needed to address an emergency.
- The transaction is for less than $25.
- The sale was made in relation to the buyer's desire that the seller perform repairs or maintenance on the property.
- The transaction occurred over phone or mail.
- The transaction was the result of a preceding negotiation at the seller's physical business address.
Additionally, cooling-off laws do not apply to transactions related to real estate, securities, or insurance. However, the sale of vehicles are exempt when the seller has at least one physical location.
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