[Federal Register Volume 60, Number 203 (Friday, October 20, 1995)]
[Rules and Regulations]
[Pages 54180-54187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25573]
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FEDERAL TRADE COMMISSION
16 CFR Part 429
Rule Concerning Cooling-Off Period for Sales Made at Homes or at
Certain Other Locations
AGENCY: Federal Trade Commission.
ACTION: Final non-substantive amendments to the rule.
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SUMMARY: The Federal Trade Commission (``the Commission'') announces
that it has concluded a review of its Trade Regulation Rule on Cooling-
Off Period for Door-to-Door Sales (``Cooling-Off Rule'' or ``Rule''),
and determined there is a continuing need for the Rule. This review was
conducted as part of the Commission's ongoing program to review all of
its rules and guides periodically. The Commission has also determined
to issue non-substantive amendments to several Rule provisions.
Specifically, the Commission is amending the Rule by renaming it so
that it more clearly identifies the kinds of sales it covers and by
inserting two notes, formerly at the end of the Rule, into the Rule
itself. Moreover, the Commission is amending the Rule by adding a new
section containing two exemptions to the Rule that the Commission
granted, in November 1988, to certain sellers of arts and crafts and of
automobiles. The Commission is also expanding the exemption for
automobiles to include vans, trucks and other motor vehicles sold at
temporary places of business by dealers having permanent places of
business. Further, the Commission is amending the Rule by adding a
parenthetical statement to the Rule's definition of the term ``Door-to-
Door Sale.'' This new statement gives examples of kinds of sales
locations covered by the Rule. The Commission is also amending the
Rule's definition of ``Business Day'' to reflect changes in federal
holidays. Finally, the Commission is amending the Rule to make the
typeface used in the sample ``Notice of Cancellation'' more readable
and to substitute the gender neutral words ``the buyer'' or ``the
buyer's'' for the pronouns ``he,'' ``his,'' and ``him.''
EFFECTIVE DATE: December 19, 1995.
FOR FURTHER INFORMATION CONTACT: Lemuel W. Dowdy, Attorney, (202) 326-
2981, Division of Enforcement, Bureau of Consumer Protection, Federal
Trade Commission, Washington, D.C. 20580.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Cooling-Off Rule was promulgated by the Commission on October
26, 1972,1 and subsequently amended on November 1, 1973,2
November 19, 1973,3, and November 10, 1988.4 The Rule, as
amended, declares it to be an unfair and deceptive act or practice for
any seller in a door-to-door sale of consumer goods or services, with a
purchase price of $25 or more, to fail to furnish the buyer with
certain oral and written disclosures regarding the right of the buyer
to cancel the contract within three business days from the date of the
sales transaction. The Rule also requires a seller, within 10 business
days after receipt of a valid cancellation notice from a buyer, to
honor the buyer's cancellation by refunding all payments made under the
contract, by returning any traded-in property, by cancelling and
returning any security interests created in the transaction, and by
notifying the buyer whether the seller intends to repossess or to
abandon any shipped or delivered goods.
\1\ 37 FR 22933 (Oct. 26, 1972). The effective date of the Rule
was later set as June 7, 1974. 38 FR 33766 (Dec. 7, 1973).
\2\ 38 FR 30105 (Nov. 1, 1973). This amendment revised the
fourth paragraph of the sample ``Notice of Cancellation'' set forth
in section 429.1(b) of the Rule, 16 CFR 429.1(b), to make clearer
what are the buyer's responsibilities for goods delivered under a
contract the buyer has cancelled.
\3\ 38 FR 31828 (Nov. 19, 1973). This amendment corrected a
misstatement in the November 1, 1973, amendment concerning the
amendment's effective date.
\4\ 53 FR 45455 (Nov. 10, 1988). This amendment allowed
alternative wording in certain parts of the Rule's required ``Notice
of Cancellation.'' At the same time, the Federal Register notice
announced the two exemptions the Commission was granting to sellers
of arts and crafts and of automobiles sold at temporary places of
business.
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The Rule requires the seller in a door-to-door sale to furnish the
buyer with a completed receipt, or a copy of the sales contract,
containing a summary notice informing the buyer of the right to cancel
the transaction. The Rule also requires a seller to furnish the buyer
with a completed cancellation form, in duplicate, captioned either
``Notice of Right to Cancel'' or ``Notice of Cancellation,'' one copy
of which can be returned by the buyer to the seller to effect
cancellation.
In issuing the Rule, the Commission adopted a broad definition of
``Door-to-Door Sale'' to include any sale ``made at a place other than
the place of business of the seller.'' In doing this, the Commission
indicated that the Rule covers more than just at-home sales.5 The
Commission has on several occasions reiterated this position. For
example, in a 1978 Advisory Opinion, the Commission stated:
\5\ 37 FR 22947 (Oct. 26, 1972).
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In the opinion of the Commission, firms which temporarily or
sporadically rent hotel rooms, motel rooms, public halls or other
facilities and invite members of the general public to attend a
presentation therein, the purpose of which is to sell them courses of
training, are subject to the provisions of the Trade Regulation Rule
concerning a Cooling-Off Period for Door-To-Door Sales (16 CFR
429).6
\6\ Advisory Opinion, dated July 14, 1978, in FTC File No. D.H.
70016.
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Moreover, pursuant to Section 18(g)(2) of the FTC Act,7 the
Commission on November 10, 1988, granted exemptions to the Rule to
certain sellers of automobiles and of arts and crafts at temporary
business locations.8 In granting these exemptions, the Commission
noted that, when it had issued the Rule in 1972, it was concerned not
only with sales made at consumers' homes, but also with sales by
``itinerant salesmen who sell at restaurants, shops and other places.''
9
\7\ 15 U.S.C. 57a(g)(2). This section of the FTC Act provides
that the Commission may, on its own or on the basis of a petition,
exempt persons from a rule's application if their inclusion is not
necessary to prevent a practice to which the rule relates.
Exemptions are considered through notice and comment rulemaking.
\8\ 53 FR 45455 (Nov. 10, 1988). The first exemption was for
sellers of automobiles at auctions, tent sales and other temporary
places of business, provided the seller has a permanent place of
business elsewhere. The second exemption was for sellers of arts and
crafts at fairs and other, similar locations. The Commission, when
granting these exemptions, determined that, at least with regard to
these transactions, the record indicated an absence of the kinds of
problems (such as the high pressure sales tactics, the nuisance
aspects, the equivalent of deceptive door-openers, or the
misrepresentations as to the quality, price or characteristics of
the product or services offered for sale) that are often generally
associated with sales made in the home.
\9\ Id. at 45458.
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II. Background
In 1983, the Commission began a review of the Cooling-Off Rule
pursuant to the Regulatory Flexibility Act, 5 U.S.C. 603, and published
a notice in the Federal Register soliciting comment on whether the Rule
had a significant impact on small businesses and, if so, whether the
Rule needed amendment to minimize its impact on small
[[Page 54181]]
businesses.10 After reviewing the comments received, the
Commission determined that there was a continuing need for the Rule and
that there was no basis to conclude that the Rule had a significant
impact on small businesses.11 At the same time, the Commission
proposed and solicited comments on two limited exemptions and on non-
substantive amendments permitting alternative methods of compliance
with the Rule's notice requirements.12 The Commission adopted
these proposals on November 10, 1988.13
\10\ 48 FR 9032-34 (Mar. 3, 1983).
\11\ 52 FR 29539 (Aug. 10, 1987).
\12\ Id.
\13\ 53 FR 45455 (Nov. 10, 1988).
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In 1992 the Commission determined, as part of its oversight
responsibilities, to review periodically all of its rules and guides.
The information obtained from such reviews assists the Commission in
identifying those rules and guides that warrant modification or
rescission.
On April 15, 1994, pursuant to the Commission's regulatory review
project, the Commission published in the Federal Register a notice
requesting public comments concerning the Rule's costs and benefits,
its overall regulatory and economic impact, and the current need for
the Rule.14 The Federal Register notice specifically asked for
comment on whether the Rule should continue to cover sales made at
temporary and short-term places of business, such as hotel rooms,
convention centers, fairgrounds and restaurants. Moreover, the
Commission specifically requested comments on whether the two existing
exemptions to the Rule for sellers of automobiles and of arts and
crafts at temporary places of business should be continued or expanded.
Specifically, the Commission asked if the exemption covering arts and
crafts sold at fairs and other, similar places should be expanded to
include garden equipment, fencing materials and other non-crafts. The
Commission also asked if the current exemption for automobiles sold at
auctions, tent sales and other temporary places of business (provided
the seller has a permanent place of business) should be expanded to
include pickup trucks, vans, trucks and campers. Last, the Commission
sought comment on its proposal to eliminate the outdated list of
federal holidays given in the Rule's definition of ``Business Day'' and
to replace it with a general statement that federal holidays are
excluded from the Rule's three-day cancellation period.
\14\ 59 FR 18008 (Apr. 15, 1994).
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III. Summary and Analysis of Comments
The April 15, 1994, Federal Register notice gave all interested
persons 30 days to submit, in writing, their data, views and arguments
concerning the existing Rule and any proposed amendments or exemptions
to it. The Commission received comments from ten organizations,
consisting of two door-to-door sellers, three trade associations
representing door-to-door sellers, four associations representing
consumer interests, and the Office of the Attorney General of the State
of Iowa.15
\15\ The list below includes the commenter's name, along with an
acronym in parenthesis, the public record document number assigned
to the comment by the Commission's Secretary, and a general
description of the commenter. For the remainder of this Notice, each
comment will be cited by the acronym and document number.
#001. Craftmatic Organization, Inc. (``CO''), a door-to-door
seller of mattresses.
#002. American Association of Retired Persons (``AARP''), a
representative of retired people throughout the country.
#003. International Hearing Society (``IHS''), a representative
of hearing aid specialists located throughout the country and
abroad.
#004. National Automobile Dealers Association (``NADA''), a
representative of automobile and truck retailers located throughout
the country.
#005. UAW-GM Legal Services Plan (``UAW-GM''), a representative
of automobile workers and retirees through 70 law offices located
throughout the country.
#006. Direct Selling Association (``DSA''), a representative of
more than 150 companies that sell products by personal presentation,
primarily at buyers' homes.
#007. State of Iowa Department of Justice (``IA DOJ''), the
Consumer Protection Division of the Iowa Attorney General's office.
#008. Legal Aid Society of Dayton, Inc. (``LASOD''), a
representative of consumer interests in Dayton, Ohio.
#009. National Association of Consumer Agency Administrators
(``NACAA''), a representative of government consumer protection
agencies at the municipal, county and state levels, with associate
members in the consumer affairs departments of federal agencies.
#010. World Media International, Inc. (``WMI''), a door-to-door
seller of various products.
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(A) Responses to the Federal Register Notice's Regulatory Review
Questions
1. Summary
The first six questions posed by the Federal Register notice were
general ones, such as whether the Commission should retain the Rule and
what are the Rule's costs and benefits. All ten commenters responded to
the first two questions concerning retention and/or modification of the
Rule by urging the Commission to keep the Rule. All commenters,
however, either proposed or endorsed one or more of the amendments to
the Rule described in subsections B, C and D infra. Only a few comments
specifically addressed any of the four remaining questions concerning
the costs and benefits of the Rule, its possible conflict with other
laws, and recent changes in relevant technology or economic conditions.
DSA stated that the Rule benefits both consumers and sellers, that
it imposes no costs on consumers and only minimal printing costs on
sellers, and that it does not conflict with other federal or state and
local laws because the Rule sets a minimum national standard, leaving
the states free to enact greater consumer protections.16 IA DOJ
stated that the Rule benefits both consumers and sellers and imposes,
at most, only negligible costs on consumers. It also stated the Rule
imposes only negligible burdens on sellers, and that, although the Rule
does overlap state laws, it does not thereby create any problems
because it sets only minimum standards.17 NACAA stated that the
Rule imposes no significant costs or burdens on consumers and is not
overly burdensome on businesses. NACAA also stated that, although the
Rule overlaps many state cooling-off statutes, there is no conflict
because the Rule rightly sets only a minimum standard and the states
should be free to require greater buyers' cancellation rights if they
choose.18
\16\ DSA, #006, pp. 2-4.
\17\ IA DOJ, #007, pp. 2-4.
\18\ NACAA, #009, pp. 2-4.
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2. Analysis
The comments indicate that the Rule provides substantial benefits
to consumers without imposing unreasonable costs on sellers or others.
Although most commenters proposed specific amendments, they were
unanimous in stating that the Commission should retain the Rule.
(B) Responses to the Federal Register Notice's Questions Concerning
Sales at Places Other Than the Regular Place of Business of the Seller
1. Summary
The Federal Register notice contained four questions concerning the
Rule's coverage of sales made at temporary places of business. The
first asked whether sales at temporary business locations involve the
kinds of problems associated generally with door-to-door sales.
Comments from buyers' representatives stated that one or more of the
problems described in the Federal Register notice as recurrent with in-
home sales (e.g., the prevalence of high pressure sales and failure to
disclose the purpose of the contact) are frequently also associated
with sales at temporary business locations. Several of these commenters
noted that sellers using
[[Page 54182]]
temporary business locations often pressure consumers into making
immediate purchase decisions.\19\ IA DOJ cited examples where direct
sellers lure consumers to temporary locations with promises of ``free''
items or services only to surprise consumers with high-pressure sales
pitches.\20\
\19\ IA DOJ, #007, p. 5; LASOD, #008, p. 2; NACAA, #009, p. 5.
\20\ IA DOJ, #007, p. 7.
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IA DOJ and NACAA observed that consumer protection agencies
frequently encounter direct sellers that use hotel conference rooms and
banquet halls to sell expensive items of dubious value, such as books
or tapes describing get-rich-quick schemes, multi-level marketing
plans, business opportunities and overpriced rugs.\21\ These sellers,
according to these commenters, often draw consumers to the sites by
advertising self-help seminars or other non-sales activities, and then
use misrepresentations and high pressure tactics to sell their products
or services.\22\ IA DOJ also stated that it is a nuisance for consumers
to be drawn out of their homes by promises of free merchandise or
information, only to be faced with a high-pressure sales pitch touting
goods or services that ultimately prove to be of little value.\23\
\21\ IA DOJ, #007, p. 5; NACAA, #009, p. 5.
\22\ Id.
\23\ IA DOJ, #007, p. 6.
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Another question asked whether certain types of temporary business
locations (e.g., fairgrounds, convention centers, restaurants or
dormitories) are more or less likely to be associated with the problems
found in door-to-door selling. IA DOJ stated that these problems occur
just as frequently at temporary businesses located in retail settings
as they do at other temporary business locations.\24\ The commenter
said, however, that problems found in door-to-door selling are less
likely to occur when selling takes place at temporary sites set up at
events where the primary focus is not on selling products to
consumers.\25\ NACAA expressed concern that, when direct sellers use
convention centers, rented halls and college dormitory lounges, some
consumers may believe that the seller has been approved or screened by
the owners or operators of the facility.\26\
\24\ Id.
\25\ Id.
\26\ NACAA, #009, p. 6.
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With respect to sales at auctions, IA DOJ and NACAA stated that
there is a high potential for deception in such settings because
consumers have little time to evaluate their purchases.\27\ NACAA
commented that ``shills'' are sometimes used at rug auctions to drive
up bids to inflated prices.\28\ NACAA commented further that consumers
purchasing automobiles at auctions sometimes do not understand that
they may not be protected by warranties applicable in sales made at
dealers' lots.\29\ On the other hand, IA DOJ believed that the surprise
sale solicitations that are often associated with hotel seminars are
not common at auction sales and that consumers who attend auctions are
generally not pressured to buy.\30\
\27\ IA DOJ, #007, p. 6; NACAA, #009, p. 5.
\28\ NACAA, #009, p. 5.
\29\ Id. at 7.
\30\ IA DOJ, #007, pp. 6-7.
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IA DOJ stated that problems with sales at temporary business
locations are substantially mitigated if the seller has a permanent
place of business in the consumer's area.\31\ If, however, there is no
permanent place of business near the consumer, IA DOJ believed that
consumers derive no benefit from the fact that the seller has a
permanent place of business elsewhere.\32\
\31\ Id.
\32\ Id.
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The third question asked whether the Rule should continue to apply
to sales solicited at temporary business locations. The five commenters
that responded to this question stated that the Rule should continue to
apply to such sales.\33\ DSA stated that the Commission should not
reduce the level of protection consumers now enjoy under the Rule.\34\
IA DOJ offered the following reasons for applying the Rule to sales at
temporary business locations:
\33\ AARP, #002, p. 4; DSA, #006, p. 3; IA DOJ, #007, p. 7;
LASOD, #008, p. 2; NACAA, #009, p. 4.
\34\ DSA, #006, p. 4.
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In our experience, door-to-door sales persons rarely offer to
give the consumer a day to think about a purchase and return the
next day to consummate the sale. They pressure the consumer to buy
the day they stop at the consumer's home. Similarly, sellers from
temporary business locations are often in the consumers' community
for only a day or two. These sellers often represent that consumers
must buy during the seller's presence in the community. In addition,
such sellers often lure consumers to the temporary site with
promises of free merchandise or services, only to surprise consumers
with high-pressure sales pitches for high-priced merchandise.
Consumers who purchase from permanent business locations also can
visit the business in person to request refunds and file complaints.
In addition, sellers with permanent business locations in a
community have greater incentive to deal fairly with their
customers. These significant benefits are not available to consumers
who purchase from door to door sellers or from those who sell from
temporary business locations.\35\
\35\ IA DOJ, #007, p. 2.
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The fourth question concerning sales at temporary business
locations sought comments on whether the current exemption for arts and
crafts sold at fairs and similar places should be expanded to include
other products, such as garden equipment, fencing materials and other
non-crafts. The two commenters responding both opposed expanding this
exemption. The IA DOJ stated that consumers attending these fairs, in
many instances, lack sufficient time to consider making purchases.\36\
NACAA noted that expanding this exemption would allow unscrupulous
marketers to avoid Rule coverage.\37\
\36\ Id. at 8.
\37\ NACAA, #009. p. 6.
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The Federal Register notice also sought information on whether the
current exemption for automobiles sold at auctions, tent sales and
other temporary places (provided the seller has a permanent place of
business) should be expanded to include trucks, campers and vans. NADA
stated that this exemption should be expanded because the reasoning the
Commission used in exempting the sale of automobiles at temporary
business locations would apply with equal force to sales of pickup
trucks, vans, trucks and campers.\38\
\38\ NADA, #004, p. 1. The Commission received a similar
suggestion when it solicited comments before granting the automobile
exemption. Because, however, the Commission had not specifically
sought comment on exempting such other vehicles, the Commission
concluded that adequate notice to the public had not been given at
that time to justify the broader exemption.
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NACAA, on the other hand, opposed extending the exemption to
trucks, vans and campers because it has strong reservations about the
current exemption for sales of automobiles at temporary business
locations.\39\ Specifically, NACAA believed that consumers purchasing
motor vehicles at auctions sometimes do not understand that they may
not be protected by warranties that would be applicable to sales made
at dealers' lots. NACAA also believed that consumers may not perceive
agreements they make at temporary locations as binding. For these
reasons, NACAA opposed extending the exemption to include vehicles that
may be even more expensive than cars.\40\
\39\ NACAA, #009, p. 7.
\40\ Id.
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In addition to opposing expanding the automobile exemption, NACAA
proposed a modification to this exemption to ensure that
``curbstoners'' are covered by the Rule.\41\ NACAA stated that
``curbstoners'' (dealers who sell automobiles by posing as an
[[Page 54183]]
individual selling a personal vehicle) often make sales by
misrepresenting the mechanical condition of the car and by rolling back
the odometer. Many ``curbstoners,'' according to NACAA, are included in
the exemption because they have a permanent business location.
\41\ Id.
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2. Analysis
The Commission has determined that the Rule should continue to
apply to sales at temporary business locations. The Rule specifically
excludes sales that take place at the seller's ``place of business,''
which is defined as the seller's ``main or permanent branch office or
local address.'' \42\ The term ``local address,'' as it is used in the
definition of ``place of business,'' means a permanent local address of
the seller. Thus, a seller's temporary business location does not
constitute a ``local address.'' Such temporary places of business
include facilities rented on a temporary and short-term basis, such as
hotel rooms, convention centers, fairgrounds and restaurants. In
addition, sales occurring at other places that are not the seller's
place of business, such as a buyer's workplace or dormitory lounge, are
covered by the Rule.
\42\ The Rule's definition of ``door-to-door sale'' excludes
sales that are made at ``the place of business of the seller.'' 16
CFR 429.1, note 1(a). The Rule defines ``place of business'' as
``the main or permanent branch office or local address of the
seller.'' 16 CFR 429.1, note 1(d).
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The Commission also has determined to retain the exemptions for
sellers of arts and crafts and of automobiles sold at temporary places
of business. In addition, the Commission has decided to expand the
automobile exemption to cover all motor vehicles sold at a dealer's
temporary place of business (provided the dealer has a permanent sales
location). In the Commission's view, there is no compelling reason to
distinguish cars from other kinds of motor vehicles sold under the same
circumstances.
The Commission has determined that modifying the exemption for
automobiles to bring ``curbstoners'' under the Rule is not necessary.
The problems with ``curbstoners'' that NACAA raises are not those that
the Cooling-Off Rule was designed to correct. Other laws regulate such
practices. Most ``curbstoners'' are covered by the Commission's Used
Car Rule.\43\ If the seller displays a Buyers Guide required by the
Used Car Rule, consumers are likely to infer that the seller is a used
car dealer rather than a private individual selling a personal vehicle.
``Curbstoners'' who fail to comply with the Used Car Rule are subject
to an enforcement action by the Commission. If a state's consumer
protection law authorizes enforcement of FTC Rules, that state's law
enforcement agencies can also bring enforcement actions against
``curbstoners'' for violating the Used Car Rule. Similarly, odometer
tampering is prohibited by federal law.\44\ The U.S. Department of
Justice enforces this law, and state Attorneys General can also bring
actions under the federal odometer law against ``curbstoners'' that
roll back odometers.\45\
\43\ 16 CFR Part 455. The Used Car Rule requires dealers to post
a Buyers Guide on each used car to disclose whether the vehicle is
sold with a warranty or ``as is.'' The Buyers Guide also warns
consumers not to rely on spoken promises and to seek independent
inspections. Used car dealers must comply with the Used Car Rule if
they sell more than five used vehicles within a twelve month period.
The Commission assumes that most ``curbstoners,'' especially those
who also sell at a permanent sales location, would sell more than
five cars per year.
\44\ 49 U.S.C.A. 32709-11 (1994).
\45\ Id. at 32709(d).
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Lastly, the Commission has decided against expanding the arts and
crafts exemption. The comments do not support adding more transactions
to this exemption. Furthermore, expanding the exemption could create
confusion as to what sales at fairs and similar places are covered by
the Rule.
(C) Responses to the Federal Register Notice's Remaining Questions
1. Summary
The Rule requires door-to-door sellers to offer buyers a cooling-
off period of three business days from the date of the transaction. The
current Rule defines ``Business Day'' as:
Any calendar day except Sunday or the following business holidays:
New Year's Day, Washington's Birthday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas
Day.
The Federal Register notice sought comment on whether this
definition should be modified to refer to ``any federal holiday''
rather than listing the specific holidays. The amendment would enable
the Rule automatically to take into account any changes in federal
holidays. Since promulgation of the Rule, the federal George
Washington's Birthday holiday has been replaced with the Presidents'
Day holiday and a new federal holiday honoring the birthday of Martin
Luther King, Jr., has been adopted. The Commission's proposed amendment
would have corrected the existing Rule's out-of-date listing of
holidays and avoided the need for further amendments if other changes
in the federal holidays are ever made.
Three commenters addressed the proposal to amend the Rule's
definition of ``business day.'' IA DOJ supported the proposed
amendment.\46\ NACAA opposed it, arguing that the Rule should
specifically list the federal holidays so that consumers can readily
identify them.\47\ CO stated that the proposal should be revised to
take into account the fact that, under some state laws or local
ordinances, Saturday is not considered a business day. To avoid
confusion, CO suggested that the following sentence be added to the
proposed amendment: ``This definition shall take precedence over state
or local law or ordinance.'' \48\
\46\ IA DOJ, #007, p. 2.
\47\ NACAA, #009, p. 7.
\48\ CO, #001, p. 11.
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2. Analysis
The Commission has decided to amend the Rule's definition of
``business day'' by updating the list of federal holidays. This listing
will allow both consumers and sellers to identify precisely those dates
covered by the Rule's cancellation period. The Commission, however, has
determined not to add to the definition of ``business day'' a sentence
stating that the Rule's definition takes precedence over state or local
law. The Rule does not preempt state laws or local regulations
providing cancellation rights that are substantially the same or
greater than that provided by the Rule.\49\
\49\ See 16 CFR 429.1, note 2.
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Further, the Notice of Cancellation that consumers receive at the
time they sign the contract states exactly what cancellation period
applies to their transaction. This notice has a space where the seller
is required to write in the specific time when the cancellation period
ends: ``To cancel this transaction, mail * * * this cancellation notice
* * * to __________ not later than midnight of (date) ________.'' Thus,
sellers can factor in time periods and days excluded by state law in
calculating when the cancellation period ends. The Rule in essence only
provides a right to have a minimum of three business days to cancel, as
business days are counted under the Rule.
(D) Proposals Raised by Commenters
1. Summary
The commenters, in response to the Commission's request for
suggestions on how the Rule might be modified, suggested a total of ten
different amendments to the Rule. The five
[[Page 54184]]
commenters representing sellers recommended that the Commission amend
the Rule by: (1) Raising the $25 minimum; \50\ (2) allowing sellers
more than 10 days to make refunds; \51\ (3) requiring sellers to give
buyers just a written, not both an oral and a written, notice of
cancellation rights; \52\ (4) exempting sales of hearing aids at
temporary business locations; \53\ (5) allowing sellers to substitute
``satisfaction'' or ``money back'' guarantees in place of the Rule's
cooling-off period; \54\ and (6) allowing sellers and buyers to execute
waivers of the Rule in instances in which the buyers want delivery
prior to three business days after the transactions.\55\
\50\ WMI, #010, p. 1.
\51\ CO, #001, pp. 7-8; WMI, #010, pp. 1-2.
\52\ CO, #001, p. 4-6.
\53\ IHS, #003, pp. 2-4. IHS requested that sales of hearing
aids at temporary business locations be exempted from the Rule. The
exemption is justified, contended IHS, because (1) hearing aids are
medical devices regulated by the United States Food and Drug
Administration (``FDA''), (2) most states require hearing aid
providers to be licensed, and (3) most hearing aid providers in this
country offer 30-day trial rental options.
\54\ DSA, #006, pp. 2-3.
\55\ CO, #001, pp. 9-10.
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The five commenters representing buyers recommended amending the
Rule to: (1) Allow buyers more than 3 business days to cancel covered
sales contracts; \56\ (2) start the cooling-off period from the date of
delivery of goods or services instead of the date of contract 57
or prohibit delivery of goods or providing of services until after
expiration of cooling-off period; 58 (3) defer starting the
cooling-off period until the seller has complied with all the Rule's
provisions; 59 and (4) expand the Rule's coverage to include all
telephone and mail order consumer sales transactions or all consumer
sales transactions, including those made at sellers' regular places of
business.60
\56\ AARP, #002, pp. 3-4; NACAA, #009, p. 3.
\57\ NACAA, #009, p. 2.
\58\ UAW-GM, #005, p. 1.
\59\ UAW-GM, #005, p. 2; NACAA, #009, p. 3.
\60\ IA DOJ, #007, pp. 2-4 (telephone solicitations); LASOD,
#008, pp. 1-2 (telephone and mail order solicitations and possibly
all sales solicitations); NACAA, #009, p. 3 (telephone, facsimile
machine and computer modem solicitations). In addition, DSA, #006,
p. 3, a representative of sellers, stated that it ``does not oppose
reasonable extension of the Rule to telephone sales.''
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2. Analysis
The comment suggesting that the minimum dollar amount be raised to
reflect the price inflation of goods and services since 1972 appears to
be based on the premise that the $25 minimum was adopted because the
Commission in 1972 thought low priced sales were not associated with
the kinds of high pressure tactics the Rule was meant to prevent. In
fact, however, this was not the Commission's reason for adopting the
$25 minimum. The Commission's principal purpose in adopting the $25
minimum was ``to exclude sales by milkmen, laundrymen and other route
salesmen'' 61 (i.e., sales occurring between the same seller and
buyer on an ongoing basis). The commenter did not offer evidence that
other low priced items, sold door-to-door on a one-time basis, would
not be associated with such high pressure sales tactics if they were
exempted from the Rule. There is insufficient evidence justifying
amendment of this provision.
\61\ 37 FR 22935, 22945 (Oct. 26, 1972).
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Another comment urged that the Commission delete the Rule provision
requiring sellers to give oral notice of the right to cancel. This
comment asserted that the oral notice requirement could harm sellers
because buyers might falsely allege that no oral notice was given in
order to acquire a longer cancellation period. In addition, the comment
contended that the oral notice requirement is an unnecessary
duplication of the written notices.
The notion that consumers can lengthen the cancellation period by
denying that they received the oral notice is incorrect. The
cancellation period only runs for three business days from the date of
the transaction. Merely requiring a written disclosure could make it
easier for those using high pressure sales pitches to keep buyers
unaware of the three-day cancellation period. Accordingly, the
Commission is retaining the requirement that sellers give both written
and oral notice of the right to cancel.
The requested exemption for hearing aids would be appropriate only
if there were reliable and persuasive evidence showing that application
of the Rule to such transactions is not necessary to prevent the
practices prohibited by the Rule. Removing the protections of the
Cooling-off Rule from sales of hearing aids at temporary business
locations may adversely affect older consumers.62 Two of the
eleven enforcement actions the Commission has brought alleging
violations of the Rule concerned sales of hearing aids to elderly
people. There is insufficient evidence to justify such an exemption.
The Commission therefore at this time is not exempting sales of hearing
aids at temporary business locations.
\62\ IHS noted in its comment that older consumers make up the
major percentage of hearing aid customers.
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When the Commission issued the Rule, it considered and rejected
suggestions that sellers be allowed more than ten days to make the
required refund 63 or that they be allowed to substitute
``satisfaction guarantees'' for the Rule's right to cancel 64 or
be allowed to get buyers to waive their right to a cancellation period
in order to get fast delivery.65 The Commission's decision to
require a ten-day period for making refunds took into account the
possibility of the seller being injured by having made a refund while,
unknown to the seller, the buyer stops payment on the check.66 The
comments did not offer new evidence or arguments on these issues.
Therefore, the Commission has determined to take no action on the
suggestions.
\63\ 37 FR 22935, 22952 (1972).
\64\ Id. at 22947-48.
\65\ Id. at 22952-53.
\66\ Id. at 22952.
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Although some commenters recommended a longer cooling-off period or
expanding the Rule's coverage to all telephone and mail order
solicitations, or even to all solicitations, they did not provide
evidence that such changes would be necessary to correct the problems
that the Rule was issued to address. The Cooling-Off Rule was not
intended to be a federal ``satisfaction guarantee'' requirement or
``buyers' remorse'' insurance program. When it issued the Rule in 1972,
the Commission considered, but rejected, such proposals.67 The
Rule instead has the limited purpose of correcting the specific problem
of sales being obtained through high pressure and deceptive sales
tactics used on consumers at times and places in which consumers
typically may not expect to be solicited for sales and find it
difficult to extricate themselves from the situation. Further, with
respect to telephone solicitations, the Commission has addressed the
issue of abusive and fraudulent practices in a separate proceeding. On
August 16, 1995, the Commission promulgated a trade regulation rule
governing telemarketing practices. This rule becomes effective on
December 31, 1995.68 Moreover, in mail order solicitations
consumers can, more easily than in door-to-door sales, avoid or ignore
unwanted sales pitches. They can simply not read or respond to the
mailed sales literature. The Commission therefore continues to believe
that the present Rule provides ample protection for buyers without
placing undue burdens on sellers.
\67\ 37 FR 22935, 22947 (Oct. 26, 1972).
\68\ Telemarketing Sales Rule, 60 FR 43842 (Aug. 23, 1995).
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UAW-GM suggested that the Rule be amended to prohibit the delivery
of
[[Page 54185]]
goods or the providing of services until expiration of the cooling-off
period. The commenter stated that, in its experience, once work has
started or goods have been delivered, buyers think they no longer have
a right to cancel. No evidence was submitted showing how widespread
such a misunderstanding might be. The short, six-paragraph ``Notice of
Cancellation'' required by the Rule to be given to every buyer
describes in detail what should be done when a buyer cancels a sale
after goods have been delivered. Accordingly, the Commission has
determined to take no action on this suggestion.
Another comment proposed that the cooling-off period continue until
the seller has complied with all the notice provisions of the Rule. The
Commission specifically rejected a similar proposal when the Rule was
issued because it determined that the incorporation of a remedial or
punitive provision in the Rule for prospective violators was not
necessary or appropriate.69 The Commission stated further that,
although an extension of the cooling-off period could be an appropriate
remedy to include in an order against a seller that had violated the
Rule, the rulemaking record did not support including such a provision
in the Rule itself.70 No new evidence or arguments have been
submitted for why the Commission should revisit this issue; therefore,
the Commission has determined to take no action on this proposal.
\69\ Id. at 37 FR 22935, 22957 (Oct. 26, 1972).
\70\ Id.
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In addition to the proposals for Rule amendments discussed above,
three commenters suggested that the Commission interpret the Rule in
specific ways and revise the Rule to reflect these interpretations. One
comment asked that the Commission specify in the Rule that the
envelopes of mailed cancellation notices must be postmarked on or
before the third business day after the date the contract is
signed.71 The Commission rejects incorporating this requirement in
the Rule. The Rule simply requires that cancellation notices be mailed
or delivered to sellers by a certain date. Not all mail, not even all
first class mail, is postmarked with a date. When exactly any notice
was mailed or delivered is an evidentiary question that may be resolved
by examining a number of relevant factors, including, but not limited
to, a postmark.
\71\ CO, #001, pp 2-3.
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Another comment urged the Commission to accept transmission by
facsimile machines as coming within the Rule's term ``mail or
deliver.'' 72 The Commission agrees that facsimile transmissions
would suffice to meet the Rule's delivery component, provided the buyer
can demonstrate what was transmitted and when. A third comment urged
the Commission to adopt the presumption used in Ohio in interpreting
that state's cooling-off statute, which like the FTC's Rule covers
sales made away from the seller's regular place of business. According
to this presumption, when initial face-to-face negotiations leading to
a sale occur outside the seller's regular place of business, the sale
is presumed to be covered by the statute, even if the buyer later
executes a final agreement at the seller's regular place of
business.73 The Rule's definition of ``Door-to-Door Sale''
specifies, however, that sales are covered only if the ``buyer's
agreement or offer to purchase'' is made away from the seller's regular
place of business. Therefore, the Rule already covers instances in
which a seller convinces a buyer, away from the seller's place of
business, to make a purchase and then merely memorializes the sale by
having the buyer sign the contract at the seller's place of business.
The Rule does not, however, cover instances in which initial
negotiations or sales solicitations occur away from the seller's place
of business and the buyer's agreement is obtained only after arriving
at the seller's place of business.74 The Commission rejects the
notion that the Rule should cover such sales. These sales should be
viewed as sales that take place at the seller's place of business.
\72\ NACAA, #001, p. 3.
\73\ LASOD, #008, p. 2.
\74\ See 16 CFR 429.1, note 1(a)(1).
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IV. Discussion of Non-Substantive Amendments Being Adopted
The Commission has decided to adopt certain non-substantive
amendments to the Rule. The following paragraphs discuss these
amendments and the reasons for adopting them.
The current Rule is entitled ``Cooling-Off Period for Door-to-Door
Sales.'' The Commission is amending 16 CFR Part 429 to rename the Rule
as ``Cooling-Off Period for Sales Made at Homes or at Certain Other
Locations'' to clarify that the Rule covers more than just at-home
sales.
The current Rule consists of just one section, 16 CFR 429.1, having
nine paragraphs and two ``Notes.'' The Commission is amending the Rule
to include the first of these Notes, which contains the Rule's six
definitions, as a new section of the Rule entitled ``Definitions.'' and
designated 16 CFR Part 429.0. Further, the Commission is amending the
Rule to include the second Note, which concerns the effect of the Rule
on state laws and municipal ordinances, as another new section of the
Rule entitled ``Effect on State Laws and Municipal Ordinances'' and
designated 16 CFR Part 429.2.
The current Rule's definition of the term ``Door-to-Door Sale''
states that the term covers sales ``made at a place other than the
place of business of the seller.'' The Commission is amending this
definition to add the following parenthetical explanation: ``(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).'' Amending the Rule to include this parenthetical
statement would incorporate into the Rule the interpretations the
Commission has provided in various Federal Register notices and other
official publications.
The current Rule's definition of the term ``Business Day'' has an
out-of-date listing of the federal holidays. This list omits Martin
Luther King's Birthday and has George Washington's Birthday instead of
Presidents' Day. For the reasons described previously, the Commission
is amending this provision of the Rule to update the list of federal
holidays.
The current Rule does not refer to the two exemptions the
Commission has granted certain sellers of automobiles and of arts and
crafts. The Commission therefore is also amending the Rule to add a
third new section, to be entitled ``Exemptions.'' and designated as 16
CFR Part 429.3, to contain the exemptions granted to the Rule. The
Commission has determined to expand the exemption for automobiles to
all motor vehicles. Thus, section 429.3 will indicate that the
exemption applies to sellers of motor vehicles who have at least one
permanent place of business.
Section 429.1(b) of the current Rule includes a sample of the
required ``Notice of Cancellation'' that is printed in all upper case
boldface type. The Rule only specifies the type size (ten point), the
typeface (boldface), and the language (the same as that used in the
contract) of the Notice.75 The Rule does not specify any type
style for the Notice or whether its type must be all uppercase or not.
The example of the Notice shown in 16 CFR Part 429 is, however, in all
uppercase type and sellers may think that such a format is required or
preferred by the
[[Page 54186]]
Commission. A combination of upper and lowercase type is generally
regarded by experts as easier to read.76 The Commission,
therefore, is revising the sample notice so that it will instead appear
in a combination of upper and lower case boldface type, thereby making
the sample notice more readable. Sellers may, however, continue to use
stocks of ``Notices of Cancellation'' printed with an all uppercase
typeface.
\75\ 16 CFR 429.1(b).
\76\ The University of Chicago, Chicago Manual of Style: The
Essential Guide for Writers, Editors, and Publishers. 14th Ed.
University of Chicago Press, Chicago, Ill., 1993.
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The current Rule repeatedly uses masculine pronouns when referring
to buyers. The Commission is amending the Rule to change the pronouns
``he,'' ``his,'' and ``him,'' wherever they appear, to gender neutral
terms like ``the buyer'' or ``the buyer's.''
List of Subjects in 16 CFR Part 429
Door-to-door sales; Trade practices.
Text of Amendments
For the reasons set forth in the preamble, 16 CFR Part 429 is
amended to read as follows:
1. The heading of part 429 is revised to read as follows:
PART 429--RULE CONCERNING COOLING-OFF PERIOD FOR SALES MADE AT
HOMES OR AT CERTAIN OTHER LOCATIONS
2. Further, the authority citation for part 429 is added to read as
follows:
Authority: Sections 1-23, FTC Act, 15 U.S.C. 41-58.
3. Further, section 429.1 is amended by revising paragraphs (b),
(d), (e) and (i) and by removing the authority citation following the
section to read as follows:
Sec. 429.1 The Rule.
* * * * *
(b) Fail to furnish each buyer, at the time the buyer signs the
door-to-door sales contract or otherwise agrees to buy consumer goods
or services from the seller, a completed form in duplicate, captioned
either ``NOTICE OF RIGHT TO CANCEL'' or ``NOTICE OF CANCELLATION,''
which shall (where applicable) contain in ten point bold face type the
following information and statements in the same language, e.g.,
Spanish, as that used in the contract.
Notice of Cancellation
[enter date of transaction]
----------------------------------------------------------------------
(Date)
You may CANCEL this transaction, without any Penalty or
Obligation, within THREE BUSINESS DAYS from the above date.
If you cancel, any property traded in, any payments made by you
under the contract or sale, and any negotiable instrument executed
by you will be returned within TEN BUSINESS DAYS following receipt
by the seller of your cancellation notice, and any security interest
arising out of the transaction will be cancelled.
If you cancel, you must make available to the seller at your
residence, in substantially as good condition as when received, any
goods delivered to you under this contract or sale, or you may, if
you wish, comply with the instructions of the seller regarding the
return shipment of the goods at the seller's expense and risk.
If you do make the goods available to the seller and the seller
does not pick them up within 20 days of the date of your Notice of
Cancellation, you may retain or dispose of the goods without any
further obligation. If you fail to make the goods available to the
seller, or if you agree to return the goods to the seller and fail
to do so, then you remain liable for performance of all obligations
under the contract.
To cancel this transaction, mail or deliver a signed and dated
copy of this Cancellation Notice or any other written notice, or
send a telegram, to [Name of seller], at [address of seller's place
of business] NOT LATER THAN MIDNIGHT OF [date].
I HEREBY CANCEL THIS TRANSACTION.
(Date)-----------------------------------------------------------------
(Buyer's signature)----------------------------------------------------
* * * * *
(d) Include in any door-to-door contract or receipt any confession
of judgment or any waiver of any of the rights to which the buyer is
entitled under this section including specifically the buyer's right to
cancel the sale in accordance with the provisions of this section.
(e) Fail 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.
* * * * *
(i) Fail, within 10 business days of receipt of the buyer's notice
of cancellation, to notify the buyer whether the seller intends to
repossess or to abandon any shipped or delivered goods.
4. Further, part 429 is amended by redesignating note 1 to
Sec. 429.1 as Sec. 429.0 and revising it to read as follows:
Sec. 429.0 Definitions.
For the purposes of this part the following definitions shall
apply:
(a) Door-to-Door Sale--A sale, lease, or rental of consumer goods
or services with a purchase price of $25 or more, whether under single
or multiple contracts, 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). The term ``door-to-door
sale'' does not include a transaction:
(1) 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
(2) In which the consumer is accorded the right of rescission by
the provisions of the Consumer Credit Protection Act (15 U.S.C. 1635)
or regulations issued pursuant thereto; or
(3) 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 3 business days; or
(4) 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; or
(5) In which the buyer has initiated the contact and specifically
requested the seller to visit the buyer's home for the purpose of
repairing or performing maintenance upon the buyer's personal property.
If, in the course of such a visit, the seller sells the buyer the right
to receive additional services or goods other than replacement parts
necessarily used in performing the maintenance or in making the
repairs, the sale of those additional goods or services would not fall
within this exclusion; or
(6) Pertaining to the sale or rental of real property, to the sale
of insurance, or to the sale of securities or commodities by a broker-
dealer registered with the Securities and Exchange Commission.
(b) Consumer Goods or Services--Goods or services purchased,
leased, or rented primarily for personal, family, or household
purposes, including courses of instruction or training regardless of
the purpose for which they are taken.
(c) Seller--Any person, partnership, corporation, or association
engaged in
[[Page 54187]]
the door-to-door sale of consumer goods or services.
(d) Place of Business--The main or permanent branch office or local
address of a seller.
(e) Purchase Price--The total price paid or to be paid for the
consumer goods or services, including all interest and service charges.
(f) Business Day--Any calendar day except Sunday or any federal
holiday (e.g., New Year's Day, Presidents' Day, Martin Luther King's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day, and Christmas Day.)
5. Further, part 429 is amended by redesignating note 2 to
Sec. 429.1 as Sec. 429.2 and revising it to read as follows:
Sec. 429.2 Effect on State laws and municipal ordinances.
(a) The Commission is cognizant of the significant burden imposed
upon door-to-door sellers by the various and often inconsistent State
laws that provide the buyer the right to cancel a door-to-door sales
transaction. However, it does not believe that this constitutes
sufficient justification for preempting all of the provisions of such
laws and the ordinances of the political subdivisions of the various
States. The rulemaking record in this proceeding supports the view that
the joint and coordinated efforts of both the Commission and State and
local officials are required to insure that consumers who have
purchased from a door-to-door seller something they do not want, do not
need, or cannot afford, be accorded a unilateral right to rescind,
without penalty, their agreements to purchase those goods or services.
(b) This part will not be construed to annul, or exempt any seller
from complying with, the laws of any State or the ordinances of a
political subdivision thereof that regulate door-to-door sales, except
to the extent that such laws or ordinances, if they permit door-to-door
selling, are directly inconsistent with the provisions of this part.
Such laws or ordinances which do not accord the buyer, with respect to
the particular transaction, a right to cancel a door-to-door sale that
is substantially the same or greater than that provided in this part,
which permit the imposition of any fee or penalty on the buyer for the
exercise of such right, or which do not provide for giving the buyer a
notice of the right to cancel the transaction in substantially the same
form and manner provided for in this part, are among those which will
be considered directly inconsistent.
6. Further, part 429 is amended to add a new Sec. 429.3 to read as
follows:
Sec. 429.3 Exemptions.
(a) The requirements of this part do not apply for sellers of
automobiles, vans, trucks or other motor vehicles sold at auctions,
tent sales or other temporary places of business, provided that the
seller is a seller of vehicles with a permanent place of business.
(b) The requirements of this part do not apply for sellers of arts
or crafts sold at fairs or similar places.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-25573 Filed 10-19-95; 8:45 am]
BILLING CODE 6750-01-P
