If the Federal Cooling Off Rule Applies to My Business – What Must I Do?

 

As discussed in my last post, the Federal Cooling Off Rule may apply to many construction contractors and small business owners. If the rule applies to your business, it will give consumers the right to cancel a purchase within three “business” days of their purchase.

If the rule applies to your business, or if there is any question, then compliance is  recommended as it is a simple and inexpensive process to meet the requirements of the rule. This is especially true if a business considers the cost of responding to an investigation by their local Attorney General or defending a consumer protection lawsuit which could provide for triple damages and an award of attorney fees.

The focus of the rule is on disclosure – make sure the consumer understands their right to cancel, and then honoring a cancellation notice.

To meet the requirements of the rule:

1. A business must furnish the buyer with a fully completed receipt or copy of the contract at the time of its execution (note that if the sales presentation is in Spanish or another language, then the contract must be in that language as well);

2. The business’ contract must:

A. Show the date of the transaction;

B. Contain the name and address of the seller;

D. Contain a notice, in substantially the following form, in a minimum size of 10 pt bold font, in immediate proximity to the space reserved in the contract for the signature of the buyer, or on the front page of the receipt, if a contract is not used:

 “You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.”

3. The business must complete and provide the buyer with 2 copies of a mandated Notice of Cancellation form (again, the form must be in point bold face type, no smaller than 10 pt font, and in the same language as the sales presentation); and

4. The business must orally explain the right to cancel to the buyer.

5. The business must also ensure that its does not:

A. Misrepresent in any manner the buyer’s right to cancel;

B. Fail to honor a valid notice of cancellation and within 10 business days after the receipt of such notice: (i) Refund all payments made under the contract; (ii) return any goods or property traded in, in substantially as good condition as when received by the seller; (iii) cancel and return any negotiable instrument executed by the buyer in connection with the contract and take any action necessary or appropriate to terminate promptly any security interest created in the transaction;

C. Negotiate, transfer, sell, or assign any note or other evidence of indebtedness to a finance company or other third party prior to midnight of the fifth business day following the day the contract was signed or the goods or services were purchased; or

D. 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.

While the requirements of the rule are technical and dry in nature, failure to comply with the rule may give the consumer an unlimited right to cancel their purchase or the right to retain the goods and services free of charge. In a court case interpreting a state’s counterpart to the Federal Cooling Off Rule, a roofer sued a homeowner after the homeowner failed to pay the contractor for installing a new roof. In that case, the court held that due in part to the roofer’s failure to comply with the home solicitation rules, the roofer had no right to seek payment from the homeowner.

 

 

This blog post is offered for general information and educational purposes only. It is not offered as legal advice and does not constitute legal advice or opinion. Although I intend to keep this information current, I do not promise or guarantee that the information is correct, complete, or up-todate. You should not act or reply upon the information in this post without seeking the advice of an attorney.

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