Contents
- Scope
- The Bottom
Line
- Invoice
Elements
- Suggested
Training Issues
- Discussion
- Federal
Requirements
- State Laws
- Footnotes
- Exhibit 1
- The Rule
- Note 1:
Definitions
- Note 2:
Effect on State Laws and Municipal
Ordinances
Scope
This article will
address the legal issues surrounding "door-to-door"
sales in the United States.1 Lest you
think that the activities of your distributors do
not involve "going door-to-door," you
should be aware that the federal definition (as
well as most state definitions) of a "door-to-door"
sale encompasses considerably more
than a salesperson who merely goes from house to
house and knocks on doors to make product sales.
Essentially, the regulation applies to sales of
goods or services of $25 or more that occur anywhere
other than the seller's principle
place of business. Thus, in addition to in-home
solicitations, door-to-door sales also include
flea markets, fairs, and other show environments.
(See the Discussion section below for
the Federal Trade Commission's definition.)
Accordingly, direct selling distributors and the
companies whose products they sell, should be
aware of the requirements of federal and state
"door-to-door" legislation.
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The Bottom Line
It is important that
direct selling companies and their distributors
understand and comply with "door-to-door"
sales requirements. Otherwise, their activities
may constitute unfair and deceptive acts, which
are actionable at both the state and federal
levels. Of course, not every sale a distributor
makes will equal or exceed $25.00. Sales below
that level are exempt from the federal "door-to-door"
requirements. As regards $25.00 (and above)
orders, direct sellers should ensure that the
following elements are included in their invoices.
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A.
Invoice Elements
(1)
The date of the transaction;
(2)
The date (not earlier than the third business
day following the date of the transaction) by
which the buyer may give notice of
cancellation;
(3)
Name and address of the seller (the
distributor);2
(4)
Notification of rescission clause in at least
10 point type (on the front) in close
proximity to the buyer's signature;3
(5)
Rescission clause in the principal language
of the sales presentation in at least 10
point type (on the back or in a separate
document) in duplicate;
(6)
Duplicate copies for the customer.
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B.
Suggested Training Issues
(1)
Teach distributors to provide two copies of
the receipt or order form;
(2)
Teach distributors to orally inform the buyer
or his right to rescind the order (for orders
of $25.00 or more);
(3)
Teach distributors to insure that the
transaction date is filled in;
(4)
Encourage distributors to promptly refund
payments.
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Discussion
A.
Federal RequirementsTitle 16 of the Code of
Federal Regulations consists of a collection of
consumer protection regulations promulgated by
the Federal Trade Commission. Part 429 (the
"regulation") is part of the FTC's
mechanism to protect consumers from deceptive
sales tactics and high pressure sales pitches in
their homes.4 As suggested
above, the scope of the regulation goes quite far
in that it applies to small sales of goods or
services of $25 or more that occur anywhere
other than the seller's principle
place of business. More precisely, it applies to any
"door-to-door" sale, which
is defined as
A
sale, lease, or rental of consumer goods or
services5 with a
purchase price of $25 or more, whether under
single or multiple contracts, in which the seller6 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 business7 of the seller.8
In
light of this definition, the sales activities of
some direct selling distributors may fall within
the purview of the regulation.
Procedurally,
the regulation requires that:
(1)
The distributor furnish the buyer with a
fully completed receipt or copy of the
contract when it is signed;9
(a)
The contract must show the date of the
transaction; and
(b)
Contain the name and address of the
seller; and
(c)
Contain a notification (boldfaced and a
minimum of 10 point type) of the buyer's
rescission rights 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.
(2)
The distributor provide the buyer with duplicate
notices of cancellation. (This is so that in
the event of cancellation the buyer is able
to retain a complete copy of the contract or
receipt.);
(3)
The distributor ensure that the date of the
sale and the date of the third business day
following the date of the transaction, by
which the buyer may give notice of
cancellation, are filled in;
(4)
The distributor inform each buyer orally, at
the time he signs the contract or purchases
the goods or services, of his right to
cancel;
In
addition, the seller must honor any valid notice
of cancellation by a buyer and within 10 business
days after the receipt of such notice:
(1)
Refund all payments made under the contract
or sale;10
(2)
Return any goods or property traded in;
(3)
Cancel and return any negotiable instrument
executed by the buyer in connection with the
contract or sale and take any action
necessary or appropriate to terminate
promptly any security interest created in the
transaction.
(4)
Notify the buyer whether he or she intends to
repossess or to abandon any shipped or
delivered goods.
The
regulation also prohibits the negotiation,
transfer, sale, or assignment of 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.
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B.
State LawsThe laws of the fifty
states and the District of Columbia
unquestionably complicate technical compliance
with door-to-door contracts. Each state has its
own statute governing door-to-door contracts and
customers' rescission rights. The FTC has further
obfuscated the situation by allowing states to
"do their own thing" so long as their
statutes do not directly contravene the FTC's
regulation. Thus, states may give consumers
greater rights than those provided by the FTC
regulation.
In
some states, the cancellation period does not
begin to run until and unless the seller gives
both oral and written notice of the buyer's right
to cancel. Therefore, if a distributor forgets to
orally inform the buyer of his cancellation
right, the buyer could technically argue for
rescission at any time after his purchase. Some
states require different notification and/or
rescission language. A few states give a buyer a
longer period in which to rescind the contract.
Sometimes, the only way
in which a direct sales company could completely
comply with a particular state's laws would be to
use a specific contract for that jurisdiction.
Fortunately, many state statutes either use
language identical to that of the FTC or allow
the FTC rescission clause to be used in lieu of
the state-mandated clause. As a practical matter,
adherence to the myriad state requirements is
observed in the breach rather than in strict
compliance. Thus, as long as a company follows
the FTC's requirements, state regulators will usually
be satisfied. If, however, a consumer contends
that he has greater rights than provided by a
federally-compliant Notice of Cancellation,
direct sellers would be well advised to earnestly
examine the customer's assertion.
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Footnotes1.
In Canada, door-to-door
sales are regulated by provincial Direct Selling
Acts, which, in addition to the conditions
required in the U.S., often require licensing of
the direct selling company and the distributor,
as well as the posting of a bond. The Canadian
direct selling requirements are beyond the scope
of this article.
2. This assumes
that the direct selling company sells its
products to an independent distributor, who in
turn sells them to his or her customer. If the
sale is made directly from the company to the
customer, the company will be considered to be
the "seller."
3. The
notification statement must be "in
substantially the following form:"
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.
4. Part 429 is
attached as Exhibit 1.
5. "Consumer
goods or services" are defined as "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."
6. A "Seller"
is any person, partnership, corporation, or
association engaged in the door-to-door sale of
consumer goods or services.
7. "Place
of business" means "the main or
permanent branch office or local address of a
seller."
8. The
regulation provides for six exceptions to the
definition of a "door-to-door sale."
They include sales:
(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 recision 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 his 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.
9. The contract
and the Notice of Rescission must be in the same
language as that principally used in the sales
presentation.
10. The net
result of this requirement is that a direct
selling company cannot charge a customer who
exercises his rights under the regulation a
restocking fee. A customer who rescinds a door-to-door
contract under the regulation must receive a full
refund. This is not to say that direct sellers
are prohibited from charging such a fee is a
customer returns a product outside of
the three business day period allowed by the
regulation.
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Exhibit 1
CODE OF FEDERAL
REGULATIONS
TITLE 16--COMMERCIAL
PRACTICES
CHAPTER I--FEDERAL
TRADE COMMISSION
SUBCHAPTER D--TRADE
REGULATION RULES
PART 429--COOLING-OFF
PERIOD FOR DOOR-TO-DOOR SALES
§
429.1 The Rule.In connection with any
door-to-door sale, it constitutes an unfair and
deceptive act or practice for any seller to:
(a) Fail to furnish the
buyer with a fully completed receipt or copy of
any contract pertaining to such sale at the time
of its execution, which is in the same language,
e.g., Spanish, as that principally used in the
oral sales presentation and which shows the date
of the transaction and contains the name and
address of the seller, and 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 and in bold
face type of a minimum size of 10 points, a
statement in substantially the following form: "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."
The
seller may select the method of providing the
buyer with the duplicate notice of cancellation
form set forth in paragraph (b) of this section,
provided however, that in the event of
cancellation the buyer must be able to retain a
complete copy of the contract or receipt.
Furthermore, if both forms are not attached to
the contract or receipt, the seller is required
to alter the last sentence in the statement above
to conform to the actual location of the forms.
(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 10 BUSINESS DAYS FOLLOWING
RECEIPT BY THE SELLER OF YOUR CANCELLATION
NOTICE, AND ANY SECURITY INTEREST ARISING OUT OF
THE TRANSACTION WILL BE CANCELED.
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)
(c)
Fail, before furnishing copies of the "Notice
of Cancellation" to the buyer, to complete
both copies by entering the name of the seller,
the address of the seller's place of business,
the date of the transaction, and the date, not
earlier than the third business day following the
date of the transaction, by which the buyer may
give notice of cancellation.
(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 his
right to cancel the sale in accordance with the
provisions of this section.
(e)
Fail to inform each buyer orally, at the time he
signs the contract or purchases the goods or
services, of his right to cancel.
(f)
Misrepresent in any manner the buyer's right to
cancel.
(g)
Fail or refuse to honor any valid notice of
cancellation by a buyer and within 10 business
days after the receipt of such notice, to: (I)
Refund all payments made under the contract or
sale; (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 or sale and take
any action necessary or appropriate to terminate
promptly any security interest created in the
transaction.
(h)
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.
(I) Fail, within 10
business days of receipt of the buyer's notice of
cancellation, to notify him whether the seller
intends to repossess or to abandon any shipped or
delivered goods.
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Note
1: Definitions. For the purposes of this section
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.
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 recision 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 his 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 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
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.
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Note
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 which
provide the buyer with the right to cancel door-to-door
sales transactions. However, it does not believe
that this constitutes sufficient justification
for preempting all of the provisions of such laws
or of the ordinances of the political
subdivisions of the various States. The Record in
the proceedings supports the view that the joint
and coordinated efforts of both the Commission
and State and local officials are required to
insure that a consumer who has purchased from a
door-to-door seller something he does not want,
does not need, or cannot afford, is accorded a
unilateral right to rescind, without penalty, his
agreement to purchase the goods or services.
(b)
This section will not be construed to annual, or
exempt any seller from complying with the laws of
any State, or with the ordinances of political
subdivisions thereof, regulating 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 section. 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 which is substantially the same or greater
than that provided in this section, or 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 notice
of his right to cancel the transaction in
substantially the same form and manner provided
for in this section, are among those which will
be considered directly inconsistent.
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