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 Requirements
Title 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 Laws
The 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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Footnotes
1. 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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