Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations

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