Cooling-Off Rule

The Cooling-Off Rule is a Federal Trade Commission trade regulation rule, codified at 16 CFR part 429, that gives a buyer a three-business-day right to cancel certain sales solicited in person away from the seller's permanent place of business. The rule defines a "door-to-door sale" as a sale, lease or rental of consumer goods or services in which the seller or a representative personally solicits the sale and the buyer's agreement or offer to purchase is made somewhere other than the seller's place of business, giving as examples the buyer's residence, temporarily rented facilities such as hotel rooms, convention centers, fairgrounds and restaurants, the buyer's workplace, and dormitory lounges. The threshold is a purchase price of $25 or more at the buyer's residence and $130 or more elsewhere. Failing to honor the right, or failing to give the required notices, is treated by the rule as an unfair and deceptive act or practice.

The most useful thing to know about this rule is what it does not cover. It is widely believed that any purchase can be cancelled within three days, and that belief has no basis. The rule reaches a specific situation: someone came to you, the sale was agreed somewhere that is not their shop, and the price cleared the threshold. It does not apply where the buyer went to a retail establishment with a fixed permanent location after prior negotiations, nor to a transaction "conducted and consummated entirely by mail or telephone" with no other contact before delivery. It does not apply to sales of real property, insurance, or securities or commodities sold by a broker-dealer registered with the Securities and Exchange Commission. It does not apply where the buyer initiated the contact and asked the seller to come and repair or maintain their own property, except as to additional goods or services sold during that visit. And it does not apply where the buyer initiated the contact for a genuine immediate personal emergency and gave the seller a separate dated handwritten statement describing the emergency and expressly waiving the right. Two further exemptions sit in 16 CFR 429.3, for vehicles sold at auctions or tent sales by a dealer who has a permanent place of business, and for arts or crafts sold at fairs.

The phrase "cooling-off period" belongs to several unrelated rules, and only one of them is this one. The exclusion at 429.0(a)(2) removes any transaction in which the consumer has a right of rescission under 15 U.S.C. 1635, the Truth in Lending Act provision implemented at 12 CFR 1026.23, which gives a three-business-day rescission right on certain credit secured by the borrower's principal dwelling. That is a different right with different mechanics, and the two are mutually exclusive rather than overlapping: a home-improvement contract financed by a loan against the house is handled by the lending rule, not by this one. Separately, many states give a rescission window on timeshare purchases, and federal securities regulation uses the same phrase for the waiting period before a trading plan may begin. Sharing a phrase is all these have in common.

What the seller has to do is prescriptive, and the paperwork is the point. Section 429.1 requires a fully completed receipt or contract copy at the time of signing, in the same language as the oral sales presentation, dated, showing the seller's name and address, and carrying a statement in bold face of at least ten point type telling the buyer they may cancel before midnight of the third business day. It requires two copies of a form captioned "NOTICE OF RIGHT TO CANCEL" or "NOTICE OF CANCELLATION," completed by the seller with its own name and address, the transaction date, and the date by which cancellation must be given. It requires the seller to tell the buyer orally about the right. It forbids a confession of judgment or any waiver of these rights in the contract, and it forbids misrepresenting the right in any way.

Cancellation is written, and the consequences run on their own clocks. The buyer cancels by mailing or delivering a signed and dated copy of the notice, or any other written notice, to the seller's address by the deadline. Within ten business days of receiving it the seller must refund every payment made, return any trade-in in substantially the same condition, and cancel and return any negotiable instrument the buyer signed, taking whatever steps are needed to terminate any security interest. Within the same ten business days the seller must tell the buyer whether it intends to repossess or abandon goods already delivered. The buyer must make delivered goods available at their residence in substantially the condition received, or follow the seller's shipping instructions at the seller's expense and risk; if the seller does not collect them within twenty days of the cancellation notice, the buyer may keep or dispose of them. One provision protects the buyer against a problem the others would not reach: 429.1(h) forbids the seller from negotiating, transferring, selling or assigning the buyer's note to a finance company or other third party before midnight of the fifth business day, so the paper cannot be sold on while the cancellation right is still alive. Finally, the rule is a floor rather than a ceiling. Section 429.2(b) leaves state and local door-to-door sales laws standing except where they are directly inconsistent, and it treats a state law as inconsistent if it gives a weaker cancellation right, allows a fee or penalty for cancelling, or provides a notice materially different from the one this rule requires.

1. Check the setting. The seller solicited in person, and the agreement was made away from the seller's permanent place of business.

2. Check the price. At least $25 if the sale was made at the buyer's residence, at least $130 anywhere else.

3. Check the exclusions. Prior negotiations at a fixed retail location, a transaction covered by the lending rescission right, a buyer-initiated emergency with a signed handwritten waiver, a sale made entirely by mail or telephone, a buyer-initiated repair visit, and real property, insurance and registered broker-dealer securities sales are all outside the rule.

4. Count the three business days. Business day means any calendar day except Sunday and federal holidays, so Saturdays count.

5. Cancel in writing by mailing or delivering the signed cancellation form, or any other written notice, to the seller's address before midnight of the third business day.

6. The seller has ten business days from receiving the notice to refund everything, return any trade-in, cancel any note, and say what it intends to do about delivered goods.

For example: a salesperson demonstrates a $3,200 water treatment system at Aisha's kitchen table on a Friday and she signs, paying a $500 deposit and signing a note for the balance. The sale was solicited in person at her residence and is well above $25, so the rule applies and the salesperson must leave a dated receipt with the bold-face cancellation statement and two copies of the cancellation notice. Counting business days from Friday, Saturday is the first, Monday the second and Tuesday the third, so she has until midnight on Tuesday. She mails the signed form on Monday. Within ten business days of receiving it the seller must refund the $500, cancel and return the note, and release any security interest, and it may not have sold that note to a finance company before midnight of the fifth business day in any event. If the system has been installed, she makes it available at her home, and if nobody collects it within twenty days of her notice she may keep or dispose of it.

Pros

• It targets the situation that most reliably produces regret, which is an in-person sale the buyer did not go looking for.
• The seller has to put the right in writing, in bold face, and say it out loud, so the buyer cannot be left unaware of it.
• Cancelling costs nothing and needs no reason, and a state law that tried to charge a fee for it would be directly inconsistent with the rule.
• The bar on selling the note before the fifth business day stops the buyer's paper being passed to a third party while the right is still open.
• The rule is a floor, so a stronger state or local cancellation right survives it.

Cons

• It is far narrower than the folk version, and the folk version is what most buyers believe they have.
• Nothing in it covers online, mail or telephone purchases, which is where most buying now happens.
• The exclusions are technical, and whether a visit was buyer-initiated or a sale followed prior negotiations can be genuinely arguable.
• Enforcement is a matter of complaints and agency action; the rule is written as a prohibition on the seller rather than as a claim the buyer files.
• A seller that simply omits the notices has broken the rule, but the buyer still has to know that in order to act on it.