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.
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.
(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.
(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.
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.
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.
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.
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:
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.
(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.
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.
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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