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What Is the FTC’s Cooling-Off Rule and How Does It Apply to Remote Sales at Your Dealership?

Toby Graham

What Is the FTC’s Cooling-Off Rule and How Does It Apply to Remote Sales at Your Dealership?

These days, pretty much anything that can happen happens online. That includes automotive sales. As a matter of fact, many dealerships that have exclusively conducted business in-person are now relying on online transactions to stay afloat during the COVID-19 crisis.

But lest you think selling a car over the internet would be simple or easy, be aware of the Federal Trade Commission’s “Cooling-Off” Rule, which—despite its name—is anything but cool.

Established in the 1970s, the Cooling-Off Rule was a relatively obscure bit of federal policy until just a few months ago. As our friend Eric L. Johnson of Hudson Cook explains, the rule “regulates a person’s ability to engage in sales in places other than the person’s permanent place of business.”  Specifically, the rule gives a buyer 3 days to cancel, and obligates the seller to provide certain written and oral disclosures. Sellers are also forbidden to misrepresent a buyer’s rights or “to assign the note or contract for a period of time.”

That may sound straightforward, but remember: these are auto sales and the FTC we’re talking about. There are exceptions and caveats. Because of course there are.

Eric explains further by digging into two scenarios from a 2001 FTC staff opinion:

“In the first scenario, a dealer maintained a website listing its new vehicles and pricing information. Mr. Smith visited the dealer’s website, found a new vehicle he was interested in buying, and emailed his purchase inquiry to the dealer. In response to that inquiry, the dealer contacted Mr. Smith via email and/or telephone, negotiated to sell him a new car, and arranged to have it delivered to his home. The dealer prepared a written sale contract and had the vehicle delivered to Mr. Smith’s home on one of the dealer’s trucks. The truck driver obtained Mr. Smith’s signature on the sale contract while Mr. Smith was standing in his driveway. Mr. Smith never physically visited the dealership, and the sale transaction was consummated (i.e., the contract was signed) at Mr. Smith’s residence.

In the second scenario, Ms. Jones visited an autobroker website and identified the specifications of a car she was interested in buying. She emailed her purchase inquiry to the autobroker. The autobroker located a vehicle that met her specifications and obtained a commitment from a dealer to sell her the car for a specific price. The autobroker obtained Ms. Jones’s commitment to buy the car and arranged to have one of its trucks pick up the car and a written sale contract from the dealer. The autobroker delivered the car to Ms. Jones at her home. The truck driver obtained Ms. Jones’s signature on the sale contract while she was standing in her driveway. Ms. Jones never physically visited the autobroker or the dealership, and the sale transaction was consummated (the contract was signed) at Ms. Jones’s residence.”

Can you guess which of these scenarios is covered under the Cooling-Off Rule?

The answer is neither. In both cases, the buyer initiated the transaction, and the sale was fully negotiated before the delivery of the vehicle.

According to the FTC (note that Eric is paraphrasing here), “the Cooling-Off Rule’s protections were intended to apply to situations where the seller (or a representative of the seller, such as the truck drivers in the proposed scenarios) personally solicits the sale through contact with the buyer at non-business locations.”

However, he writes, “if any part of the transaction was solicited at the customer’s home,” or if either transaction hadn’t been finalized before the truck driver dropped off the vehicle, the Cooling-Off Rule would likely apply.

Read “Direct to Your Door – More Guidance on the FTC’s Cooling-Off Rule.”

For more information about keeping your business running smoothly in these remote-first times, check out KPA’s Sales and F&I solutions.

Toby Graham

Toby manages the marketing communications team here at KPA. She's on a quest to help people tell clear, fun stories that their audience can relate to. She's a HUGE sugar junkie...and usually starts wandering the halls looking for cookies around 3pm daily.

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