If not done properly, negotiating or delivering a vehicle other than at the seller's principal place of business can trigger an FTC rule as well as state laws governing door-to-door sales. These require giving the customer a three-day right of cancellation of the transaction and mandate notices and forms relating to this right to cancel be delivered as well.
The FTC's Rule on Cooling Off Period for Sales Made at Homes and Other Locations Outside of the Seller's Place of Business has been around since 1972. Like state door-to-door sales laws, it requires that if the sale is conducted at the consumer's home, or any location other than the seller's place of business, the consumer must receive a three-day right of cancellation of the deal after it is consummated. The consumer must be given a regulatory notice and two copies of a form to use to cancel by mailing one copy back to the dealer. You have to wait five days to send the contract to a financing source and, if the customer cancels, return their down payment and trade-in vehicle within 10 days. Not an ideal scenario for most dealers.
However two main exceptions to the Rule apply to defeat having to give the three-day notice of cancellation. One exception is when the deal is conducted entirely by mail, telephone or online and without any personal contact with the consumer prior to vehicle delivery.
The second exception is when the sale is the result of prior negotiations at the seller's permanent place of business where the goods are sold regularly.
An FTC staff letter from 2001 stated that where the sale was negotiated and finalized without any face-to-face dealings, the dealer could bring the final contract documents along with the vehicle to the consumer and have the consumer sign the documents in their driveway. This would not run afoul of the Rule.
The danger comes when a test drive is conducted at a site other than your dealership. In this case, if the sale or finance negotiations begin at the test drive, you won't meet either exception. Likewise, if you deliver the vehicle and attempt to upsell the consumer on aftermarket products or change the deal at their home, you will also be responsible for giving the three-day notice of cancellation.
The best scenario is when the customer comes to the dealership for the test drive and any negotiations begin there. This would fit the second exception of the sale or lease being the result of prior negotiations at the seller's permanent place of business. But what if the customer won't come to the dealership?
The second best solution is to have someone from the dealership with no authority to negotiate or conduct sales being the person to bring the vehicle to the remote location for the test drive and make it clear that any negotiations must be done by calling or emailing a salesperson whose name and contact information are given to the consumer. Then, presumably, all negotiations will be done remotely.
This may not be a practical solution for some dealers. If you must send a salesperson with the vehicle for a test drive, first adopt a Test Drive Policy that states clearly no sales or finance negotiations can occur at a remote test drive. When the salesperson returns to the dealership, they should put a note in the deal jacket or files that indicates the test drive took place and there were no discussions of price or financing terms consistent with the policy. The negotiations would begin only on a followup call or email to the consumer. Again, all negotiations are done remotely.
Same thing with delivery. Do not deliver the vehicle without the final paperwork and do not attempt to continue negotiations for any product, service, or terms at the remote site. If necessary, have the customer sign the documentation in their driveway, not in their home. A better solution would be to have the customer electronically sign, sign and fax, or scan and email the signed documents to you for countersignature so when you deliver the vehicle, you are also delivering the final documentation signed by both sides. (Don't forget to first send the customer electronically a review copy required by Truth in Lending first).
These procedures should enable you to avoid having to give the three-day right of cancellation under the FTC Rule. But you also have to worry about your state's law. Some states such as Connecticut, New York, Ohio, and Kansas have adopted the FTC Rule. Other states have not. Many of those states do not have the exception for when the deal is conducted entirely by mail, telephone or online and without any personal contact with the consumer prior to vehicle delivery. Most states do have the exception for remote delivery when the initial negotiations are done at the dealership but check with your local counsel to learn the rules in your state and how to avoid the three-day right of cancellation under your state's law which may be harder than avoiding it under the FTC Rule.
Serious penalties and consequences can flow if you are required to give the right of cancellation but fail to do so. It is a violation of Section 5 of the FTC Act (unfair or deceptive practices) for which the penalties currently are $43,580 per violation. This figure is adjusted upward annually to reflect inflation. State laws give private rights of action and state Attorneys General can enforce both the FTC Rule and state law together.
Courts have also ruled that if a customer is not given a right to cancel when they are entitled to receive one, they have a "reasonable time" to cancel the transaction. This could be a period of months and result in the consumer getting a free "test drive" for an extended period of time. And hope you don't sell their trade because they are entitled to get it back when they cancel. If the deal was financed by a lender, the lender will also require you to repurchase the contract. So take care not to put yourself in a position where you negotiate with the consumer away from your dealership which could trigger the three-day right to cancel.
The FTC has said it is taking careful note of complaints and conduct that violates the law during the coronavirus epidemic. Remote sales are increasing substantially so it is important that you be aware of the possible three-day right to cancel. For remote test drives and remote deliveries, you can either give the FTC-mandated notice and two copies of the three-day right to cancel and wait five days to finance the paper or try to fall within one of the exceptions by taking the conduct described above.
We are here to help you so give us a call at 267-481-5636 or email us at AutoDealerCompliance@gmail.com and we will do what we can to help you through the coronavirus times and the behavioral changes necessary to cope.