Last spring, with showrooms closed and stay-at-home restrictions issued because of the coronavirus pandemic, dealers were forced to look for ways to sell vehicles outside their traditional business models.
While a pivot to remote sales and home vehicle deliveries has provided greater convenience to consumers, the approach could expose dealers to a nearly 50-year-old federal law that regulates their ability to conduct a sale at a setting other than their permanent place of business.
The Federal Trade Commission’s guidance on remote sales — published in 1972 and known as the Cooling-Off Rule — gives consumers three days to cancel a transaction made at their home, workplace, dormitory or a seller’s temporary location.
“However, certain types of sales can’t be canceled even if they take place in places normally covered by the rule,” Anna Burns, the FTC’s regional director for the Southeast region, told Automotive News.
Cars, vans, trucks or other motor vehicles sold at temporary locations are not covered by the rule if the seller has at least one permanent place of business, she said. The rule also doesn’t cover sales made entirely online or by mail or phone.
While the rule hasn’t been modified despite changes to sales strategies and transactions during the pandemic, Burns said dealers still need to be aware of the regulation and ensure their practices conform to it.
“Sales in consumers’ homes and at a seller’s transient location have long raised consumer protection concerns, as some sellers employ deceptive and unfair practices, including high-pressure sales tactics, misrepresenting the quality of goods and placing inappropriate roadblocks to obtaining refunds,” she said. “These concerns remain in place during the pandemic.”
With COVID-19 spurring a wider adoption of digital retailing tools by dealers, there has been “a lot of misunderstanding or misinformation” about when the cooling-off period applies, said Shannon Robertson, executive director of the Association of Finance & Insurance Professionals.
“We saw a lot of dealers move to an online strategy … during the pandemic and were forced to find alternative or different ways to be able to sell vehicles and products and move to a full online or over-the-phone transaction style,” he said.
While dealers can primarily rely on an exception that says the FTC’s rule does not apply if a sale is the result of prior negotiations — including those done online or by phone — careful consideration should be taken upon delivery of the vehicle.
“If I’m delivering the vehicle to the customer at their house and I’m presenting those contracts, and I negotiate aftermarket products at that time, then the cooling-off period would apply,” Robertson said.
To prevent triggering the rule, dealers should make sure the transaction is completed in full before vehicle delivery and avoid sending salespeople to the customer’s home, several compliance experts said.
For employees assigned to delivering vehicles, Robertson said, it should be stated in their job description that they’re not allowed to negotiate or have any kind of pricing conversation with customers.
Eric Johnson, partner at law firm Hudson Cook in Oklahoma City, said dealers also should “clamp down” on what employees can say during the vehicle delivery.
“What you should be saying is just, ‘Here’s your sales contract … that you negotiated, and here’s everything you want to add. Please sign here,’ ” he said.
Johnson and Robertson said they were unaware of any dealerships being tagged for violation of the rule during the pandemic.
“I don’t think it’s altered the rule as much as I think the pandemic has brought that rule to the forefront,” Johnson said.
The FTC’s Burns also cautioned dealers to be mindful of states that have their own versions of the cooling-off period and may give consumers additional protections.
“The pandemic,” she said, “does not excuse compliance” with the rule.