Stay-at-home orders and social distancing requirements during the COVID-19 pandemic are prompting more auto retailers than ever to knock on doors to finish deals. But the practice could expose dealerships to a 45-year-old federal regulation that allows consumers to cancel sales that take place in driveways or third-party locations other than a dealership, compliance experts said.
The Federal Trade Commission's guidance on remote sales, known as the Cooling-Off Rule, could apply to vehicle sales under certain circumstances, and dealerships should seek legal counsel to ensure remote sales conducted under stay-home orders aren't implicated.
If an auto transaction is finalized at a dealership's temporary location it isn't subject to the rule, which became effective June 7, 1974. That stipulation is still true today, though Shannon Robertson, executive vice president for the Association of Finance & Insurance Professionals, said during a live-streamed conference that vehicle sales also do not have to follow the rule if negotiation for the car took place at the dealership or if the car was purchased entirely online, by mail or telephone.
"I would say that I've taken more phone calls in the last month on what is a cooling-off period and when it applies, than probably the last four years combined," Robertson said.
To prove a negotiation took place somewhere other than a customer's home, dealerships need to be selective about which employee delivers the car.
"Whoever delivers that vehicle needs to have a job description that clearly states they are not authorized to discuss or negotiate price or product," Robertson said.
To comply, sellers also must verbally inform customers of their right to cancel the sale within three days at the time of purchase. Hudson Cook partner Eric Johnson notes the rule prohibits sellers from negotiating, transferring, selling or sending documents to an auto lender before midnight of the fifth business day after a vehicle sales contract was signed.
Under the FTC Act, the FTC can seek civil penalties of up to $43,280 per violation, according to Johnson. The FTC also may seek a cease-and-desist order in response to an alleged violation. States also may have their own regulations for sales conducted in remote locations.
Dealers should consult their legal counsel and state association for more information about maintaining compliance standards on remote deliveries.
