FTC Amends Door-to-Door Sales Rule (Not Really)

What Is The FTC Door-To-Door Rule?

The FTC recently announced that it has finalized the amendments to the Federal Cooling-Off Rule, (aka Door-to-Door Sales Rule).  The amended Rule will go into effect on March 13. When the proposed amendment was published, there was some anticipation on the part of the direct selling industry that sellers would be granted some relief from the Rule.

For those not familiar, the Rule requires that customers (including new distributors or consultants) be given two copies of the 3-day Notice of Right to Cancel whenever a purchase transaction for consumer goods or services takes place at a location other than the seller’s place of business.  While there are some possible exemptions, for the most part the rule covered many transactions between distributors and their customers and between distributors and their newly recruited distributors.

The major exemption that has been in place since the Rule was originally enacted (in 1972) was a $25 threshold requirement.  If the purchase amount was less than $25, the Rule did not apply and there was no requirement to provide the customer with two copies of the Notice of Right to Cancel.

When the FTC initially proposed the amendment, the threshold was raised to $130, which would have accounted for inflation since 1972.  This change would have been a relief to many direct sellers with lower cost items and kit prices.

Ultimately, the FTC left the $25 threshold in place for transactions that occur at the buyer’s residence.  For transactions that take place at other locations but are otherwise subject to the Rule, the threshold was raised to $130.

For many direct sellers, nothing has changed.  A company cannot print separate contracts, order forms or sales receipts for different sales locations.  Because a company will not always know the actual location of a sales transaction, the better course will be to include the Notice of Right to Cancel on all order forms, receipts, and purchase agreements.  For additional information, please feel free to contact our office.

FTC Stops Business Opportunity Scheme that Cost Over $6 Million

The federal district court for the District of Arizona, at the Federal Trade Commission’s request, has frozen the assets of the defendants’ against whom the FTC has alleged falsely promised consumers in the U.S. and Canada that they could make money by referring merchants in their area to a non-existent money-lending service.

The court also appointed a receiver for the operation, which allegedly collected more than $6 million form consumers, as the FTC seeks to shut down the operation permanently and return money to consumers.

The FTC’s complaint names 20 people and eight companies as defendants in the case. Starting our as “Money Now Funding,” the FTC alleges that the product names, office locations and merchant identities was changed often to avoid detection by law enforcement. The company’s name also was changed to “Cash4Businesses” at one point.

The FTC charges that the defendants told consumers they could earn up to $3,000 per month by referring small businesses for an average loan or cash advance of $20,000, by paying from $299 to $499 to buy the business opportunity. The complaint also alleges that the defendants promised help in finding referrals, and that they could buy leads of “high quality” or “pre –approved” merchants from prominent lenders.

The leads, according to the complaint, were just random names and email addresses, many with no apparent connection to any business.  The FTC alleges that the costs for those lists exceeded $10,000, with some consumers paying tens of thousands of dollars.

In addition, the FTC alleges that the defendants violated the agency’s Business Opportunity Rule by failing to provide information to help consumers evaluate a business opportunity and making earnings claims without substantiation, and the Telemarketing Sales Rule by calling phone numbers listed on the National Do Not Call Registry, calling consumers who had told them not to call, repeatedly calling consumers to annoy them, using obscenities and threats, and failing to pay the Registry access fee.

The FTC also charged the defendants with violating the FTC’s Business Opportunity Rule, which requires business opportunity sellers to provide specific information to help consumers evaluate a business opportunity, and prohibits sellers from making earnings claims without substantiation.

The preliminary injunction against the individual defendants is here.

The preliminary industry against the corporate defendants is here.