Cooling-off periods give consumers certain rights to change their mind
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Cooling-off periods give consumers certain rights to change their mind
For most of our history, the American economy largely operated under the assumption of “caveat emptor” — let the buyer beware. Under this principle, unethical salespeople could hawk their wares with few consequences because customers accepted the risks and losses tied to buying a lemon or falling for an aggressive pitch. That changed in the 1960s and ’70s, when lawmakers and regulators created laws and rules to protect consumers from unsafe or deficient products and hold sellers responsible for unfair, deceptive or aggressive sales tactics.
“Cooling off” periods were one such protection. They provided a window of time in which people could cancel contracts or purchases simply because they changed their mind. In “Glengarry Glen Ross,” this month’s “Econ Extra Credit” film, that right to cancel becomes a central part of the plot when a man arrives at the sales office to call off the real estate deal he foolishly agreed to the night before.
“Econ Extra Credit” spoke with University of Maryland Carey School of Law professor Jeff Sovern about what cooling-off periods aimed to do for consumers and how well they protect us from buyer’s remorse. Read an edited excerpt of that conversation below.
Econ Extra Credit: The ability to return many items is so common now that a lot of consumers assume they have legal rights for returning purchases they’ve made. But what does the law say, broadly speaking?
Jeff Sovern: Well, there are some laws that give consumers rights to rescind or cancel the transaction, typically within three days. These laws apply to specific transactions.
Many retailers, even though they’re not required to accept returns, will do so as a matter of retaining the goodwill of their customers. So, it can be a voluntary thing, or it can be mandated by law.
EEC: But goodwill is not necessarily what the law requires.
Sovern: Right, and then in “Glengarry Glen Ross,” where the sellers are not particularly honest, I don’t think goodwill is what they’re going for.
EEC: Why do you think the Federal Trade Commission implemented cooling-off rules in regards to direct sales in the ‘60s and ‘70s?
Sovern: Well, it’s not that common now, but back in the pre-internet days, a lot of items were sold door to door. Salespeople would ring your doorbell; they would decide to contact you, as opposed to today where you want to buy something, you go to a store or website. And then they would sometimes pick people who might be particularly susceptible for what they were trying to sell.
When somebody comes to your home, they are usually offering just one product, so you’re not in a position to compare, for example, the price of that product. Are there better products on the market, that are sold by competitors, that would be a better fit for your needs?
Consumers used to need a few days to do comparison shopping and decide, “Yes, this is the best product for me” or “No, this isn’t for me.”
EEC: Why are most cooling-off periods three days?
Sovern: It’s a good question — how long should cooling-off periods be? There’s a sort of arbitrariness about it. Why three days? Why not four? Why not two weeks, as it is in some European countries? Lawmakers just kind of pick dates.
[Editor’s note: While “Glengarry Glen Ross” referenced a three-day cooling-off period, Severn noted that the Interstate Land Sales Full Disclosure Act requires a seven-day cooling-off period for purchases of undeveloped land like that being sold in the film.]
There’s also a real question about, do these windows actually do any good? There have been a few attempts to discover that [through surveys]. There’s not much evidence that consumers use these cooling-off periods very often.
Consumers do not often read mandated disclosures. If you read it, you may not understand it. If you do read it, and you do understand it, you still may not take advantage of them. So, it’s a consumer protection that may not do that much good.
EEC: If a law or rule does not get utilized or isn’t fully understood by consumers, then what value does it have?
Sovern: The available evidence suggests that few people take advantage of it, but that could mean that businesses are responding to cooling-off periods by offering better deals that cause consumers not to want to back out. Or it could mean it’s just not doing any good.
The good news is that cooling-off periods are relatively cheap. After you sign the contract, and the consumer doesn’t rescind the contract, then the cooling-off period, all it costs [the company] is some paper. So it may not do much good, but it may not cost that much either.
EEC: Rules regarding cooling-off periods require sellers to tell buyers of their rights to cancel in writing. How can written notice be improved so that consumers understand what their rights are?
Sovern: These days, when federal regulators mandate new disclosure forms, they often go through a lengthy process of testing various alternatives by showing them to consumers and asking consumers how they understand the disclosures.But back when they created [the disclosure forms for cooling-off periods] they weren’t doing that. We don’t know how well consumers understand these forms. And we don’t know if consumers pay attention to them when they engage in a transaction.
And a lot of times, they say, sign here, here and here. And you just sign here, here and here. Even [Supreme Court] Chief Justice [John] Roberts has said he doesn’t always read the fine print.
And the seller is trying to make money. They don’t want the consumer to back out of the deal. So their incentive is not to say to the consumer, just “you know, you have this right to opt out,” unless you have a situation where having the ability to cancel might be what makes you buy something in the first place.
EEC: That’s the reason that retail stores, even if they’re not legally obligated to do so, provide voluntary returns, to encourage people to try their product who otherwise wouldn’t take on the risk.
Sovern: Stores might lose a little money on [a return], but they can help keep customers for years and make a lot more money out of them in the long term.
And if they don’t take it back, [the customer] might tell their friends and family, and then they’ll lose those customers too. So it’s in their interest to take it back to maintain, to get all those future sales.
How to watch “Glengarry Glen Ross”
The movie is available to stream for free with ads on YouTube. It’s also streaming on Hoopla and Kanopy for free for some library card holders, and on Peacock and Netflix with a subscription.
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