A client of mine is facing a full-court press by the attorney general’s office for alleged violations of certain “consumer protection laws.” I find myself often representing companies that are subject to all sorts of tangential laws that they must know about and adhere to. Many times these laws require certain notice requirements to the clients with whom my clients do business. A good example is the Indiana Home Improvement Contract Act. I.C. 24-5-11 et seq. The HICA applies to residential property and controls contracts between a “consumer” and a “home improvement supplier” where the subject is a “home improvement.” I.C. 24-5-11-1, -6, -3, respectively. Section 10 of the HICA provides a litany of provisions that must be included in a “home improvement contract.”
A little while back, I authored an article entitled “Indiana’s Deceptive Consumer Sales Act: The Sleeping Giant,” Indiana Lawyer, Aug. 13-26, 2014, pg. 19. Indiana’s Deceptive Consumer Sales Act, I.C. 24-5-0.5 et seq., is designed to “protect consumers from suppliers who commit deceptive and unconscionable sales acts” and to “encourage the development of fair consumer sales practices.” I.C. 24-5-0.5-1(b). As discussed in that 2014 article, there is interplay between, inter alia, the HICA and DSCA in that a violation of the HICA is a “deceptive act” under the DSCA. I.C. 24-5-0.5-3(24).
In that laundry list of defined deceptive acts are references to other statutes that pertain to “rights of refusal,” or so-called “cooling-off periods.” This article is an examination of this last provision, the “cooling-off period.” Mandatory cooling-off periods seem to be gaining prominence both at the state level and at the federal level. (See, for example, the sweeping changes made to the federal Truth in Lending Act and the TILA-RESPA Integrated Disclosure rule, which controls residential lending.)
While a company is always free to include a cancellation period in its contract, in some instances the inclusion is mandatory, and its omission can result in significant penalty. If a company does so elect to have a cancellation or refund provision, it must, by Indiana law, abide by the terms of that offer. The law that requires a company to honor stated refund provisions is meant to protect consumers who rely upon such representations in deciding whether to purchase goods or services from a particular vendor.
That said, in Indiana there are essentially five instances where cancellation and refund requirements are mandatory. Most deal with a three-day right of rescission. They are as follows:
- Health/spa services, I.C. 24-5-7-5;
- Home consumer transactions, I.C. 24-5-10-8, 9;
- Home improvement contracts where insurance proceeds are applicable, I.C. 24-5-11-10(c)(6)(A), see also, I.C. 24-5-11-10.5;
- Services performed by a “credit service organization,” I.C. 24-5-15-7; and
- Time shares and camping clubs, I.C. 32-32-3-7.
Under federal law, there is a similar provision implemented by the Federal Trade Commission for door-to-door and trade-show sales that is similar to Indiana’s right of rescission under home consumer transactions.
There is one Indiana statute that deals with a 30-day right to rescind that pertains to certain “business opportunity transactions.” I.C. 24-5-8-6. A business opportunity transaction deals with sales or leases of goods or services to investors who use those purchased or leased goods or services to begin or operate a business. In essence, these are “work-at-home” jobs.
The provisions concerning cancellation are very similar from statute to statute; however, nuances exist so the particular statute should be consulted in a given circumstance. Most provide that a copy of the buyer’s cancellation rights shall be furnished in writing to the buyer at the time the contract is formed. Some mandate that the right to cancellation provision appear in at least 10-point boldface type in order to avoid a fine-print problem. Usually the notice must provide a statement apprising the consumer that the contract may be cancelled before midnight of the third full business day after the buyer signs. As far as the consumer’s obligations, most statutes mandate that, to be effective, the consumer must timely cancel the contract by written notice delivered in person or mailed by certified or registered mail to the seller at the address specified in the contract. As to a refund, the general rule is that all money paid under a contract shall be refunded within 30 days of receipt of the notice of cancellation.
In a changing culture where it seems that more governmental control is being implemented to protect the consumer (many of whom are sophisticated consumers and do not need the hand-holding), it would be wise to keep this trend in mind when dealing with clients that may fall within the categories of “seller,” “supplier,” “merchant,” “dealer,” or other service or sales business. Failure to do so may result in significant liability to your client and the exposure to fines, penalties and fees.
