Legal Brief: Consumer Protection Laws and Your Business

This article originally appeared in the June 2021 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.

To achieve success, salespeople must be charming and persistent. I know, because I met my wife for the first time when she was trying to sell me my first cell phone. It worked – and to this day I cannot resist her charm!

I do not regret buying that cell phone, as it led to two beautiful children and many years of happy marriage; however, some sales are not as enduring.

Cooling Off Periods

How many things have you purchased that you later regretted? Luckily, for some qualifying sales, the law is on your side. Under the federal and state mandated three-day “Cooling-Off” Rule, consumers, in certain circumstances, have up to three days to cancel contracts that they may later reconsider.

Although some types of sales cannot be canceled, these federal and state rules generally apply to the sale of security products and services (depending on how they are sold).

In some states, the cooling-off period does not begin until the seller provides the customer with a Notice of Cancellation form. Until such a form is received, the customer can cancel the sale by notifying the seller in any manner, at any time, and for any reason (or no reason).

This is why, as counsel to several large security companies with subscribers across many states, I customarily include a three-day right to cancel in my client’s consumer contracts – and a prominent written Notice of Cancellation form. Further, some of my clients also include a 30-day money back guarantee – which effectively blunts the risk that some states may legislate longer cancellation periods.

Indeed, some states do mandate longer cancellation periods for specific types of sales. New York State, for example, adopted a law that specifically extends the cancellation period for personal emergency response service (PERS) contracts.

New York General Business Law § 391-l requires sellers of PERS to tell consumers verbally and in a written agreement, at the time they sign the contract or purchase a service, that they have seven days after signing the agreement to cancel it. As with the three-day rule applicable to consumer contracts, generally, the seven-day cancellation period does not begin to run until such disclosures are made.

New York vs. Life Alert

This law was the subject of a recent regulatory enforcement action brought by the New York Attorney General against Life Alert Emergency Response Inc., over allegations that Life Alert failed to include the mandatory seven-day cancellation provisions into their PERS contracts.

Consumers signing up for Life Alert’s service are required to sign a 36-month monitoring service agreement and pay a monthly service monitoring fee, plus upfront programming and installation fees. Depending on the specific service they choose, consumers pay between $49.95 and $89.95 per month for 36 months of service, in addition to other fees and charges. As a result, a Life Alert customer can be subject to a total payment obligation ranging from $1,996.20 to $3,436.20 over the 36-month term.

The Attorney General’s investigation found that from at least January 2014 through February 2020, Life Alert did not make the required oral and written disclosures, affecting more than 16,000 New York consumers who contracted with Life Alert.

Further, when consumers tried to cancel their service, Life Alert allegedly refused. Because Life Alert reportedly never gave the oral and written disclosures explaining the seven-day cancellation right required by New York law, consumers were, in fact, entitled to cancel their contracts immediately, upon request.

Consequently, pursuant to the settlement with the New York Attorney General, more than 5,500 New York consumers were permitted to cancel their contracts with Life Alert before the end of the 36-month term. Additionally, Life Alert was required to provide refunds to more than 700 New York consumers who unsuccessfully tried to exercise certain cancellation rights in the past on their PERS contracts. Life Alert was also subjected to $750,000 in penalties, costs, and fees for the violations of state law.

Balancing Sales and Consumer Protection

Life Alert learned the hard way that consumer protection laws can vary from state to state, can be specific to a product or service – such as PERS – and can be enforced with vigor by regulatory agencies, such as an Attorney General.

While sales are critical to companies like Life Alert – and, of course, your company – it is equally critical that companies in the security industry balance sales tactics with consumer protection. This means that security companies selling directly to consumers, particularly in person, must regularly review federal and state law to determine if they are in compliance with right to cancel statutes and other consumer protection laws.

As Life Alert learned, failing to abide by the law in this area can lead to significant consequences.

Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].