This article originally appeared in the November 2021 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
Your company is growing, and you are now selling security services and equipment to customers in many different states. A senior executive in your company tells you that the company now wants to allow those customers to be able to pay for their equipment over a period of months or years. It is thought that this will increase customer growth as the total price for the equipment and service can be paid over time and, therefore, may be more attractive to a wider group of potential customers.
So far, this all sounds good, as plenty of other businesses do this. Motor vehicle leases, for example, expressly allow for payments over time. So, why can’t this be done in the security industry?
The good news is that it absolutely can be done in the security industry; however, in most states, it cannot be done without:
- Using an agreement securing the payments over time (known as an installment agreement); and
- Complying with state statutes governing such consumer installment agreements.
A few states (for example, Alabama) have no regulation in this area. Other states – such as Minnesota, Mississippi, and Missouri – only regulate the use of installment agreements for motor vehicle sales; therefore, the use of installment agreements in the sale of security equipment is not regulated. That said, most states have some form of regulation, and most are not limited to the particular type of merchandise being sold.
Six Legal Questions to Answer
For companies seeking to appeal to a broader set of customers, installment transactions can bring great success; however, they also bring great responsibility. If you are considering selling security equipment to customers over time, then you and your legal counsel must consider a variety of issues when preparing and deploying an installment agreement, and be sure to abide by all applicable law where you do business:
1. Where are the customers to whom you are selling? It does not matter where your company is located – the statutes are designed to protect the consumers, not your business; therefore, it is the customer’s residence that is controlling when determining whether and to what extent a state statute applies.
2. Do the states where you have customers regulate installment agreements? As noted above, most states do.
3. Do the states require specific language in the installment agreement? Many states identify express language in their statutes which must be included in the installment agreement, or it could be deemed void and unenforceable.
4. Do the states require specific font in the installment contract? Yes, many states even regulate the size of the font that must be included in the installment agreement. California, for example, requires 8-point font in the body of the installment agreement, but 12-point bold font in the title of the agreement. The minutia can be daunting!
5. Do the states require that the installment agreement be signed? Typically, it is a good practice to have customers sign agreements; however, in this industry, it may be that the customer is already signing a service agreement. Therefore, there may not be a specific need to have them sign an installment agreement because it is incorporated in the service agreement. In such a case, some states allow for the installment agreement to be a notice to the customer, rather than mandating that it be signed by the customer; however, in other states, the signature is required.
6. Do you need to prove delivery to the customer? Yes, of course…and this is generally easy when their signature is on the document; however, in those states where no signature is required, you may have to take extra steps. Some states require the installment agreement be mailed to the buyer prior to the due date of the first payment. Alternatively, some states allow for an acknowledgement of the delivery in the body of the document (although the placement of that acknowledgment could be critical to its enforceability). Ultimately, you have to be prepared to prove that your form complies with state law and that it was duly delivered to the customer.
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].
