Cooling Off Rule – Definition

Cite this article as:"Cooling Off Rule – Definition," in The Business Professor, updated December 4, 2019, last accessed October 22, 2020,


Cooling-Off Rule

The cooling-off rule is a rule that the Federal Trade Commission (FTC) uses to protect consumers when transacting with sellers. According to the FTC, a buyer has a period of three days to cancel or revoke a sale made at their home, workplace or any other temporary location. The cooling-off rule serves as a consumer protection law that permits the return of goods purchased at a temporary location or outside of the seller’s permanent business location. The cooling-off rule is mostly applicable to sellers that offer door-to-door sales, in such transactions, a seller has a number of days during which they can change their mind about purchasing a good or not.

A Little More on What is the Cooling-Off Rule

The cooling-off rule is used in other contexts outside being a consumer protection law. This rule is applicable in finance and insurance. The cooling-off rule has different meanings depending on the context it is being used and the type of transaction.

When used for a prospectus filed with the SEC, the cooling-off rule is associated with a quiet period. In insurance, the cooling-off rule allows an insured party to cancel an insurance policy within fourteen days after the policy was issued. If after fourteen days, the insured party still wishes to cancel the policy, they will face a penalty.

Cooling-Off Rule

Below is an example of the use of the cooling-off rule when used as a consumer protection law;

Brandy is a sales representative for Company ABC and is responsible for marketing and selling the products of the company to consumers door-to-door. Frank is a consumer and purchases a home installation system from Brandy, according to the cooling-off rule, Frank is allowed to return the goods purchased within three days the sale was made if he desires to.

The cooling-off rule allows consumers to revoke purchase made through door-to-door operations, such as those made at home, at the workplace or outside the physical location of a business.

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