Differentiating Customer Satisfaction, Right To Cancel and Buy-Back

The three terms, customer satisfaction, right to cancel and buy-back, are at times used interchangeably and they should not be. They serve different purposes and have different legal consequences. The purpose of this article is to help clear up some of the confusion existing between the terms. The information below is in the context of direct selling and offered as general information, rather than legal advice. Always consult an attorney when you need help on your specific situation.
CUSTOMER SATISFACTION

In the United States, goods may be sold without any satisfaction guarantee. How many times a day or a week have you seen a sign stating, “ALL SALES FINAL”? Sellers of goods provide customer satisfaction offers for marketing reasons, not because any law requires them to do so. An example: “TRY THESE VITAMINS FOR 30 DAYS. IF YOU DO NOT GET THE RESULTS PROMISED, RETURN THE PARTIAL BOTTLE FOR A FULL REFUND.” If you are considering going on a vitamin regimen, you might be persuaded to try these vitamins, rather than vitamins without a return policy.

Having said that, virtually every direct selling company I have been associated with offers some form of customer satisfaction. Three issues, among others, are prominently disclosed (usually where they will have the greatest marketing impact)—full or partial refund, the length of time of the offer and who pays shipping.

RIGHT TO CANCEL

Federal law grants a buyer the right to cancel certain sales without penalty up to midnight of the third business day after the transaction. This rule covers retail consumer sales of $25 or more that occur away from the seller’s main office. Note that the focus here is “buyer’s remorse” and that this Federal law only applies if the sale occurs “away” from the seller’s main office. A common name for this law is the Three-Day Cooling Off Rule. The sales order form that the Company provides its distributors should contain all the legally required notices. The distributor must give two copies to the buyer on every sale. In addition, the distributor must orally inform the buyer of the three-day right to cancel at the time the buyer purchases the goods.

If two things happen at the time of the sale—namely the buyer sends the method of payment directly to the company and the company directly fulfills the order—this rule does not apply. Even though the distributor was right there sitting next to the buyer (making sure he or she gets business volume credit for the order), this is still a customer buying from a fixed business location. But if the distributor takes the money or method of payment, and/or delivers the product, we now have a sales occurring away from a seller’s main office, and the rule applies. The Federal Trade Commission web site and the attorney for the company are the resources for writing the exact language needed.

BUY-BACK

This term has a very specific meaning to direct selling companies, and should not be confused with, or used interchangeably with, satisfaction guarantee or right to cancel. The two most evident distinguishing characteristics of a buy-back provision are its applicability ONLY to resigning or terminating distributors, and its applicability to new, unused and currently resalable goods. The purpose of a buy-back policy is to discourage front loading and protect the novice distributor. A buy-back provision is a legal necessity in Georgia, Louisiana, Maryland, Massachusetts, Puerto Rico and Wyoming, and a “safe harbor” in Montana, Texas and Oklahoma. (“Safe harbor” means that having a buy-back provision equal to or more liberal than the one stated in their law is evidence you are not a pyramid.) The time limits are 90 days in Maryland and Puerto Rico, one year in Montana and Oklahoma, and no time limit in Louisiana, Georgia, Massachusetts, Texas and Wyoming. All nine jurisdictions require a minimum buy-back of 90 percent of the net purchase price. A state-by-state summary follows:

Georgia: Applies to resalable or reusable products, sales aids, literature and promotional items, all administrative fees or consideration for services not yet provided

Louisiana and Maryland: Applies to resalable products.

Massachusetts, Puerto Rico and Wyoming: Applies to unencumbered and resalable products, any services and consideration paid in order to participate

Montana: Applies to currently marketable goods or services. A special provision applies to persons who cancel participation within 15 days. Those persons are entitled to a 100 percent refund of any consideration given to participate in the sales plan or operation.

Texas and Oklahoma: Applies to unencumbered products that are in an unused, commercially resalable condition

The United States Direct Selling Association (DSA) requires a buy-back provision of 12 months for 90 percent, which applies to currently marketable inventory and to promotional materials, sales aids or kits if required, or if commissionable. I believe this recommendation is good for the entire industry, even if the company chooses to not join—or delays in joining—the DSA.

A liberal buy-back policy sends a strong message of intent to severely restrict the ability of a distributor to “front load” products, and protects new distributors. In any event, the minimum requirements by state, listed above, need to be in policy manuals and distributor terms and conditions. Company owners need only tell their attorney the level of buy-back they want to offer, and the attorney will provide the necessary language.

In conclusion, a satisfaction guarantee is a optional—but desirable—marketing tool to get consumers to try products; a right to cancel is a three-day cooling off remedy for sales made away from a home office, and a buy-back is a legal requirement giving resigning distributors a right to return unsold inventory.