If you have ever gotten a mortgage, had work done on your home, or bought something sold by a telemarketer, you have probably received a notice saying you have three days to back out of the transaction. Numerous federal and state laws give consumers the right to cancel these types of transactions, and plenty others. Such cooling-off periods are thought to give consumers the chance to fight back after they have succumbed to a hard sell, a sudden impulse or just made a foolish purchase.
The only problem is that consumers don't use cooling-off periods. Just ask the businesses that give the notices. When my research assistants did that, more than a third said consumers never backed out, and nearly three-quarters said that 2 percent or fewer consumers cancelled.
Other studies have found similar results. A 1981 survey of more than 1,400 consumers sponsored by the Federal Trade Commission -- which instituted a cooling-off period in 1971 for door-to-door sales -- found that not one consumer had ever invoked the right to rescind; though, to be fair, only a handful of the consumers had been unhappy with purchases subject to the rule. And a 1981 FTC-sponsored survey of businesses also found that few consumers used cooling-off periods.
This might not matter much if cooling-off rights don't cost much. But if you looked at what the businesses opposing rescission said when they were first proposed, you would probably think they do. Opponents said they would be expensive, cause consumers agony, make contracts an illusion, and were discriminatory and probably unconstitutional to boot.
Today, though, businesses take a different view. Nearly two-thirds of the businesses we spoke to said cooling-off periods hadn't cost their business anything, and more than four-fifths reported that the cost was either nothing or very little. That may explain why the last time the FTC solicited comments on its rule, in 2009, only one trade association bothered to write in, and it opined that the rule served a valuable purpose for consumers.
If cooling-off periods don't cost much, then why worry about them? The answer is that to the extent cooling-off periods are intended to solve consumer protection problems, they are failing because consumers don't use them. That means that any problems that were out there before the rules were created could still be out there. Lawmakers may think they have solved problems by creating the rule, but they haven't.
And all this points up another problem: Before we adopt consumer protection rules, we need to make sure that consumers will use them. Law books are filled with consumer protection rules that consumers ignore, like the rules that mandated disclosures to mortgage borrowers intended to prevent them from borrowing unwisely. The failure of those rules led, of course, to the Great Recession. Good consumer protection rules can indeed protect consumers, but bad ones not only don't protect consumers, they create the illusion that a problem has been solved when it hasn't been.