Canceling a Contract

To cancel a contract, federal laws may apply.

Nolo

You signed a contract, but now you have second thoughts. There are several federal laws that allow you to cancel certain contracts within a few days of signing them. The laws are sometimes called “cooling-off rules.”

You signed a contract, but now you have second thoughts. There are several federal laws that allow you to cancel certain contracts within a few days of signing them. The laws are sometimes called “cooling-off rules.”

They apply to contracts made during door-to-door or trade show sales, contracts for home equity loans, or delayed mail order or Internet purchases. In addition, some state laws allow you to cancel contracts for health club memberships, dating services, and weight loss programs, among other contracts.

Door-to-Door and Trade Show Sales

Under the Federal Trade Commission's (FTC's) cooling-off rule, you have until midnight of the third business day after a contract was signed to cancel either of the following:

• a door-to-door sales contract for $25 or more, or
• a contract for $25 or more made anywhere other than the seller's normal place of business -- for instance, at a sales presentation at a hotel or restaurant, outdoor exhibit, computer show, or trade show. This rule does not apply to public car auctions and craft fairs.

You can cancel these contracts simply because you've changed your mind. Every state has enacted a similar law.

Home Equity Loans and Second Mortgages

Under a federal law called the Truth in Lending Act, you have until midnight of the third business day after a contract was signed to cancel:

• a home improvement loan
• a second mortgage, or
• any other loan where you pledge your home as security (except for a first mortgage).

The lender must tell you about your right to cancel and must give you a cancellation form when you sign the loan papers. This three-business-day period may be extended for up to three years in certain circumstances.

Catalog and Internet Orders

If you order goods by mail, phone, computer, or fax, the Federal Trade Commission's "mail or telephone order rule" requires that the seller ship to you within the time promised or, if no time was stated, within 30 days. (This rule does not apply to photo development, magazine subscriptions, or orders for seeds or plants.)

If the seller cannot ship within those times, the seller must send you a notice with a new shipping date and offer you the option of canceling your order and getting a refund or accepting the new date. If you opt for the new shipping date, but the seller can't meet it, the seller must send you a notice requesting your signature to agree to yet a third date. If you don't return the notice, your order must be automatically canceled and your money refunded. The seller must issue the refund promptly -- within seven days if you paid by check or money order and within one billing cycle if you charged your purchase.

This article, and hundreds more, can be found on the NEA Member Benefits web site in the “Member Library” section: www.neamb.com/consumer_articles.jsp