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Canceling a Contract Within Three Days

"Cooling-off rules" allow you to cancel certain types of contracts within three days.

There are several federal laws (known as "cooling-off rules") that allow you to cancel certain contracts within a few days of signing them. 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 states' 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 (as long as the goods or services are primarily intended for personal, family, or household purposes), 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, craft fairs, insurance, and securities.

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 don't respond, the seller can treat your silence as agreement to the new shipping date. If you opt for the new shipping date, but the seller can't meet it, the seller must send you another notice requesting your agreement to yet a third date. If you don't respond to the notice (silence does not count as agreement this time around), the seller must automatically cancel the order and refund your money. 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.

Other Contracts: State Consumer Protection Laws

Most states have laws that allow you to cancel written contracts covering the purchase of certain goods or services within a few days of signing. Many states have laws that allow you to cancel contracts for health club memberships, dating services, weight loss programs, dance or martial arts lessons, time share properties, and hearing aids. Call your state consumer protection agency (see Nolo's article State Consumer Protection Offices) to find out what contracts, if any, are covered in your state.

For more detailed information about canceling contracts, see Solve Your Monday Troubles: Debt, Credit & Bankruptcy, by Robin Leonard and Margaret Reiter (Nolo).