Both the federal government and state agencies have laws pertaining to high-pressure sales and purchase or loan contract cancellations. The Truth in Lending Act, the Federal Trade Commission's "cooling-off rule" and numerous state "buyer's remorse" laws offer ways to cancel some signed purchase contracts within three to five days. Although qualifying purchases vary by law, the process for legal cancellation is much the same regardless of the law that applies to a given situation.
The Cancellation Process
You must inform a seller or lender in writing to legally cancel a contract. All that is necessary is a simple letter written in a business format that states you wish to terminate the purchase contract as the terms and conditions in the contract allow, identifies the product or service and includes the effective date. As an alternative, you can fill out a cancellation form if the seller provides one. Regardless, you must send a cancellation letter or notice by postal mail or email or deliver the notice in person before midnight of the third business day after the purchase; according to the FTC, this includes Saturday. The FTC recommends that you send a cancellation notice by certified mail with a return receipt.
FTC Contract Cancellation Regulations
The FTC's cooling-off rule applies to purchase contracts valued at $25 or more that you sign anywhere other than a seller's normal business location. This includes off-site locations such as your home, a trade show or a booth at a home and garden show. The cooling-off rule gives you until midnight of the third business day after signing a purchase contract to cancel regardless of the reason. It excludes high-value items such as automobiles and real estate and only applies to purchases made for personal, family or household use.
Truth in Lending Contract Cancellations
Truth-in-lending contract cancellation laws focus on protecting your home. They allow you to cancel a contract for a home improvement loan, a second mortgage, a home equity line of credit and most other loan types except for your first mortgage, which uses your home as collateral security. Just as with the cooling-off rule, you have until midnight of the third business day after signing a contract to cancel the agreement.
State Consumer Protection Laws
Although contract cancellation procedures in most states are similar, consumer protection laws vary in terms of what types of contracts you can cancel and what time frame applies. Many states offer greater protections than the cooling-off rule or truth-in-lending laws. For example, you might have the option to cancel a purchase contract that you signed on site, off site or on the business's website. Many states allow you to cancel services and memberships, and some extend the time frame indefinitely. Contact your state consumer protection agency for cancellation laws that apply in your state.
- Federal Trade Commission: Protections for in-home Purchases -- The Cooling-off Rule
- Federal Trade Commission: Home Equity Loans and Credit Lines
- Nolo: Canceling a Contract Within Three Days
- California Department of Consumer Affairs: Consumer Transactions With Statutory Contract Cancellation Rights -- Legal Guide K-6
- Rocket Lawyer: Notice of Contract Termination
- USA.gov: Index of State and Local Consumer Agencies