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, 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 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.
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