Cooling Off Periods and Consumer Rights to Legally Cancel Contracts
Federal and state consumer laws allow people to cancel certain contracts or sales of goods for any reason, such as buyer’s remorse, or for no reason at all. The Federal Trade Commission (FTC) requires sellers of goods in certain circumstances to allow consumers a “cooling off” period. Sales made by telephone, mail, or the internet are also subject to FTC rules regarding refunds and returns. Federal law also provides a cooling off period for borrowers refinancing a mortgage or taking out a home equity loan. State laws regarding residential leases often limit the damages a landlord may claim if a tenant breaks a lease. Many states also have their own laws regarding cancellation of contracts and cooling off periods.
FTC “Cooling Off” Rule
Consumers have a three-day cooling off period to cancel certain sales for a full refund. The FTC’s Cooling Off Rule applies to “door-to-door sales,” defined as the “sale, lease, or rental of consumer goods or services” for at least $25, which takes place somewhere other than the seller’s usual place of business. This therefore includes actual door-to-door sales as well as many sales made at trade shows, conventions, and other locations.
Sellers must advise buyers of their right to cancel the sale and must provide them with a copy of the sales contract and two copies of a cancellation form. The buyer must send a completed cancellation form to the seller at the address on the form within three days to be entitled to a refund.
The rule does not apply to sales that take place solely via mail, telephone, or the internet. FTC regulations specifically exclude automobiles from the rule, with the lone exception of vehicles sold directly to buyers at auto shows or similar temporary locations. Art and craft items sold at fairs and art shows are also exempted from the rule.
FTC’s “Mail or Telephone Order” Rule
The FTC also regulates the sale of goods by telephone, mail, or the internet. Sellers must ship purchased goods within any advertised time frame. If they do not specify a time frame, they must ship within 30 days, or 50 days if the buyer is applying for credit from the seller. If the seller does not ship within the required time, it must offer the buyer the option of canceling the contract for a full refund or accepting the delay.
If the buyer receives the goods or services but finds them unsatisfactory, he or she might be able to return them for a refund. The purchase price must be more than $50, and the purchase must have occurred in the buyer’s state of residence or within 100 miles of his or her address. The buyer must make a good-faith effort to resolve the matter with the seller.
Home Equity Loans and Refinances
The federal Truth in Lending Act (TILA) requires lenders to provide borrowers with notice of a three-day cooling off period for certain mortgage loans. This rule applies to second-priority mortgages, such as refinances, home equity loans, and home improvement loans. It does not apply to first-priority, purchase-money mortgage loans.
If a lender fails to provide borrowers with certain notices required by TILA, including finance charge and interest disclosures in addition to the three-day cooling off period, a borrower has up to three years to cancel the loan. The procedure for asserting this right has been a subject of dispute, but a decision issued by the U.S. Supreme Court in January 2015 may resolve the confusion.
Residential Leases, Landlord’s Duty to Re-Rent
If a tenant fails to pay rent as required by a lease contract, the landlord may go to court to evict the tenant. The landlord may also go to court to collect unpaid rent, even if the tenant has already vacated the property. A residential lease is enforceable as a contract, and technically a one-year lease obligates a tenant to pay 12 months of rent.
Most state laws, however, require landlords to make reasonable efforts to re-rent a property if a tenant breaks the lease. A landlord would not be able to hold a tenant liable for 12 months of rent, for example, if the tenant moved out after only a few weeks. The landlord would have to prove that renting the property to somebody else during the original lease term would somehow be impossible. A landlord also would not be able to collect rent from a tenant who broke his or her lease for periods when the landlord has leased the property to someone else.
State “Cooling Off” Rules
Many states have laws regarding cooling off periods and cancellation of certain contracts or sales. The laws in some states closely resemble the FTC’s rules, while other states have broader consumer protections. Consumer laws in Ohio, for example, allow cooling off periods for sales of prepaid entertainment contracts, business opportunity plans, and hearing aids in addition to door-to-door sales, telemarketer sales, and second mortgages.
