A contract cooling off period lets people cancel some types of contracts and the sales of certain goods for any reason, even simply regretting the purchase. Set forth by the Federal Trade Commission (FTC), this cooling off rule gives consumers up to three days to cancel sales of certain goods and services. Sellers of these goods are required by the FTC to honor this cooling off period. Some states also have laws about canceling contracts and state-specific cooling off periods.

Types of Sales Covered by Cooling Off Periods

Some of the types of transactions covered under FTC rules on refunds and returns by contract cooling off period regulations include:

  • Borrowers refinancing mortgages
  • Borrowers taking out home equity loans
  • Tenants breaking leases in some states are also protected, with landlords limited in damages they can claim against the tenants
  • Door-to-door sales of 25 dollars or more that take place anywhere other than the seller's establishment

For these types of transactions, sellers are required by law to inform buyers of their right to cancel the sale, and sellers have to give buyers a copy of the sales contract plus two copies of the cancellation form.

Canceling a Sale During the Cooling Off Period

To cancel a sale under the cooling off period rule, a buyer has to fill out a cancellation form. The completed form must then be sent to the seller at the address provided on the form before the end of the three-day period in order for the buyer to be entitled to receive a refund from the seller. Some states allow for buyer's remorse using the cooling off period for canceling contracts for things like gym memberships, dating services, and weight loss programs.

Things That Are Excluded from the Cooling Off Period Rule

Under FTC regulations, automobiles are excluded from the cooling off period rule. However, vehicles sold to buyers at car shows and other temporary locations are covered by the cooling off period rule. Creations sold at craft shows, art shows, and fairs are also exempt. However, if you place an order for a custom-made item at a craft fair, that contract may be enforceable. Photo developing and processing services are exempt, as are plant seed orders and orders for subscriptions to magazines. Mail, telephone, and internet sales are also exempt, however, there is a special FTC rule covering these sales to protect consumers.

The FTC's Mail or Telephone Order Rule

This rule protects buyers who make purchases over the phone, by mail, and over the internet. If a shipping time frame is advertised, sellers have to ship items within that advertised time period.

  • If the seller doesn't specify a timeframe for shipping, goods must be shipped within 30 days.
  • The time period for shipping extends to 50 days when the buyer applies for credit from the seller.
  • The seller has to offer the buyer the choice of canceling for a full refund or accepting the delay if the goods don't ship within the specified time period.
  • The goods must cost 50 dollars or more
  • The purchase has to have occurred within the state where the buyer lives or within 100 miles or less of the buyer's home address.
  • The buyer has to make, in good faith, an attempt to resolve the issue with the seller.

Federal Truth in Lending Act

Borrowers for some types of mortgages receive have a three-day cooling off period during which they can change their minds under TILA, also known as the Federal Truth in Lending Act. This protection covers borrowers of second-priority mortgages. Second priority mortgages include refinancing, home improvement loans, and home equity loans. First-priority loans aren't covered by TILA.

The cooling off period for the covered second-priority loans extends far beyond three days, though certain conditions must occur to sever a contract under the cooling off period. Borrowers have up to three years to cancel loans, but only if lenders fail to provide specific information. The information required includes the finance charge and interest disclosures that borrowers need to make an informed decision. There has been some debate in the past about how to assert this particular right.

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