CONSUMER ALERT

MIKE COX

ATTORNEY GENERAL

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.  Consumer alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.

I CHANGED MY MIND -  

CAN I CANCEL THIS CONTRACT?

GENERAL PRINCIPLE:  YOU HAVE NO RIGHT TO CANCEL MOST CONTRACTS

Perhaps because so many large retailers voluntarily allow consumers to return merchandise with no questions asked, many consumers assume that they have a right to cancel a contract or to ask a retailer to take back an item and refund the consumer's money.

As a general matter of contract law, consumers do not have a right to cancel a sale of goods or services.  In the case of defective, damaged, or undelivered goods, consumers may be able to demand their money back.  And those merchants who choose to offer consumers a "money-back guarantee" must live up to their promises.   But where the merchant has provided the goods or services that the consumer agreed to buy, the consumer generally may not insist on canceling a transaction after the fact. 

If a seller who is not required by law to allow for cancellation of a contract nevertheless does so, any reasonable seller costs may be passed on to the buyer.  The contract may call for a certain agreed-upon amount of damages ("liquidated damages") if the buyer cancels.  A term fixing unreasonably large liquidated damages is void as a penalty. 

There are certain circumstances, however, when consumers do have a legal right to a "cooling-off period." During an applicable cooling-off period, the contract may be cancelled but consumers must carefully follow written instructions that sellers are required to provide at the time the contract is signed.

This Consumer Alert provides an abbreviated summary of four laws that provide consumers a right to cancel a contract.  To read the Michigan laws in their entirety, refer to the Attorney General's website under the Consumer Protection Link:  www.michigan.gov/ag/0,1607,7-164-17337_18270---,00.html.  Other laws not mentioned in this Consumer Alert may also provide a cooling-off period. Promptly consult with your own private attorney to discuss your particular circumstances and determine whether a right to cancel may apply.

OVERVIEW OF CERTAIN LAWS ALLOWING LATER CANCELLATION OF A CONTRACT

You have THREE business days to cancel a contract if:

• The sale was solicited in the consumer's home; or
• A gift was offered for attending a sales presentation that led to the contract; or
• A consumer's primary home is used as security and the loan is not used to purchase or construct the home.

You have ONE business day to cancel a contract if:

• The contract is for home improvement and the consumer agrees to make payments over time to the contractor.

Because these laws can be tricky, the Attorney General advises consumers who think their situation may be covered to read their contracts thoroughly and, if you have questions whether the law applies, promptly seek legal advice-BEFORE YOUR CANCELLATION PERIOD EXPIRES. 

THE THREE-DAY CANCELLATION RULES

Three Day Cancellation Rule 1 - The Home Solicitation Sales Act

Michigan's Home Solicitation Sales Act (HSSA) gives consumers who are solicited in their homes three business days to decide whether to cancel a contract.  Here are some basic points about the HSSA.

You are protected by Michigan's HSSA when:

• The solicitation for the sale was initiated by the seller, through a personal, written, or telephone contact;
• The solicitation was received at your home (this includes mail or telephone calls, but not newspaper ads);
• Your agreement to purchase (contract) was given to the salesperson at your home, AND
• The goods or services purchased are worth more than $25.

The Federal Trade Commission has a similar provision:  FTC Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations, 16 CFR 429.

Three Day Cancellation Rule 2 - The Gift Promotion Act

Under Michigan's Gift Promotion Act consumers also have three business days to cancel a contract if they have a change of heart when:

• The seller offers anything worth $25.00 or more in exchange for attending a sales presentation; and
• The buyer purchases goods, services, or memberships whose value equals or exceeds $500.00.

Three Day Cancellation Rule 3 - Home Equity Loans (Not for Construction)

Under the Federal Truth in Lending Act, consumers also have a three-day right to change their mind after they enter into:

• A loan for personal, household or family purposes; AND
• A lien or security interest is placed on the consumer's principal dwelling to secure payment.

If both of these conditions apply and the loan will not be used to purchase or construct a home, then the contract you entered is probably covered by the Federal Truth in Lending Act.  This Act is complex and it is recommended that you consult your own lawyer to discuss your particular circumstances and how to provide notice of cancellation.

One Day Cancellation Rule - Home Construction Loans

Under Michigan's Home Improvement Finance Act, you may have ONE day - until 5:00 p.m. of the next business day after signing the contract, to be precise - if:

• The contract is for home improvement; and
• The consumer agrees to make payments over time to the contractor.

This Act is also complex and consulting your own lawyer to discuss your particular circumstances is suggested.

WHAT TO DO IF YOUR TRANSACTION IS COVERED BY A CANCELLATION RULE

1.  Read your contract thoroughly.  Merchants are required to provide written notice in the contract that you have a right to cancel and explain what you must do in order to provide notice of your decision to cancel.  If this information is not provided, then the length of time to cancel may be extended.

2.  Exercise your right to cancel in the manner required under the law

     that applies.         

            a.  Under the HSSA or Gift Promotion Act:

• Mail or deliver written notice of your election to cancel within 3 business days from the date that you signed the contract, to the address provided by the seller.

• The seller must return any payment made by the buyer within ten days after cancellation. In a sale that is covered by the HSSA, the seller has twenty days after cancellation to demand return of any goods already delivered.  If the seller fails to make a timely demand for the return of goods, they become the property of the buyer, without obligation.

            b.  Under the Home Improvement Finance Act:

• Send written notice of your election to cancel by certified mail by no later than 5:00 on the next business day after signing the contract, to the address provided by the merchant.

3.  If the contract does not tell you of your right to cancel.

• Send certified and regular mail to the seller giving notice that you wish to cancel (be sure to put your return address on the envelope and retain a copy of the notice and proof of mailing.)

HOW TO CONTACT THE ATTORNEY GENERAL'S CONSUMER PROTECTION DIVISION

Consumers may contact the Attorney General's Consumer Protection Division at:

            Consumer Protection Division

            P.O. Box 30213

            Lansing, MI   48909

            517-313-1140

            Fax:  517-241-3771

            Toll free:  877-765-8388

            www.michigan.gov/ag (online complaint form)