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.

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. If there is no liquidated damages clause and if the purchase primarily involves goods, the maximum amount that can be charged is 20% of the value of the total performance for which the buyer is obligated under the contract, or $500.00, whichever is smaller.

There are special circumstances, however, under which the law gives consumers the right to a "cooling-off period," during which time the consumer may cancel the contract by carefully following the instructions for canceling which must be provided to the consumer in writing.

OVERVIEW OF 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.
  

The rest of this Consumer Alert offers an abbreviated description of these laws, which you can read in their entirety at the Attorney General’s web site at www.michigan.gov/ag/.

Because these laws can be a little tricky, the Attorney General advises consumers who think their situation may be covered to read their contracts thoroughly and contact the Attorney General’s office if you have questions whether the law applies. If you need more information, CALL THE ATTORNEY GENERAL’S CONSUMER PROTECTION DIVISION PROMPTLY – before your cancellation period expires. (Contact information is provided at the end of this Alert.)

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 sale was solicited by the seller by way of a personal, written, or telephone contact;
  
• The solicitation was received by you 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’s cooling off rule.

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 promotion; 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 we suggest you consult your own lawyer to discuss your particular circumstances.

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. While you are welcome to call the Attorney General’s office for more information, you should consider consulting your own lawyer to discuss your particular circumstances.

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

1. Read your contract thoroughly. Merchants are required to tell you in the contract that you have a right to cancel the contract and to explain what you must do in order to notify the merchant of your decision to cancel. If the seller has not provided this notice, then the length of time to cancel may extend until the seller complies with the notice requirement.

2. Exercise your right to cancel as provided under the law that applies.

a. Under the HSSA or Gift Promotion Act, the merchant must tell you:

• Where to mail, deliver, or send a telegram to the seller within 3 business days to exercise your right to cancel the contract.
  

Once a buyer cancels a sale, the seller, within ten days after cancellation, must return any payment the buyer has made. A 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, the goods become the property of the buyer, without obligation.

b. Under the Home Improvement Finance Act, the merchant must tell you:

• Where you must send certified mail to the merchant by 5:00 on the next business day after signing the contract to exercise your right to cancel the contract.
  

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
  
• File a complaint with the Attorney General's Consumer Protection Division in writing or on-line:
  

HOW TO CONTACT THE ATTORNEY GENERAL’S OFFICE

In writing:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909

On-line:

On-line Complaint Form

Telephone Inquiries:

1-517-373-1140
1-877-765-8388 (1-877-SOLVE-88)

The Attorney General’s Office encourages you to contact our office with questions BEFORE your cancellation period expires.