Saturday, June 30, 2012

Waiving the 3-Day Right to Cancel

Every residential contractor knows about an owner's 3-day right to cancel, sometimes called the Reg Z notice. Any time you do work on the principal residence of an owner (whether new construction, improvement or repair) you have to:
  • Give each owner two copies of the notice.
  • Show on each form the date the right to cancel expires.
  • Wait three days (excluding Sunday and holidays) before starting work.
My blog of February 2010 described how vicious this little form can be. Make a mistake and the owner has three years to cancel – and get a full refund! Imagine making a refund on a job you finished nearly three years ago.

What I didn’t explain
There are times when beginning work without waiting three days makes perfect sense  – and is in the owner’s best interest. If you do it right, there’s no risk. Here’s what the law (12 CFR § 226.15) allows.
  1. The owner has a true personal financial emergency. To me, a financial emergency means that delay is going to make things worse.
  2. The owner has to give you a written waiver of the right to cancel. The statement should be handwritten (not a printed form) and has to be dated and signed by everyone with the right to cancel.
  3. The statement has to describe the emergency. For example, “My roof blew off and a storm is due later this week.”
  4. The statement has to waive the right to rescind. For example, “I give up my right to cancel this contract.”
With that statement in your file, it’s OK to start work right away. But don’t abuse the privilege. Waiving the right to cancel shouldn’t be routine.

Worse still, don’t routinely ask for a post-dated confirmation that the 3-day right to cancel has expired.  That’s likely to be confusing.

Your Turn
The focus of Reg Z is lenders – banks and credit card merchants. But Reg Z affects nearly all residential contractors. It should address the construction context. Specifically, Reg Z allows waiver of the right to cancel only for financial emergencies – not practical emergencies like flood, fire or wind damage.  Storm damage can be an emergency by any standard. But it may not be a financial emergency. The law should be clear. And this is a good time to have your say.

Responsibility for Reg Z has been transferred to the new Consumer Financial Protection Bureau. And the CFPB has asked for public comment on a revision they’re preparing for Reg Z. The comment period ends July 8. If you agree that Reg Z should do a better job of defining what construction contractors need to know, the CFPB want to hear from you. Here’s where you can leave a comment.