A business's "nonrefundable" label doesn't by itself answer whether it can keep your money. For a U.S. consumer, the result usually depends on what the payment was for, the contract terms in effect when you paid, why and when you canceled, whether the business performed, and the law that applies.

Before disputing the charge, identify the payment type, find the cancellation clause, and save evidence of what the business promised. This is general information, not legal advice. State rules and contract deadlines can change the result.

Is a nonrefundable deposit legal?

Often, a contract can make an upfront payment nonrefundable. The label alone, however, doesn't turn an unreasonable charge into enforceable damages.

A court may treat a retained payment as liquidated damages when it was agreed in advance as a reasonable estimate of a loss that would be difficult to measure. A penalty is an amount that mainly punishes the customer or gives the business a windfall. State law determines the test, and the amount, wording, timing, and circumstances can all matter.

State law may also require particular disclosures, signatures, escrow arrangements, or limits for certain transactions. There is no nationwide rule making every deposit under 3% valid or every deposit over 10% invalid. A percentage discussed online may apply only to one state and one type of transaction.

First identify what you paid

Businesses use the word "deposit" for payments that can receive very different treatment.

Payment type What it usually does What to check
Booking retainer Holds a date or service slot and may be applied to the final bill Cancellation schedule, rebooking efforts, and whether the payment is credited
Real estate earnest money Shows the buyer's commitment and is often held in escrow Contingencies, default terms, release instructions, and who controls the funds
Rental security deposit Secures rent or performance of lease obligations State refund deadlines, damage rules, itemization, interest, and escrow requirements
Setup or initiation fee Pays for onboarding, preparation, or account activation Whether the service has started, whether the fee was disclosed before payment, and cancellation terms
Mandatory booking fee Adds to the cost of lodging or an event Whether it was included in the advertised total price and whether it is avoidable

A rental security deposit is generally subject to landlord-tenant protections and is usually treated differently from a service retainer. Calling it "nonrefundable" doesn't necessarily remove those protections.

Earnest money also isn't the same as a down payment. Zillow's earnest-money explainer describes how these funds are commonly held in escrow and affected by the purchase agreement and its contingencies.

What rules control the refund question?

The contract

Read the version of the agreement or policy that was presented before you paid. Look for:

A term that appears only on a later invoice or receipt, or that conflicts with the booking page, may be contestable. That doesn't guarantee a refund; the evidence and applicable law still matter. Keep the advertisement, checkout screen, receipt, emails, texts, and any later version of the terms.

State law

State law may classify an upfront payment as a deposit, advance payment, security deposit, liquidated damages, or an unlawful penalty. Rules can differ for residential real estate, rentals, travel, events, and ordinary service contracts.

California residential real estate shows why a percentage shouldn't be transferred from one situation to another. California has specific rules for earnest money and liquidated damages. This California-specific explainer on earnest-money disputes discusses commonly used deposit amounts, but a California percentage is not a national limit and doesn't decide whether a wedding, repair, or consulting deposit is valid.

For a substantial amount, check the law in the state where the transaction occurred or where the contract says disputes will be handled. A local consumer-protection agency, legal aid office, or licensed attorney may help identify the applicable rule.

Federal fee-disclosure rules

The Federal Trade Commission's Rule on Unfair or Deceptive Fees FAQ says covered businesses must include mandatory fees in the total advertised price. The rule took effect May 12, 2025, and covers areas including short-term lodging and live-event tickets.

For example, a covered lodging promotion can't advertise a $199 nightly price and reveal a mandatory $39 resort fee only later in the booking process. The rule concerns upfront price disclosure. It isn't a general rule requiring every separately disputed deposit to be returned.

The rule has definitions and limits. Prerecorded audio or visual performances and film screenings, for example, aren't treated as live events covered by the rule. Don't assume that every service deposit or event charge falls within the same federal requirements.

The FTC Cooling-Off Rule

The FTC Cooling-Off Rule is separate from fee disclosure. It may give consumers three business days to cancel certain sales of $25 or more made at a home, workplace, dormitory, or temporary seller location. The seller must provide required cancellation information, and exceptions apply.

The rule doesn't create a universal three-day cancellation period for every online purchase, event booking, real estate contract, or service agreement. Read the FTC guidance on the Cooling-Off Rule and check whether the sale, location, price, and exceptions fit the rule.

When a refund request may have stronger footing

A "nonrefundable" term deserves closer review when:

  1. The business canceled or failed to perform. Check whether the contract promises a refund, credit, or replacement service when the business can't deliver. If the business kept the money but provided none of the promised service, state that clearly in your request.
  2. You canceled under a contract condition. A financing, inspection, title, approval, or other contingency may affect an earnest-money deposit. The exact wording, deadline, and whether you waived the condition are critical.
  3. The contract provides a cancellation window or refund scale. A business may not be following its own terms if it keeps the full payment after a cancellation made within the stated refund period.
  4. The term was hidden or unclear. A prominent "nonrefundable" notice shown before payment is different from a term added to a later receipt. Ambiguity can support a dispute, although it doesn't guarantee a refund.
  5. The payment is really a regulated security deposit. Rental deposits and similar payments may be subject to special state requirements regardless of the label.
  6. The amount appears punitive. A forfeiture that bears little relationship to likely loss may be challenged as a penalty under applicable state law.
  7. An extraordinary event affected the contract. A force-majeure clause, government order, impossibility, or frustration-of-purpose argument may matter. These issues are fact-specific. A pandemic, storm, or personal emergency doesn't automatically cancel every contractual obligation.

A business may have a stronger explanation for retaining money if it turned away other customers, bought nonreturnable materials, hired staff, or completed substantial preparation. Those facts don't settle the dispute by themselves, but they can help explain the amount the business claims to have earned or lost.

Real estate deposits need extra care

Earnest money is often held by a broker, title company, attorney, or another escrow holder. The purchase agreement usually states when the money can be released and what happens if the buyer and seller disagree.

If you're a buyer:

If the parties disagree, an escrow holder may keep the funds until it receives joint written instructions or another authorized resolution, depending on the agreement and state law. Evaluate a real estate deposit under the purchase agreement, not a percentage copied from an event or service contract.

Before paying a nonrefundable deposit

Ask the business these questions in writing:

Save the signed agreement and the version of the website or checkout page shown before payment. A receipt may not contain all the terms that control the dispute.

A clear cancellation clause should state the amount, the triggering event, the relevant dates, and the result. It might provide a partial refund for an early cancellation, retain more as the service date approaches, and promise a refund if the business can't perform. That structure isn't automatically required or valid, but it gives both sides a clearer basis for evaluating the charge.

How to request your deposit back

1. Gather the record

Collect:

2. Quote the relevant term

Don't rely only on saying that the deposit was unfair. Identify the clause that supports your request or shows that the business didn't follow its own policy.

3. Send a concise written request

You can adapt this message:

Subject: Request for return of deposit

I paid $ on for . I canceled on because , or the business canceled on . Clause states: "." Based on that term and the circumstances, I request a refund of $ to the original payment method. If you believe some or all of the payment may be retained, please identify the contract provision and explain how the amount was calculated. Please respond by .

Keep the tone factual. If you authorized the charge, don't describe it to a payment provider as unauthorized merely because you disagree with the refund decision.

4. Use the appropriate escalation route

If the business refuses or doesn't respond:

A payment dispute and a contract claim are separate. A card issuer's decision doesn't necessarily determine whether the business was legally entitled to keep the deposit.

Common examples

Event or wedding vendor

Suppose a photographer takes a retainer, the customer cancels months before the event, and the vendor later books the date for someone else. The result depends on the cancellation schedule, the vendor's losses, and whether the contract addresses rebooking. The customer can request a refund or partial refund and ask how the retained amount was calculated.

If the photographer cancels, look first for a seller-cancellation clause, substitute-provider term, refund promise, or rescheduling option.

Hotel or short-term rental

If a mandatory resort fee appears only after a consumer sees a lower advertised room price, save the booking screens and raise the disclosure issue with the business. The FTC fee rule may be relevant to the advertised total price, but it doesn't automatically decide whether a separate cancellation deposit must be returned.

Home purchase

If a buyer cancels while a contract contingency remains available, the deposit may be treated differently than if the buyer defaults after removing all contingencies. Follow the contract's notice procedure and ask the escrow holder how the funds will be handled.

Common questions

Does the word "nonrefundable" end the dispute?

No. It is evidence of the parties' agreement, but the full contract, state law, the seller's performance, and the reasonableness of the amount still matter.

Does calling a deposit "liquidated damages" make it valid?

No. The amount generally still needs to function as a reasonable advance estimate of loss rather than a punishment. Courts apply state-specific tests.

Does the FTC require every nonrefundable deposit to be refunded?

No. The FTC's fee rule mainly concerns upfront disclosure of mandatory fees in covered transactions. The Cooling-Off Rule applies only to certain sales and doesn't create a general refund right.

Can a business keep a deposit if it cancels?

Not necessarily. Review the contract's seller-cancellation and nonperformance terms. If the business didn't provide the promised service, request the refund in writing and explain the contractual basis.

What if there is no written contract?

Save the receipt, advertisement, messages, and payment record. Ask the business to identify the term it relies on. Oral agreements and website terms can still raise legal questions, but proof and state law become especially important.

Before sending a dispute, write down the payment type, cancellation date, contract clause, and what the business actually delivered. Those facts will help you choose between a merchant request, payment-provider dispute, consumer complaint, or legal claim.