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I would contact them and inform them if they do not repay the full deposit you will take them to court. You and your wife can file a small claims court case where you live for the amount in dispute. Your defense will be that the services were for both you and your wife and that she decided not to sign and as they never performed any services a full refund is due. The filing of the suit may settle the matter as it is costly for them to send someone to court and in small claims you do not need an attorney.
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Yes you can since that is where they contacted you. You are contesting the validity of the contract so if it has some other state for adjudicating claims that should not affect your wife. Better to file in Michigan and let them come to try to change the jurisdiction. All these things make it less and less worth their while to keep the money.
Notify both them and your bank that no further withdrawals are authoirzed by you. Notify them in writing and contact your back by telephone to make sure the instruction is carried out.