PRIA, Government Policy, Made Personal

Summary

If you borrow money and the lender takes or will take a security interest in your main home, you can cancel the loan until midnight of the third business day after the loan is completed or after you get the required papers and a notice about your right to cancel, whichever comes later. The lender must clearly tell you about this right and give you a form to cancel. To cancel, you must notify the lender in the way the Bureau’s rules say. If you cancel, you do not owe any finance charges and the lender’s security interest becomes void. Within 20 days after getting your cancellation notice, the lender must return any money or property you gave and take steps to end the security interest. If the lender gave you property, you may keep it until you return it or, if returning it is impractical, pay its reasonable value at your home or where the property is. If the lender does not take the property within 20 days after you offer it back, you keep ownership without owing payment. A written receipt from you only creates a rebuttable presumption that the lender gave the required papers. The Bureau can make rules to allow limited waivers for real financial emergencies. The rule does not apply to certain transactions: covered residential mortgages, same-creditor refinancings with no new money, state agency creditors, and advances under an existing open-end plan with an existing security interest. Your cancellation right ends three years after the loan or when the property is sold, whichever comes first, subject to special extensions if an enforcement agency starts a proceeding. After foreclosure starts, you may still cancel in certain situations (for example, if a broker fee was not included properly or the notice form was wrong); small errors in the finance charge are allowed if they are within $35. These foreclosure rules apply to loans on or after September 30, 1995. Courts may award other relief if the lender violated these rules.

Title 15, §1635

Commerce and Trade, Source: USLM XML via OLRC

(a)Disclosure of obligor’s right to rescind

Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Bureau, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Bureau, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Bureau, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.

(b)Return of money or property following rescission

When an obligor exercises his right to rescind under subsection (a), he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.

(c)Rebuttable presumption of delivery of required disclosures

Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.

(d)Modification and waiver of rights

The Bureau may, if it finds that such action is necessary in order to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of any rights created under this section to the extent and under the circumstances set forth in those regulations.

(e)Exempted transactions; reapplication of provisions

This section does not apply to—

(1)a residential mortgage transaction as defined in section 1602(w) of this title;

(2)a transaction which constitutes a refinancing or consolidation (with no new advances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by the same creditor secured by an interest in the same property;

(3)a transaction in which an agency of a State is the creditor; or

(4)advances under a preexisting open end credit plan if a security interest has already been retained or acquired and such advances are in accordance with a previously established credit limit for such plan.

(f)Time limit for exercise of right

An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor, except that if (1) any agency empowered to enforce the provisions of this subchapter institutes a proceeding to enforce the provisions of this section within three years after the date of consummation of the transaction, (2) such agency finds a violation of this section, and (3) the obligor’s right to rescind is based in whole or in part on any matter involved in such proceeding, then the obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial review thereof, whichever is later.

(g)Additional relief

In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.

(h)Limitation on rescission

An obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor under this section, if the creditor provided the obligor the appropriate form of written notice published and adopted by the Bureau, or a comparable written notice of the rights of the obligor, that was properly completed by the creditor, and otherwise complied with all other requirements of this section regarding notice.

(i)Rescission rights in foreclosure

(1)In general

Notwithstanding section 1649 of this title, and subject to the time period provided in subsection (f), in addition to any other right of rescission available under this section for a transaction, after the initiation of any judicial or nonjudicial foreclosure process on the primary dwelling of an obligor securing an extension of credit, the obligor shall have a right to rescind the transaction equivalent to other rescission rights provided by this section, if—

(A)a mortgage broker fee is not included in the finance charge in accordance with the laws and regulations in effect at the time the consumer credit transaction was consummated; or

(B)the form of notice of rescission for the transaction is not the appropriate form of written notice published and adopted by the Bureau or a comparable written notice, and otherwise complied with all the requirements of this section regarding notice.

(2)Tolerance for disclosures

Notwithstanding section 1605(f) of this title, and subject to the time period provided in subsection (f), for the purposes of exercising any rescission rights after the initiation of any judicial or nonjudicial foreclosure process on the principal dwelling of the obligor securing an extension of credit, the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate for purposes of this section if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $35 or is greater than the amount required to be disclosed under this subchapter.

(3)Right of recoupment under State law

Nothing in this subsection affects a consumer’s right of rescission in recoupment under State law.

(4)Applicability

This subsection shall apply to all consumer credit transactions in existence or consummated on or after September 30, 1995.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 1602(w) of this title, referred to in subsec. (e)(1), was redesignated section 1602(x) of this title by Pub. L. 111–203, title X, § 1100A(1)(A), July 21, 2010, 124 Stat. 2107.

Amendments

2010—Subsecs. (a), (d), (h), (i)(1)(B). Pub. L. 111–203 substituted “Bureau” for “Board” wherever appearing. 1995—Subsec. (h). Pub. L. 104–29, § 5, added subsec. (h). Subsec. (i). Pub. L. 104–29, § 8, added subsec. (i). 1984—Subsec. (e). Pub. L. 98–479 redesignated par. (1) as subsec. (e), redesignated subpars. (A), (B), (C), and (D) of par. (1) as pars. (1), (2), (3), and (4), respectively, and struck out par. (2) which read as follows: “The provisions of paragraph (1)(D) shall cease to be effective 3 years after the

Effective Date

of the Truth in Lending Simplification Reform Act.” 1980—Subsec. (a). Pub. L. 96–221, § 612(a)(1), substituted provisions relating to the right of rescission until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required together with the statement containing the material disclosures required under this subchapter, whichever is later, for provisions relating to right of rescission until midnight of the third business day following the consummation of the transaction or the delivery of the required disclosures and all other material disclosures required under this part, whichever is later. Subsec. (b). Pub. L. 96–221, § 612(a)(3), (4), inserted provisions setting forth applicability of procedures prescribed by this subsection, and substituted “20” for “ten” in two places. Subsec. (c). Pub. L. 96–221, § 612(a)(5), inserted “information, forms, and” after “whom”. Subsec. (e). Pub. L. 96–221, § 612(a)(6), substituted provisions relating to nonapplicability to residential mortgage transactions, refinancing or consolidation transactions, etc., for provisions relating to nonapplicability to creation or retention of first liens. Subsec. (f). Pub. L. 96–221, § 612(a)(6), substituted provisions setting forth duration of right of rescission where the required information and forms or other disclosures required under this part have not been delivered to the obligor, and exceptions to such term, for provisions setting forth duration of right of rescission where the required disclosures or any other material disclosures required under this part have not been delivered to the obligor. Subsec. (g). Pub. L. 96–221, § 612(a)(6), added subsec. (g). 1974—Subsecs. (a), (b). Pub. L. 93–495, § 404, inserted provisions relating to security interest arising by operation of law. Subsec. (e). Pub. L. 93–495, § 412, inserted exemption for consumer credit transactions where a State agency is the creditor. Subsec. (f). Pub. L. 93–495, § 405, added subsec. (f).

Statutory Notes and Related Subsidiaries

Effective Date

of 2010 AmendmentAmendment by Pub. L. 111–203 effective on the designated transfer date, see section 1100H of Pub. L. 111–203, set out as a note under section 552a of Title 5, Government Organization and Employees.

Effective Date

of 1980 AmendmentAmendment by Pub. L. 96–221 effective on expiration of two years and six months after Mar. 31, 1980, with all

Regulations

, forms, and clauses required to be prescribed to be promulgated at least one year prior to such

Effective Date

, and allowing any creditor to comply with any

Amendments

, in accordance with the

Regulations

, forms, and clauses prescribed by the Board prior to such

Effective Date

, see section 625 of Pub. L. 96–221, set out as a note under section 1602 of this title.

Effective Date

of 1974 AmendmentAmendment by Pub. L. 93–495 effective Oct. 28, 1974, see section 416 of Pub. L. 93–495, set out as an

Effective Date

note under section 1665a of this title.

§1635 Right of Rescission as to Certain Transactions

Summary

Title 15, §1635

Notes & Related Subsidiaries

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References in Text

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Statutory Notes and Related Subsidiaries

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Regulations

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Citations & Metadata