“Rescission” is a term that refers to bank loans. The "Right of Rescission" is the legally sanctioned ability of a consumer, that is, the borrower, to back out of a loan within a specific period of time. It is a federal statute that makes up an important part of the 1968 "Truth in Lending Act." This act was designed to protect consumers from fraudulent or otherwise unethical banking practices.
What is Is
One way of explaining the rescission right is that of a “cooling off” period. Impulsive people who sign papers without thinking are protected. If you can find a lower rate elsewhere before the grace period expires, the right applies. The general purpose is to protect both consumers and banks from loans entered into in haste, or through illegal or immoral practices.
How it Works
The consumer has three full business days to back out of the loan. “Business days” refer to Saturday, even if the lender is closed on that day. It does not refer to Sundays or federal holidays. The three-day grace period begins only when the documents are signed, all disclosures are given and the copy of the rescission notice is given from the bank to the borrower. Before midnight on the third day, the consumer has the right to renege on the loan. The reneging must occur in writing, and the postmark on the envelope must be within the three-day period. Once this is done, according to section 226.23 of the law, the bank then has 20 days to give any property back that it has taken at the time of the signing. No monies are to be given to the borrower during this time.
Where it Applies
The 1968 law, Section 226.23(f), makes an explicit exception for those loans taken out in order to purchase your primary residence. If the loan exists as a direct purchase for your main house, then there is no right of rescission. If you are using your primary residence as collateral to buy a non-primary home, then right of rescission applies, but only in that case. Section 226.15 of the act holds that “continuous credit” is not part of the rescission process. This means that credit cards or other “lines” of credit are governed by the original loan terms, not each time the card or "line" is used.
The right of rescission can be waived. This can be done at any time within the three-day grace period by the borrower and for any reason. If the money is needed for an emergency, such as a sudden health problem or disaster relief, there is generally no right of rescission granted. Declaring this sort of purpose for the money automatically constitutes a waiver of the right. The borrower must inform the bank in writing of the nature of the emergency.
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