(a) Consumer’s
right to rescind.
(1) In a credit transaction in which a security interest is or will
be retained or acquired in a consumer’s principal dwelling, each consumer
whose ownership interest is or will be subject to the security interest
shall have the right to rescind the transaction, except for transactions
described in paragraph (f) of this section. For purposes of this section,
the addition to an existing obligation of a security interest in a
consumer’s principal dwelling is a transaction. The right of rescission
applies only to the addition of the security interest and not the
existing obligation. The creditor shall deliver the notice required
by paragraph (b) of this section but need not deliver new material
disclosures. Delivery of the required notice shall begin the rescission
period.
(2) To exercise the right
to rescind, the consumer shall notify the creditor of the rescission
by mail, telegram or other means of written communication. Notice
is considered given when mailed, when filed for telegraphic transmission
or, if sent by other means, when delivered to the creditor’s designated
place of business.
(3) (i) The consumer may exercise the right to rescind until midnight
of the third business day following consummation, delivery of the
notice required by paragraph (b) of this section, or delivery of all
material disclosures, whichever occurs last. If the required notice
or material disclosures are not delivered, the right to rescind shall
expire 3 years after consummation, upon transfer of all of the consumer’s
interest in the property, or upon sale of the property, whichever
occurs first. In the case of certain administrative proceedings, the
rescission period shall be extended in accordance with section 125(f)
of the Act.
(ii) For purposes
of this paragraph (a)(3), the term “material disclosures” means the
required disclosures of the annual percentage rate, the finance charge,
the amount financed, the total of payments, the payment schedule,
and the disclosures and limitations referred to in sections 1026.32(c)
and (d) and 1026.43(g).
(4) When more than one consumer in a transaction has the right to
rescind, the exercise of the right by one consumer shall be effective
as to all consumers.
6-5898
(b) (1) Notice of right to rescind. In a transaction subject to rescission,
a creditor shall deliver two copies of the notice of the right
to rescind to each consumer entitled to rescind (one copy to each
if the notice is delivered in electronic form in accordance with the
consumer consent and other applicable provisions of the E-Sign Act).
The notice shall be on a separate document that identifies the transaction
and shall clearly and conspicuously disclose the following:
(i) The retention or acquisition
of a security interest in the consumer’s principal dwelling.
(ii) The consumer’s right to rescind
the transaction.
(iii) How to
exercise the right to rescind, with a form for that purpose, designating
the address of the creditor’s place of business.
(iv) The effects of rescission, as described
in paragraph (d) of this section.
(v) The date the rescission period expires.
(2) Proper form
of notice. To satisfy the disclosure requirements of paragraph
(b)(1) of this section, the creditor shall provide the appropriate
model form in Appendix H of this part or a substantially similar notice.
(c) Delay of creditor’s performance. Unless a consumer waives the right of rescission under paragraph
(e) of this section, no money shall be disbursed other than in escrow,
no services shall be performed and no materials delivered until the
rescission period has expired and the creditor is reasonably satisfied
that the consumer has not rescinded.
6-5899
(d) Effects of rescission.
(1) When a consumer rescinds a transaction, the security interest
giving rise to the right of rescission becomes void and the consumer
shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after
receipt of a notice of rescission, the creditor shall return any money
or property that has been given to anyone in connection with the transaction
and shall take any action necessary to reflect the termination of
the security interest.
(3) If the
creditor has delivered any money or property, the consumer may retain
possession until the creditor has met its obligation under paragraph
(d)(2) of this section. When the creditor has complied with that paragraph,
the consumer shall tender the money or property to the creditor or,
where the latter would be impracticable or inequitable, tender its
reasonable value. At the consumer’s option, tender of property may
be made at the location of the property or at the consumer’s residence.
Tender of money must be made at the creditor’s designated place of
business. If the creditor does not take possession of the money or
property within 20 calendar days after the consumer’s tender, the
consumer may keep it without further obligation.
(4) The procedures outlined in paragraphs
(d)(2) and (3) of this section may be modified by court order.
6-5900
(e) Consumer’s waiver of right to rescind. The consumer may modify or waive the right to rescind if the consumer
determines that the extension of credit is needed to meet a bona
fide personal financial emergency. To modify or waive the right,
the consumer shall give the creditor a dated written statement that
describes the emergency, specifically modifies or waives the right
to rescind, and bears the signature of all the consumers entitled
to rescind. Printed forms for this purpose are prohibited.
6-5901
(f) Exempt transactions. The right to rescind
does not apply to the following:
(1) A residential mortgage transaction.
(2) A refinancing or consolidation
by the same creditor of an extension of credit already secured by
the consumer’s principal dwelling. The right of rescission shall apply,
however, to the extent the new amount financed exceeds the unpaid
principal balance, any earned unpaid finance charge on the existing
debt, and amounts attributed solely to the costs of the refinancing
or consolidation.
(3) A transaction
in which a state agency is a creditor.
(4) An advance, other than an initial advance, in a series of advances
or in a series of single-payment obligations that is treated as a
single transaction under section 1026.17(c)(6), if the notice required
by paragraph (b) of this section and all material disclosures have
been given to the consumer.
(5)
A renewal of optional insurance premiums that is not considered a
refinancing under section 1026.20(a)(5).
6-5902
(g) Tolerances for accuracy.
(1) One-half
of 1 percent tolerance. Except as provided in paragraphs (g)(2)
and (h)(2) of this section:
(i) The finance charge and other disclosures
affected by the finance charge (such as the amount financed and the
annual percentage rate) shall be considered accurate for purposes
of this section if the disclosed finance charge:
(A) Is understated by no more than ½ of
1 percent of the face amount of the note or $100, whichever is greater;
or
(B) Is greater than the amount required
to be disclosed.
(ii) The total of payments for each transaction subject to section
1026.19(e) and (f) shall be considered accurate for purposes of this
section if the disclosed total of payments:
(A) Is understated by no more than ½ of 1
percent of the face amount of the note or $100, whichever is greater;
or
(B) Is greater than the amount required
to be disclosed.
(2) One percent
tolerance. In a refinancing of a residential mortgage transaction
with a new creditor (other than a transaction covered by section 1026.32),
if there is no new advance and no consolidation of existing loans:
(i) The finance charge
and other disclosures affected by the finance charge (such as the
amount financed and the annual percentage rate) shall be considered
accurate for purposes of this section if the disclosed finance charge:
(A) Is understated by no more than 1 percent
of the face amount of the note or $100, whichever is greater; or
(B) Is greater than the amount required
to be disclosed.
(ii) The total of payments for each transaction subject to section
1026.19(e) and (f) shall be considered accurate for purposes of this
section if the disclosed total of payments:
(A) Is understated by no more than 1 percent
of the face amount of the note or $100, whichever is greater; or
(B) Is greater than the amount required
to be disclosed.
6-5903
(h) Special rules for foreclosures.
(1) Right
to rescind. After the initiation of foreclosure on the consumer’s
principal dwelling that secures the credit obligation, the consumer
shall have the right to rescind the transaction if:
(i) A mortgage broker fee that should
have been included in the finance charge was not included; or
(ii) The creditor did not provide the
properly completed appropriate model form in Appendix H of this part,
or a substantially similar notice of rescission.
(2) Tolerance
for disclosures. After the initiation of foreclosure on the consumer’s
principal dwelling that secures the credit obligation:
(i) The finance charge and other
disclosures affected by the finance charge (such as the amount financed
and the annual percentage rate) shall be considered accurate for purposes
of this section if the disclosed finance charge:
(A) Is understated by no more than $35;
or
(B) Is greater than the amount required
to be disclosed.
(ii) The total of payments for each transaction subject to section
1026.19(e) and (f) shall be considered accurate for purposes of this
section if the disclosed total of payments:
(A) Is understated by no more than $35; or
(B) Is greater than the amount required
to be disclosed.
