(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.
47(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) 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,
48 whichever occurs last. If the required notice or material disclosures
are not delivered, the right to rescind shall expire three 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.
(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.
6-898
(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.
6-899
(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.
6-900
(e) Consumer’s waiver of
right to rescind.
(1) 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 of the consumers entitled to rescind. Printed forms for this purpose
are prohibited, except as provided in paragraph (2) of this section.
(2) The need of the consumer
to obtain funds immediately shall be regarded as a bona fide personal
financial emergency provided that the dwelling securing the extension
of credit is located in an area declared during June through September
1993, pursuant to 42 USC 5170, to be a major disaster area because
of severe storms and flooding in the Midwest.
48a In this instance, creditors
may use printed forms for the consumer to waive the right to rescind.
This exemption to paragraph
(e)(1) of this section shall expire one
year from the date an area was declared a major disaster.
(3) The consumer’s need to
obtain funds immediately shall be regarded as a bona
fide personal
financial emergency provided that the dwelling securing the extension
of credit is located in an area declared during June through September
1994 to be a major disaster area, pursuant to 42 USC 5170, because
of severe storms and flooding in the South.
48b In this instance, creditors may use printed forms for the consumer
to waive the right to rescind. This exemption to paragraph
(e)(1)
of this section shall expire one year from the date an area was declared
a major disaster.
(4)
The consumer’s need to obtain funds immediately shall be regarded
as a bona fide personal financial emergency provided that the dwelling
securing the extension of credit is located in an area declared during
October 1994 to be a major disaster area, pursuant to 42 USC 5170,
because of severe storms and flooding in Texas.
48c In this instance,
creditors may use printed forms for the consumer to waive the right
to rescind. This exemption to paragraph
(e)(1) of this section shall
expire one year from the date an area was declared a major disaster.
6-901
(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 226.17 (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 226.20(a)(5).
6-902
(g) Tolerances for accuracy.
(1) One-half of 1 percent tolerance. Except as provided in paragraphs
(g)(2) and (h)(2) of this section, 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—
(i) is understated
by no more than½ of 1 percent of the face amount of the note or $100,
whichever is greater; or
(ii) 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 226.32),
if there is no new advance and no consolidation of existing loans,
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—
(i) is understated by no more than 1
percent of the face amount of the note or $100, whichever is greater;
or
(ii) is greater
than the amount required to be disclosed.
6-903
(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,
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—
(i) is understated by no more than $35;
or
(ii) is greater
than the amount required to be disclosed.
