IBA Compliance Connection

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A father and son co-signed on a HELOC two months ago. The father signed a right of rescission (ROR) notice but we failed to provide one to the son. We plan to send the son an ROR notice now. Is his rescission period three business days or three years?

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In our view, the son’s right of rescission now extends for three years.

Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower gets a three-year rescission period. Neither the rule nor its official interpretations identify a specific time for delivering notice of the right to rescind. However, the rule is clear that the borrower must receive the notice before the consummation of the loan.

The FDIC notes that “the right of rescission allows consumer(s) time to reexamine their credit agreements and cost disclosures and to reconsider whether they want to place their homes at risk by offering it as security for the credit.” Unless a consumer waives that right, creditors are prohibited from disbursing money (other than in escrow), performing services, or delivering materials until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded.

When a consumer does not receive notice of their right to rescind until several months after their loan has closed, they already have lost the benefit intended by the notice and the lender already has violated Regulation Z. Consequently, we believe that courts and regulators likely would consider delivering the notice months after consummation the same as not delivering it, triggering the three-year rescission period.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.15(a)(3) (“If the required notice and material disclosures are not delivered, the right to rescind shall expire 3 years after the occurrence giving rise to the right of rescission, or upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first.”)
  • Regulation Z, 12 CFR 1026.15(c) (“Unless a consumer waives the right to rescind 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until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded.”)
  • FDIC Compliance Examination Manual, Truth in Lending Act (November 2015) (“The right of rescission allows consumer(s) time to reexamine their credit agreements and cost disclosures and to reconsider whether they want to place their homes at risk by offering it as security for the credit.”)