Topic: Right of Rescission (ROR)
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Our current policy is to notify all refinance customers of a right of rescission, even if we are not extending any additional funds and we are refinancing one of our own loans. Are we creating a problem by giving this disclosure in transactions where the right of rescission does not apply?
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As a general rule, we recommend that you do not deliver a notice of a right of rescission (ROR) when the customer (or other consumer who has an ownership interest in the property securing the loan) is not entitled to Regulation Z’s right of rescission. The ROR under Regulation Z does not apply to a…
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We know we must disclose that HELOC borrowers can request reinstatement if we, unilaterally, have reduced or have frozen the line of credit (for the reasons in 12 CFR 1026.40(f)(3)(vi). However, if a borrower agrees to a reduction or freeze (often after requesting a subordination of lien), do we still have to make the same disclosure?
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We do not believe that the HELOC rules regarding the reduction or freezing of a credit line require you to disclose that a customer can request reinstatement of a credit line in connection with a written agreement to reduce or freeze the line. Regulation Z permits creditors to freeze or lower the credit limit for…
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Do we need to give the right of rescission to an individual who is the trustee of the trust that owns the property securing the loan?
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No, we don't believe that the right of rescission (ROR) would apply. Regulation Z exempts all extensions of credit that are not made to natural persons (in addition to exempting all business-purpose credit), and we agree that a trust should not be considered a natural person. See 12 CFR 1026.3(a)(2) and Comment 10, Official Staff…
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Does Illinois law allow or prohibit the collection of interest during rescission period?
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Of course, Regulation Z allows you to start accruing interest at the loan closing and does not require you to wait until the expiration of the rescission period (provided that your loan agreement allows for this). Comment 3(iv), Official Staff Commentary, 12 CFR 1026.15(c), 12 CFR 1026.23(c). As to Illinois law, there are very few…
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Under Illinois law, can we charge interest during the three-day right of rescission period?
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We agree that Regulation Z allows you to start accruing interest at the loan closing and does not require you to wait until the expiration of the rescission period (provided that your loan agreement allows for this). Comment 3(iii), Official Staff Commentary, 12 CFR 1026.15(c), 12 CFR 1026.23(c). As to Illinois law, there are very…
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Does Illinois restrict our bank’s ability under Regulation Z to accrue interest charges during the right of rescission period?
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In our view, the general rule is in the Illinois Banking Act, which states that banks may charge any interest or fees “subject only to the provisions of [Subsection 4(1)] of the Interest Act,” provided they are based on a bank’s “prudent business judgment and safe and sound operating standards.” 205 ILCS 5/5e. Moreover, Subsection…
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Are residential mortgage loans exempted from the right of rescission?
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Regulation Z generally exempts all “residential mortgage transactions” from its requirements, including the right of rescission. 12 CFR 1026.15(f)