Under TILA, what is the right of rescission?

The right of rescission under the Truth in Lending Act (TILA) gives borrowers the option to cancel certain types of loans within three business days of closing. This provision is particularly relevant for home equity loans, refinances, and certain types of second mortgages secured by the borrower's principal residence. It serves to protect consumers by allowing them a short period to reconsider their loan decision, ensuring they have the opportunity to review the terms and implications carefully.

This three-day period commences once the borrower has received all pertinent disclosures and has finalized the transaction. If the borrower decides to exercise this right, they can rescind the loan agreement without penalty, returning the borrowed funds and restoring their prior financial situation. This safeguard is pivotal in promoting transparency and protecting consumers from hastily made financial commitments that may not be in their best interest.