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Comp Blog

When Does the Rescission Period End?

By: Danielle Wright

CommentFriday - April 25, 2014

Question: If a credit union provides rescission notices to its borrowers at a loan closing on Friday, and Monday happens to be Veterans Day, would the three-day right of rescission end on Tuesday?

Answer: No, the three-day right of rescission would end at midnight on Wednesday. Under Regulation Z, borrowers have until midnight of the third business day after delivery of all required notices and material disclosures or the signing of the loan documents, whichever occurs last to notify the credit union they do not wish to go through with the loan transaction.

For purposes of rescission, Section 1026.2(a)(6) of Regulation Z defines “business day” as all calendar days except Sundays and 10 legal public holidays including: New Year’s Day, Martin Luther King JR’s birthday, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

Sundays and the ten holidays referred to above are not counted as business days. In this example, Saturday is counted as the first day of the rescission period. Neither Sunday nor Monday would be included in the rescission period because Sundays are always excluded, and because Monday happens to be one of the holidays that are excluded. Tuesday is the second day in the rescission period and Wednesday becomes the third and final day of the rescission period.

What would happen if the credit union forgets that Monday is a holiday and mistakenly identifies Tuesday in the rescission notice provided to the borrowers as the last day to rescind? The credit union would have a serious problem because even though rescission notices have been provided to the borrowers, the rescission period is inaccurate because it has been shortened by one day. Therefore the rescission notice does not comply with the requirements of Regulation Z. In this case, because the rescission notice was not in compliance, the rescission period would be extended until three years after the date the loan documents were signed, unless the borrowers have sold or transferred the property before then.

Can the credit union “correct” its inaccurate rescission notice? Actually neither Regulation Z nor the Commentary to Regulation Z provides any guidance concerning what should be done if an inaccurate rescission notice has been provided to the borrowers or what should be done when a creditor has failed to comply with the rescission requirements of Regulation Z.

Ordinarily, the credit union should provide the rescission notice at the time loan documents are signed so that the rescission period expires before loan proceeds are disbursed. However, the Regulation Z Commentary clearly indicates that the rescission notice may be given after loan documents have been signed although the three-day rescission period will not begin until the notice has been provided.

To correct an inaccurate rescission notice and prevent a three-year rescission period, the credit union could send a second rescission notice giving the borrowers a new three-day rescission period. Ideally, the second notice should be provided as quickly as possible after the credit union learns of the defective first notice so that the new rescission period also expires before loan proceeds are disbursed. However, if loan proceeds have already been disbursed by the time the new rescission period has expired, at least the credit union will have eliminated a three-year rescission period.






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