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
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.