A 72-year-old retiree signs a home equity loan without ever seeing the APR. The effective rate is 18.9%. She wants out. Can she rescind? Under which law? How long does she have? TILA gives her three business days, but because the lender skipped required disclosures, her window may extend to three years.
HIGH-FREQUENCY: TILA, implemented through Regulation Z, requires lenders to disclose the true cost of credit in a standardized format. TILA does not tell lenders what they can charge, it tells them what they must reveal.
The key disclosure is the annual percentage rate (APR), the annualized cost including certain fees and charges. TILA also requires the finance charge, amount financed, and total of payments. All disclosures must come before the consumer is obligated.
The right of rescission is the most tested TILA concept. It attaches to consumer credit secured by the borrower's principal dwelling when that credit was not used to buy the dwelling: home equity loans, HELOCs, and refinances taken with a new lender. No justification needed.
Common mistakes
- Applying the FDCPA to the original creditor. The FDCPA covers third-party collectors only, collection agencies, debt purchasers, attorneys who regularly collect for others. If the original bank is calling about its own credit card debt, the FDCPA does not apply.
- Applying rescission to purchase mortgages. The three-day rescission under TILA applies to home equity loans, HELOCs, and refinances taken with a new lender, not to the mortgage used to buy the home. Trap: "The borrower may rescind the purchase mortgage within three business days."
- Believing disclosure legalizes a referral fee. Section 8 has no disclosure cure. Telling the buyer about the payment, or keeping it small, changes nothing. The only question is whether the money bought actual goods, services, or facilities, or bought only the referral.
Bottom line
- TILA requires APR disclosure and gives a 3 business day rescission right on home equity loans, HELOCs, and refinances with a new lender (NOT purchase mortgages), counted from the last of consummation, the material disclosures, and the rescission notice, extended...
- FDCPA applies to third-party debt collectors only, NOT the original creditor, and bars calls outside 8 AM-9 PM
- ECOA protected classes include marital status and receipt of public assistance income
- GLBA opt-out covers nonaffiliated third parties only; affiliate sharing is governed by FCRA
Exam shortcut
TILA rescission: home equity, HELOC, or new-lender refinance = yes (3 days, counted from the last of consummation, material disclosures, and the rescission notice), purchase mortgage = no, same-creditor refinance = new money only. If disclosures were missing, the window extends to 3 years. FDCPA: always check whether the collector is a third party or the original creditor. The FDCPA only covers third parties.
The full lesson (about 6,664 words, 44 min read) adds 2 worked examples, all 12 common mistakes, a self-check, free in the app.
Learning objectives
- A.5
Browse all free CFP lessons or jump into free CFP practice questions.