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Home equity line of credit and right of rescission
Question: We have a home equity line of credit where we forgot to give the customer the right of rescission. They have made a draw and repaid it in full and now have a zero balance. However, the loan is only 14 months old. Is there any way we can correct the rescission?
Answer: There are two schools of thought on this: those that say you can't fix it and those that say you can. Those that say you can't fix it take the position that the problem has been created and you are stuck with its status. You are therefore at risk for the next 22 months, when the customer's 3-year safety period expires. Also, you can't take steps to protect the institution such as canceling the line because it is not one of the contractual provisions in a HELOC that the lender is allowed to change.
The other group - to which we belong - believes that the problem can be remedied. To reach this conclusion, we look both to the purpose of rescission and to the letter of the law. The purpose is to give the customer a cooling off period during which the customer can decide not to put his or her home on the line. Providing rescission although late clearly meets this purpose.
Second, rescission runs until the later of three days after consummation or receipt of all material disclosures and the rescission notice. Nothing says that you can't provide these disclosures and notice late, even though to do so is not fully compliant. Better late than never. The fact is that when you provide the information and notice late, the consumer clearly has all the information that he or she should consider and the required three days to change their mind - and then some.
The risk in giving a late rescission notice is that you provide the consumer with a way out of existing debt. The consumer can choose to rescind and you must make the consumer whole which includes refunding fees and interest. The choice is between this risk and what may happen before the three years expire.
Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 10, 10/03
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