We use Bankers Systems forms and on the rescission form it has a place for "confirmation" where customer signs stating more than 3 business days have elapsed. I just found out that some lenders are letting the customer sign everything at loan closing and predating this date to the 4th day and if they have not rescinded, on before the 4th day, the borrowers do not have to come back in and we make the disbursement either by check or deposit to their account. Can we do this? Or must be require the borrowers to come back AFTER the 3rd business and to get their funds?

e.g. Loan closed 12-23-02, confirmation was dated 12-30-02 but borrowers rescinded on 12-27-02. Do I have a problem with the 12-30-02 date on the form as long as not funds were disbursed?

This is a very bad practice. You don't know in advance that they didn't rescind and if they do and you go to court, the customer will say "look at all the papers they gave us. We just signed where they told us to."

Do it right and you won't have these worries. While that confirmation isn't required anyway, it is a safeguard to help protect you at funding so that you don't get the mailed rescission a day or two later.

Andy is exactly right. BAD, BAD, BAD. The loan officers made (asked, suggested, whatever) the borrower's sign a false statement. It reads "The rescission period has expired and I do not wish to cancel ...." But the rescission period has not expired, so this is false.

What if the borrower wants to rescind the 2nd day, but feels like they can't because they already signed that statement? "Your honor, I wanted to rescind, but I couldn't because the loan officer told me to sign this statement."

This is not required to be signed at all! Andy pointed out, it is a good practice, but we have debated this before here at BOL. I'm in the camp that I rather it not be signed than have a loan officer have it falsely signed. Tell this loan officer to stop this practice.

Thanks so much for your quick response. This is exactly how I thought it was.

This particular practice has already been tested in court. The bank lost. I'll try to locate the cite for you if you need reinforcment with your loan officers.

My bank was "mentioned" by the FDIC for this practice in its last audit, and it has also been one of the biggest habits for me to get the lenders to break since I was hired. They didn't address it so much as a "violation" because no funds were disbursed, but on the fact that it could be construed as being a "deceptive" practice, as once the borrower signs the confirmation they could be under the impression they have given up their right to rescind.

I remember the case too, Louvera. The bottom line was the court said the bank had basically taken away the customer's right to rescind when they had them sign off at closing that they didn't want to rescind.

It's a terrible practice that, unfortunately, was unintentionally caused by the forms suppliers. Nothing in Reg Z requires the customer sign off that they know the 3 days have gone by. So that signature area in the form is not needed. But the form houses put it in as someone thought it a good idea to get the customer's sign-off that they didn't want to rescind. Perhaps it was some of us compliance people that thought it a good idea? In any event, the forms have the sign-off area that is just too tempting to not fill in at closing.

Face it, nobody rescinds. At closing the lender will say to the borrower, "OK, your multi-week process to close this loan is now over. I know you have writer's cramp but we have one more thing to sign. The rescission. Sign here acknowledging you have received this notice. Then come back in 3 business days. Don't count federal holidays. Then you'll be signing this other part on the form that says you don't want to rescind. Then I can give you the money." To which the customer replies, "Hey, why don't I just sign off now and save me taking time off from work to come back down here. Just send me the check or put it in my account after the 3 days. Let's save us all some time?" The accomodating banker goes along with it and everyone is happy. Until the compliance dude comes along.

It's a wrong practice but it's understandable on how it happens.

This could be Curry v. Fidelity Consumer Discount Co. (656 F. Supp. 1129 (ED Pa. 1987)) where a postdated RoR was deemed to extend the rescission period to 3 years and that the bank disbursed prior to the rescission period expiring.

Where can I find details on this case?

The TiLA manual on my bookshelf is where I have it. That doesn't do you much good though. It contains a small amount of information so I am not even sure that is the case being mentioned, nor all the specifics of the case.

I don't know where it is online, but I'll bet a legal scholar out there has a good resource to this case or the actual one in question if this is not it.

Thanks

I think the case everyone is looking for is Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir.1994)

Not funny, but often tried is the blame the vendor for the improper completion of the form. We offer rescission forms with the confirmation and without. I would prefer not to offer the form with the confirmation but it is requested by lenders. Attempts to delete it from our offerings has been met with vigorous opposition on the part of users.

I thought Rodash was more about the overnight fees. Was it about rescission forms being dated and signed at closing, effectively eliminating the right to rescind?

If memory serves it was both.

Our lenders are fusing about having the confirmation on the form and have decided to change the form. I have reservation about this, but since the reg does not require a written confirmation I have to let it go. Would rather not have it at all than to have it and find an officer predating it so customer does not have to come back on the 4th day.

Andy, I have been trying to find a direct link to the case but apparently it is to old. But here is a discussion that was in yet anohter case:

In Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir.1994), a creditor provided notice of the right to rescind, but required the debtor to sign beneath a single paragraph that both acknowledged the receipt of the notice and simultaneously waived the right to rescind. We held that the notice violated TILA because it forced an immediate waiver of rights, when TILA's implementing regulations only permit the consumer to waive the three- day rescission period "if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency," in the form of a written statement describing the emergency. Id. at 1145-46; 12 C.F.R. § 226.23(e)(1). Based on the totality of the circumstances, we found that the lender violated TILA's requirement of "clear and conspicuous" disclosure of the right to rescind because: (1) the proffer of the notice together with the waiver implied that waiver was possible within the three- day period, although it is not; (2) forcing the borrower to sign a waiver on the date of the transaction would make her believe that the waiver was effective on that date; (3) including the waiver in the same paragraph with the receipt of notice would deceive the borrower as to the nature of what she was signing; and (4) proffering the waiver along with the mortgage papers would lead a consumer to believe that she had to sign the waiver in order to consummate the mortgage transaction. 16 F.3d at 1146. Despite these findings, however, we emphasized that judging a lender's compliance with the notice provision is not mechanical; rather, a court "must scrutinize the circumstances of the transaction." Id.

The commentary to 226.23(c) states:

"4. Delay beyond rescission period. The creditor must wait until it is reasonably satisfied that the consumer has not rescinded. For example, the creditor may satisfy itself by doing one of the following:

. Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice.

. Obtaining a written statement from the consumer that the right has not been exercised.

When more than one consumer has the right to rescind, the creditor cannot reasonably rely on the assurance of only one consumer, because other consumers may exercise the right."

This seems to say that unless you want to wait even longer to assure yourself that they have not put a letter in the mail rescinding the transaction the signature at the bottom of the form is a good practice.

In reply to:

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bottom of the form is a good practice.

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I agree, but it is not required, however we have the confirmation signed also.

When our loan officers wanted to do this, I informed them that money could not be disbursed for at least 5 calendar days after the expiration date for the ROR. They countered what if we the customer telephone us an advise they are not rescinding and note it, my counter was it doesn't prove to us they haven't put something in the mail, then one of them (he's still hiding from the other lenders) said "well we'll just have them come in pick up the checks." I said "well, when they come to pick up the check, have them sign the confirmation." We're still using the confirmation.

We did away with the confirmations after the Rodash and Curry cases (Andy, I can't find this one either, but I know that there was another case besides Rodash and that is why we quit). I think in another thread, some of the more experienced people saw an average of one rescission in about ten years. I was involved in one in about 15 years in compliance were there was actually a disbursement of funds. IMHO - The risk of a loan officer having the customer sign ahead of time and therefor voiding the rescission notice far outweighed the possiblity of a customer actually rescinding the transaction and we not finding out about their intent until after funding.

I've seen 3 rescissions in the past 5 years. All 3 were within the 3 year period when I was at the CU.

Everywhere I've worked the confirmation has always been used. Old habits are hard to break.

If you find the case, I'd be very interested in seeing it. It may possibly teach this old dog a new trick.

Elaine, I figured you knew what you were talking about, you usually do. I always remember Rodash for the fee issue and never looked beyond that as we don't generally have problems in this area.

Lissie, be sure to compare what they do to the form to the samples you have in Reg. Z's appendix. You don't want to lose any safe harbor provisions. Your regulators will also ask about changed forms upon their next visit.

Rodash set the standard, but there have been a several since then. Wiggins vs. Avco Financial is the one I was thinking of.