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Reasons for Waiving Right of Rescission

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For what reasons would the right of rescission be waived, other than necessary repairs such as roof, etc.?

Sections 1026.15(e) and 1026.23(e) allow waivers ONLY in cases where "the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency." Neither the regulation nor OSC elaborates on what constitutes a financial emergency. This decision is left to lender and applicant. There's no "automatic" reason that will always warrant a waiver, and lenders are EXTREMELY reluctant to grant waivers and assume the risk of an interest-free loan.

Trainers often use "roof repairs" as an example of a situation that may allow a waiver. This is a dangerously simplistic illustration. Not all roof repairs are emergencies, and not all emergency roof repairs create a financial emergency. Each case must be judged on the facts.

Consider customers Larry, Curly & Moe. All 3 of these creditworthy customers experienced a severe storm yesterday. Huge trees fell into their homes and damaged their roofs. Roofing contractors are standing by to make the repairs as soon as payment details are worked out. All three have applied for second mortgage loans and asked you to waive the 3-day rescission period.

In a "one size fits all" world, you would approve all three loans and allow ROR waivers. This hasty decision is based on the assumption that there is a financial emergency.

Upon closer inspection, you learn that Larry's damage was light and temporary repairs have already been made. Permanent repairs are needed, but the project could wait and there's no imminent danger to life or property. Larry has an inconvenience, not an emergency, so no waiver.

Curly's roof was breached and the next rain storm will damage the interior severely. Yes, there's an emergency, but Curly has a large CD that could be used as collateral for a short term loan that would pay the roofer. Permanent financing can be arranged at a later date, so there's no financial emergency and therefore, no waiver.

Moe has no CD, but he does have a large tree in his bedroom. His roofer offered to do the work on credit, but the APR and monthly payments are pricey. Moe has a housing emergency, but like Curly he has alternatives--so there's no financial emergency, and no waiver.

First published on 9/3/12

First published on 09/03/2012

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