What is the "right of rescission" in general terms?

The "right of rescission" refers specifically to the right to cancel a loan agreement within a designated timeframe, typically three business days after the loan closing. This right is granted to borrowers under Regulation Z, which is part of the Truth in Lending Act, to protect consumers from potentially unsatisfactory loan agreements or predatory lending. This provision allows borrowers to reconsider their decision after they have had the opportunity to review the terms and implications of the loan, ensuring they are fully informed and comfortable with the obligations they are undertaking.

This right applies mainly to certain types of transactions, such as refinances or home equity loans where the borrower’s principal dwelling is involved. By providing this option, the regulation aims to foster transparency and consumer protection in credit transactions. In essence, it gives borrowers a safety net, allowing them to back out of a loan agreement without penalties if they change their minds shortly after closing.