What term describes the circumstances under which a borrower can cancel a credit transaction?

The term that describes the circumstances under which a borrower can cancel a credit transaction is known as the Right of Rescission. This right is a fundamental consumer protection feature outlined in the Truth in Lending Act (TILA) and is specifically part of the Regulation Z. It typically applies to certain types of loans, including home equity loans and lines of credit, allowing borrowers to cancel the transaction within a specified timeframe, usually three business days after signing the loan documents.

The Right of Rescission is designed to give borrowers time to reconsider their decision after fully understanding the implications of the credit transaction. This is particularly important in situations where the borrower may feel pressured or may not fully comprehend the terms at the time of agreement.

Understanding this concept is crucial for both lenders and borrowers, as it upholds consumer rights and ensures transparency in the lending process.