Question 18
Domain 1: Federal Mortgage-Related LawsIf a borrower exercises their right of rescission under TILA, what must the lender do?
Correct answer: B
Explanation
Under TILA’s right of rescission, the lender must unwind the transaction by returning any money or fees the borrower paid. Regulation Z requires the creditor to “return any money or property given as earnest money, downpayment, or otherwise” within 20 days after receiving the rescission notice, which is why “Return all fees within 20 days” is the right answer.
Why each option is right or wrong
A. Retain all fees collected
B. Return all fees within 20 days
Under TILA’s rescission rules, Regulation Z, 12 C.F.R. § 1026.23(d)(2), requires the creditor to take action within 20 calendar days after receiving the borrower’s notice of rescission. The creditor must return any money or property given by the consumer in connection with the transaction, which includes fees already collected, and must also reflect the termination of the security interest.
C. Return only the application fee
D. File a lawsuit to enforce the loan