Right of Rescission

Right of Rescission Consumer Credit Protection Act Consumer Rights Credit Contracts High-Pressure Sales Tactics Consumer Protection
A right granted by the federal Consumer Credit Protection Act of 1968 allowing consumers to void a credit contract within three business days with full refund of any downpayment and without penalty.
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Definition

The Right of Rescission is a provision under the federal Consumer Credit Protection Act of 1968 that gives consumers the right to cancel a credit contract within three business days. This cancellation must come with a full refund of any downpayment and without any penalty. This right was instituted to protect consumers from high-pressure door-to-door sales tactics and quickly made credit commitments.

Examples

  1. Buying a Vacuum Cleaner through Door-to-Door Sales: Suppose a consumer buys an expensive vacuum cleaner from a door-to-door salesperson. After reconsidering, the consumer realizes that this purchase was hasty and wishes to cancel the contract. Utilizing the Right of Rescission, the consumer can void the contract within three business days and receive a full refund without any penalties.

  2. Home Equity Loan Agreement: A homeowner agrees to a home equity loan but later feels uncertain about the decision after evaluating their financial situation. The homeowner can use the Right of Rescission to cancel the loan contract within three business days and avoid financial risk associated with the loan.

Frequently Asked Questions (FAQs)

  1. Q: What is the main purpose of the Right of Rescission?

    • A: The main purpose is to protect consumers from high-pressure sales tactics and quickly made credit commitments.

  2. Q: How long does a consumer have to exercise the Right of Rescission?

    • A: A consumer has three business days to exercise the Right of Rescission.

  3. Q: Does the Right of Rescission apply to all contracts?

    • A: No, it primarily applies to certain credit contracts like home equity loans and door-to-door sales agreements.

  4. Q: Are there penalties for exercising the Right of Rescission?

    • A: No, there are no penalties, and the consumer is entitled to a full refund of any downpayment.

  5. Q: How is the period for the Right of Rescission calculated?

    • A: The three-day period is calculated as three full business days, excluding Sundays and public holidays.
  • Consumer Credit Protection Act of 1968: A federal law designed to protect consumers in credit transactions.
  • Cooling-Off Period: Another term for the period during which consumers can cancel certain sales contracts without penalty.
  • High-Pressure Sales Tactics: Aggressive selling techniques used to pressure consumers into making hasty decisions.

Online Resources

Suggested Books for Further Studies

  1. “Consumer Credit and the Law” by Ralph J. Rohner and Frederick H. Miller
  2. “The Consumer Financial Protection Bureau: Law and Policy” by Richard M. Alderman and Dee Pridgen
  3. “Credit Risk Assessment: The New Lending System for Borrowers, Lenders, and Investors” by Clark R. Abrahams and Mingyuan Zhang

Fundamentals of Right of Rescission: Consumer Rights Basics Quiz

### What federal act grants the Right of Rescission? - [ ] Fair Credit Reporting Act - [ ] Truth in Lending Act - [x] Consumer Credit Protection Act - [ ] Equal Credit Opportunity Act > **Explanation:** The Right of Rescission is granted by the Consumer Credit Protection Act of 1968. ### How many business days does a consumer have to exercise the Right of Rescission? - [ ] One day - [ ] Five days - [x] Three days - [ ] Seven days > **Explanation:** Consumers have three business days to exercise the Right of Rescission. ### Does the Right of Rescission apply to all credit contracts? - [ ] Yes, all credit contracts are included. - [x] No, it applies to specific types of credit contracts, such as home equity loans and certain door-to-door sales. - [ ] Yes, but only for contracts above a certain monetary value. - [ ] No, it only applies to car loans. > **Explanation:** The Right of Rescission applies to specific types of credit contracts, not all. ### Is there a penalty for exercising the Right of Rescission? - [ ] Yes, there is a fee. - [x] No, there is no penalty. - [ ] Only if the contract is worth more than $1,000. - [ ] Yes, but only if cancellation is done verbally. > **Explanation:** There is no penalty for exercising the Right of Rescission. ### What is the main purpose of the Right of Rescission? - [ ] To allow consumers to cancel any transaction anytime. - [ ] To help consumers get a lower interest rate. - [x] To protect consumers from high-pressure sales tactics and quickly made credit commitments. - [ ] To facilitate easier approval of credit. > **Explanation:** The Right of Rescission protects consumers from high-pressure sales tactics and hasty credit commitments. ### How is the three-day rescission period calculated? - [ ] Includes weekends and holidays. - [ ] Starts the day after the contract is signed. - [x] Excludes Sundays and public holidays. - [ ] Begins on the day the contract is signed. > **Explanation:** The three-day period excludes Sundays and public holidays. ### Can the Right of Rescission be exercised verbally? - [ ] Yes, if within the three-day period. - [x] No, it must be in writing. - [ ] Yes, but only with a witness present. - [ ] No, it must be notarized. > **Explanation:** The Right of Rescission must be exercised in writing. ### Does the Right of Rescission apply to high-interest loans exclusively? - [ ] Yes, only for high-interest loans. - [ ] Yes, but only if the interest rate exceeds 10%. - [x] No, it applies to specified types of credit contracts. - [ ] No, it only applies to low-interest loans. > **Explanation:** The Right of Rescission is not exclusive to high-interest loans but applies to specific types of credit contracts. ### What typically happens to a downpayment if the Right of Rescission is exercised? - [ ] It is partially refunded. - [ ] It is forfeited. - [x] It is fully refunded. - [ ] It is returned minus a processing fee. > **Explanation:** The downpayment must be fully refunded if the Right of Rescission is exercised. ### Which government agency oversees the enforcement of the Right of Rescission? - [ ] Federal Reserve - [ ] Securities and Exchange Commission (SEC) - [x] Consumer Financial Protection Bureau (CFPB) - [ ] Federal Deposit Insurance Corporation (FDIC) > **Explanation:** The Consumer Financial Protection Bureau (CFPB) oversees the enforcement of the Right of Rescission.

Thank you for exploring the rights and protections offered by the Consumer Credit Protection Act and challenging yourself with our quiz on the Right of Rescission. Continue to empower your consumer knowledge!

Wednesday, August 7, 2024
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