Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which law defines the right of rescission?

1. Truth-in-Lending

2. Real Estate Settlement Procedures Act

3. Equal Credit Opportunity Act

4. Patriot Act

The correct answer is: Truth-in-Lending

The Truth-in-Lending Act (TILA) is the law that defines the right of rescission. This right allows borrowers to cancel certain types of transactions, specifically when they involve the refinancing of a mortgage or the purchase of a home where the borrower is using equity in their home as part of the transaction. Under TILA, borrowers have a three-day period during which they can reconsider the transaction and choose to rescind it without penalty. This provision is designed to provide consumers with a safeguard against uninformed decisions and ensures that they have adequate time to reflect on the terms of the loan and the implications of the mortgage agreement. Understanding the other laws mentioned can provide further clarity. The Real Estate Settlement Procedures Act (RESPA) focuses on the processes involved in real estate transactions, aiming to make the costs and terms of settlement more transparent. The Equal Credit Opportunity Act (ECOA) is aimed at preventing discrimination in credit transactions, ensuring that all individuals have equal access to credit without bias based on race, color, religion, national origin, sex, marital status, or age. The Patriot Act deals with anti-terrorism measures and has no specific provisions about rescission related to loans. Thus, TILA stands out as the law specifically entailing