Under Federal Regulation Z, there are two “Right to Rescind” rules. The first (and most familiar in the mortgage loan industry) is the “Right to Rescind” rule which applies to closed-end transactions under 12 CFR § 1026.23. The other applies to open-end transactions (such as HELOCs) under 12 CFR § 1026.15(a)(1)(i), and reads as follows (in relevant part):
“. . . in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased.”
Under the open-end “Right to Cancel” rules, “a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind” (Ibid. § 1026.23[b]). The CFPB has promulgated model forms in Appendix G which may be used for this purpose:
- Form G-5 (When Opening An Account)
- Form G-6 (For Each Transaction)
- Form G-7 (When Increasing the Credit Limit)
- Form G-8 (When Adding a Security Interest)
- Form G-9 (When Increasing the Security)
Because Docutech’s standard is to use model forms where applicable, Cx2992 has been modified to print the language from each model form based on the option selected in new field “HELOC Right to Cancel Type” (Field 101225), which options are as follows:
- New Credit G-5
- New Credit G-5 with Purchase Money
- Credit Increase G-7
- Additional Security Interest Item G-8
- Additional Security Interest Item G-8 with Purchase Money
- Security Interest Amount Increase G-9
- Not Selected
If clients do not set this field, it will default to “Not Selected” and system users will get an (optional) global field prompt to set this field. If the field is still not set at the time the document prints, then the content will default to the following version:
- New Credit G-5 with Purchase Money, if field “Is this HELOC loan a purchase?” (Field 27636) is set to “Yes”; otherwise
- New Credit G-5
Some language has been added to Cx2992 which is not included in the model forms. For example, a “Receipt of Notice of Right to Cancel” section has been added where the borrower can indicate receipt of the form. Such acknowledgments have been upheld by Federal courts as being compliant with Regulation Z, so we have added it to demonstrate proof of compliance (see Smith v. Highland Bank, 915 F. Supp. 281, 292 [N.D. Ala. 1996]; aff’d, 108 F.3d 1325 [11th Circ. 1997]).
Also, additional language has been added to the purchase money versions of the duplicates of Forms G-5 and G-8 concerning amounts used or secured for purchase-money advances, since such advances cannot be rescinded (see 12 CFR § 1026.15[f] & 12 CFR Pt. 1026, Supp. I, Paragraph 15[f] – 1).
Cx2992 will print under the following conditions:
- Document Package Type = Closing
- HELOC = Yes
- HELOC Right to Cancel Type = Set to one of the types listed above
- Occupancy = Primary Residence
Any custom HELOC “Right to Cancel” forms currently in use are set to override Cx2992. Clients who wish to use Cx2992 will need to contact Client Support or their Account Manager to have their current custom document removed.
These changes will take effect on June 23, 2017. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.