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Truth in Lending: 20(e)(1) Scope.

Editor’s Note241

1. Real property or dwelling. For purposes of § 1026.20(e)(1), the term “real property” includes vacant and unimproved land. The term “dwelling” includes vacation and second homes and mobile homes, boats, and trailers used as residences. See § 1026.2(a)(19) and related commentary for additional guidance regarding the term “dwelling.”

Truth in Lending: 20(e)(2) Content requirements.

1. Clear and conspicuous standard. The clear and conspicuous standard generally requires that disclosures be in a reasonably understandable form and readily noticeable to the consumer.

Paragraph 20(e)(2)(i).

Truth in Lending: 20(e)(3) Optional information.

1. Optional information permitted. Section 1026.20(e)(3) lists information that the creditor or servicer may, at its option, include on the notice required by § 1026.20(e). To comply with § 1026.20(e)(3), the creditor or servicer may place the information required by § 1026.20(e)(3), other than the name and logo of the creditor or servicer, between the heading required by § 1026.20(e)(2) and the disclosures required by § 1026.20(e)(2)(i) and (ii). The name and logo may be placed above the heading required § 1026.20(e)(2).

Truth in Lending: 20(e)(4) Form of disclosures.

1. Grouped and separate. The disclosures required by § 1026.20(e)(2) must be grouped together on the front side of a separate one-page document that contains no other material.

2. Notice must be in writing in a form that the consumer may keep. The notice containing the disclosures required by § 1026.20(e)(2) must be in writing in a form that the consumer may keep. See also § 1026.17(a) and related commentary for additional guidance on the form requirements applicable to the disclosures required by § 1026.20(e)(2).

Truth in Lending: 20(e)(5)(i) Cancellation upon consumer’s request.

1. Timing requirements Section 1026.20(e)(5)(i) provides that if the creditor or servicer cancels the escrow account at the consumer’s request, the creditor or servicer shall ensure that the consumer receives the disclosures required by § 1026.20(e)(2) no later than three business days before closure of the consumer’s escrow account. For example, for closure to occur on Thursday, the consumer must receive the disclosures on or before Monday, assuming each weekday is a business day.

Truth in Lending: 20(e)(5)(iii) Receipt of disclosure.

1. Timing of receipt. Section 1026.20(e)(5)(iii) provides that if the disclosures required under § 1026.20(e)(2) are not provided to the consumer in person, the consumer is considered to have received the disclosures three business days after they are delivered or placed in the mail.

Truth in Lending: Amendment History

[76 Fed. Reg. 79,772 (Dec. 22, 2011); 78 Fed. Reg. 11,017 (Feb. 14, 2013); 78 Fed. Reg. 79,730 (Dec. 31, 2013); 81 Fed. Reg. 72,160 (Oct. 19, 2016); 86 Fed. Reg. 69,716 (Dec. 8, 2021); 88 Fed. Reg. 30,598 (May 11, 2023)]

Truth in Lending: 22(a) Accuracy of Annual Percentage Rate.

Paragraph 22(a)(1)

1. Calculation method. The regulation recognizes both the actuarial method and the United States Rule Method (U.S. Rule) as measures of an exact annual percentage rate. Both methods yield the same annual percentage rate when payment intervals are equal. They differ in their treatment of unpaid accrued interest.

Truth in Lending: 22(a)(4) Mortgage Loans.

1. Example.243 If a creditor improperly omits a $75 fee from the finance charge on a regular transaction, the understated finance charge is considered accurate under § 1026.18(d)(1) or § 1026.38(o)(2), as applicable, and the annual percentage rate corresponding to that understated finance charge also is considered accurate even if it falls outside the tolerance of 1/8 of 1 percentage point provided under § 1026.22(a)(2).

Truth in Lending: 22(b) Computation Tools.

Paragraph 22(b)(1)

1. Bureau tables. Volumes I and II of the Bureau’s Annual Percentage Rate Tables provide a means of calculating annual percentage rates for regular and irregular transactions, respectively. An annual percentage rate computed in accordance with the instructions in the tables is deemed to comply with the regulation, even where use of the tables produces a rate that falls outside the general standard of accuracy. To illustrate:

Truth in Lending: 22(c) Single Add-On Rate Transactions.

1. General rule. Creditors applying a single add-on rate to all transactions up to 60 months in length may disclose the same annual percentage rate for all those transactions, although the actual annual percentage rate varies according to the length of the transaction. Creditors utilizing this provision must show the highest of those rates.

Truth in Lending: 22(d) Certain Transactions Involving Ranges of Balances.

1. General rule. Creditors applying a fixed dollar finance charge to all balances within a specified range of balances may understate the annual percentage rate by up to 8 percent of that rate, by disclosing for all those balances the annual percentage rate computed on the median balance within that range. For example:

Truth in Lending: 1. Transactions not covered

1. Transactions not covered. Credit extensions that are not subject to the regulation are not covered by § 1026.23 even if a customer’s principal dwelling is the collateral securing the credit. For example, the right of rescission does not apply to a business purpose loan, even though the loan is secured by the customer’s principal dwelling.

Truth in Lending: 23(a) Consumer’s Right to Rescind.

Paragraph 23(a)(1)

1. Security interest arising from transaction.

i. In order for the right of rescission to apply, the security interest must be retained as part of the credit transaction. For example:

A. A security interest that is acquired by a contractor who is also extending the credit in the transaction.

Truth in Lending: 23(c) Delay of Creditor’s Performance.

1. General rule. Until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded, the creditor must not, either directly or through a third party:

i. Disburse loan proceeds to the consumer.

ii. Begin performing services for the consumer.

iii. Deliver materials to the consumer.

Truth in Lending: 23(d) Effects of Rescission.

Paragraph 23(d)(1)

1. Termination of security interest. Any security interest giving rise to the right of rescission becomes void when the consumer exercises the right of rescission. The security interest is automatically negated regardless of its status and whether or not it was recorded or perfected. Under § 1026.23(d)(2), however, the creditor must take any action necessary to reflect the fact that the security interest no longer exists.

Paragraph 23(d)(2)

Truth in Lending: 23(e) Consumer’s Waiver of Right to Rescind.

1. Need for waiver. To waive the right to rescind, the consumer must have a bona fide personal financial emergency that must be met before the end of the rescission period. The existence of the consumer’s waiver will not, of itself, automatically insulate the creditor from liability for failing to provide the right of rescission.

Truth in Lending: 23(f) Exempt Transactions.

1. Residential mortgage transaction. Any transaction to construct or acquire a principal dwelling, whether considered real or personal property, is exempt. (See the commentary to § 1026.23(a).) For example, a credit transaction to acquire a mobile home or houseboat to be used as the consumer’s principal dwelling would not be rescindable.