Final answer:
TILA provides consumers with a 'right of rescission,' allowing them to cancel certain credit transactions involving a lien on their principal dwelling within three days. This cooling-off period is designed to allow consumers to reconsider their loan agreements.
Step-by-step explanation:
TILA, which stands for the Truth in Lending Act, is a federal law that was enacted in 1968 as part of the Consumer Credit Protection Act. The act provides consumers with a right of rescission, which allows them to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, typically within three days. The right of rescission is meant to give consumers an opportunity to review and consider their loan agreements without pressure.
For example, if someone refinances their mortgage with a new lender other than their current mortgage holder, they have until midnight of the third business day after the transaction is completed, which includes the signing of the loan documents, to rescind the loan. This 'cooling-off' period allows the borrower time to reconsider the terms of the loan and, if they choose, to back out of the transaction without penalty.