Before the loan advances, a policy analyst must resolve a TILA right of rescission issue in a TILA right of rescission. What should happen?

Correct Answer

C) Recognize rescission applies to covered principal-dwelling security interests

Why this is correct: The right of rescission under TILA applies to certain credit transactions where a security interest is taken in the consumer's principal dwelling. This right generally does not apply to purchase-money mortgages, but does apply to refinances and home equity loans on a primary residence. The correct action, "Recognize rescission applies to covered principal-dwelling security interests," shows the essential first step: correctly identifying whether the loan transaction triggers the rescission right based on the type of dwelling and lien. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because TILA rescission rights are federally mandated consumer protections that cannot be waived by internal policy. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because the right must be honored and disclosures provided at closing, not delayed. "Rely on oral agreement when the rule requires documented compliance" is wrong because the notice of the right to rescind must be provided in a specific written form; oral communication is not sufficient. Exam tip: Key test for rescission: Is it a refinance or equity loan (not a purchase) secured by the borrower's primary home? If yes, the right to rescind applies.