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Summary of Findings:
Design and Testing of
Truth in Lending Disclosures
for Rescission Notices
July 2010
Submitted to:
Board of Governors of the
Federal Reserve System
Submitted by:
ICF Macro
11785 Beltsville Drive
Calverton, Maryland 20705
Summary of Findings:
Design and Testing of
Truth in Lending Disclosures
for Rescission Notices
July 2010
Submitted to:
Board of Governors of the
Federal Reserve System
Submitted by:
ICF Macro
11785 Beltsville Drive
Calverton, Maryland 20705
Table of Contents
Executive Summary
i
Chapter I: Introduction
1
Background
1
Methodology
2
Chapter II: Guiding Principles for Disclosure Design
4
Chapter III: Testing of Revised Rescission Notices
5
Interviews in Bethesda, MD (November 2009)
5
Key Interview Findings
Subsequent Design Decisions
Interviews in Tampa, FL (January 2010)
5
10
11
Key Interview Findings
12
Subsequent Design Decisions
15
Interviews in Phoenix, AZ (March 2010)
16
Key Interview Findings
16
Subsequent Design Decisions
20
Interviews in Memphis, TN (April 2010)
21
Key Interview Findings
21
Subsequent Design Decisions
23
Chapter IV: Summary
Appendix A: Sample Recruitment Protocol (Rounds 1 through 3)
Appendix B: Recruitment Protocol (Round 4)
Appendix C: Participant Demographic and Background Information
Appendix D: Rescission Notices Used in Testing
24
Executive Summary
Background
In 1968, Congress enacted the Truth in Lending Act (TILA) to protect consumers by requiring
creditors to provide key pieces of information to consumers at various points in time. Congress
assigned the Federal Reserve Board (the Board) the responsibility of implementing TILA, which the
Board currently does through Regulation Z.
TILA and Regulation Z provide that, unless the transaction is exempted, a consumer has a right to
rescind a consumer credit transaction in which a security interest is or will be retained or acquired in
a consumer’s principal dwelling. Thus, under TILA, consumers have the right to cancel
(or “rescind”) certain home-secured transactions. This right of rescission was created to allow
consumers time to reexamine their credit contracts and cost disclosures and to reconsider whether
they want to place an important asset—their home—at risk by offering it as security for the credit.
In a transaction subject to the right of rescission, TILA requires that consumers be given a notice of
the right to rescind. The notice must disclose that the creditor has a security interest in the
consumer’s home, that the consumer may rescind, how the consumer may rescind, the effects of
rescission, and the date the rescission period expires. The rescission period generally expires at
midnight after the third business day following the latest of three events: (1) consummation of the
transaction, (2) delivery of material TILA disclosures, or (3) receipt of the required notice of the
right to rescind.1 To exercise the right of rescission, the consumer must send notification to the
creditor or the creditor’s agent designated on the notice provided by the creditor.
Since 2004, the Board has been reviewing Regulation Z to determine whether revisions are
appropriate. One of the goals of this review is to ensure that the disclosures required by TILA are
structured and worded in a way that consumers are most likely to understand and use in financial
decision-making.
The Board contracted with ICF Macro in 2006 to assist with its review and revision of TILA
disclosure regulations. ICF Macro is a research and evaluation company with expertise in the design
and cognitive testing of effective consumer communication materials. ICF Macro worked with the
Board on its review of credit card disclosures and is currently contributing to its review of
disclosures for closed-end mortgages and home equity lines of credit (HELOCs).
This report describes ICF Macro’s work on the design and testing of rescission notices. Since
August 2009, ICF Macro has conducted four rounds of one-on-one cognitive interviews on this
topic, with a total of 39 participants. For each round, ICF Macro developed a set of model rescission
notices to be tested. Interview participants were asked to review these notices and describe their
reactions, and were then asked a series of questions designed to test their understanding of the
content. Data were collected on which elements and features of each notice were most successful in
communicating information clearly and effectively. The findings from each round of interviews were
incorporated in revisions to the model notices for the following round of testing.
1
Material TILA disclosures consist of the finance charge, the annual percentage rate, the total of payments, the payment
schedule, the amount financed, and the disclosures and limitations for HOEPA-covered loans.
i
The findings from these interviews have informed the Board’s proposed revisions to Regulation Z
rules related to rescission, which the Board intends to publish for public comment in July 2010.
Summary of Methodology
Testing of the model rescission notices was carried out through four rounds of interviews held in
different locations. Before each round of interviews, ICF Macro developed model notices for
testing. In many cases, multiple versions of the model notice were developed so the impact of
varying language or format could be studied. Board staff attended all rounds of testing. After each
round, ICF Macro briefed Board staff on key findings, as well as their implications for notice design
and layout. These results were then used to revise the model rescission notices for use in the next
round of testing.
Participants in each round were recruited by telephone using a structured screening instrument in
order to ensure the selection of a range of participants in terms of gender, age, ethnicity, and other
characteristics. Participants were disqualified if they worked for a financial institution, or in the real
estate or mortgage industry.
The first three rounds tested rescission notices that would be given to borrowers opening a
HELOC. Most participants who were recruited for these rounds either had a HELOC or had
considered opening a HELOC in the past five years, although a few did not have any home equity
product. The fourth round tested a rescission notice that would be given to borrowers who were
refinancing a closed-end mortgage with the original creditor and were borrowing additional funds.2
For that round, participants had obtained a mortgage in the past two years.
Individual interviews were approximately 75 minutes long. While the interview guide varied between
rounds, the structure of these interviews was very similar. Participants were given a rescission notice
and asked to “think aloud” while they reviewed the document, indicating whenever they found
something surprising, interesting, or confusing. Following this “think aloud” process, participants
were asked specific questions about the information on the notice to determine how well they could
find and interpret the content. The participants were then given a new notice to review, and the
interviewer would take them through the same process.
Summary of Key Findings
Prior Awareness of the Right of Rescission
Before they were shown any rescission notices, about a third of participants in the first three
rounds knew that they would have some period of time after they opened a HELOC during
which they could cancel it. Of those who did not know they could cancel, most said that if they
decided not to keep the HELOC, they would contact the creditor to ask about their options.
Some assumed that once they had signed the paperwork to open an account, they would be
committed to proceed with the transaction.
2
TILA exempts purchase-money loans and transactions in which consumers refinance a home-secured loan with the original
creditor and incur no additional debt beyond the cost of refinancing the transaction—that is, where no “new money” is
advanced. For testing purposes, participants were asked to assume that additional funds would be borrowed beyond the
amount of the outstanding mortgage debt that the borrower had prior to refinancing.
ii
In the fourth round, two of the eight participants knew before they were shown a rescission
notice that they would have the right to cancel the transaction. Of the six participants who did
not know they could cancel, three indicated that if they no longer wished to refinance they
would contact the creditor to ask about their options, while one said he would contact an
attorney. One participant said she did not know what she would do in such a situation, while the
remaining participant indicated that there was “nothing” he could do at that point to cancel the
new loan.
General Format of Rescission Notice
In the first round of testing, participants were shown two notices: RN-1 provided information in
narrative format, while RN-2 provided the same information in a tabular format. When asked
which of the two formats they preferred, all but one participant said they preferred the tabular
format of RN-2. In addition, participants were more likely to notice information provided in
RN-2 than in RN-1. For example, three of the five participants who reviewed RN-2 first noticed
that they would not be charged a fee for cancelling the account, while none of those who
reviewed RN-1 first noticed this information. For these reasons, as well as results of previous
testing of other financial disclosures, such as HELOC disclosures and the description of
checking account overdraft policies,3 ICF Macro and Board staff used a tabular format for all
subsequent versions of the rescission notice.
Beginning with the second round of interviews, all notices that were tested included a cut-off
section at the bottom of the page that could be used to notify the creditor about cancellation.
ICF Macro and Board staff decided to include the cut-off section to make it easier for borrowers
to retain the rest of the information on the notice if they decided to cancel the transaction.
General Understanding of the Right to Cancel
Regardless of which version of the rescission notice they were shown, all participants in all
rounds understood after reading the notice that they would have the right to cancel their line of
credit or loan.
Although all notices that were tested contained a statement indicating that the right to cancel
was provided “under federal law,” less than one-fourth of participants understood after reading
the notice that this was the case. Most participants assumed that the creditor provided this right
to their customers as a service, in case the customers changed their mind. One participant in the
first round believed that the creditor used the rescission period to perform research to protect
itself from originating bad loans or loans to consumers with bad credit. This misconception
persisted despite revisions that were made to the notice in subsequent rounds. None of the eight
participants in the final round knew after reading the notice that their right to cancel was
guaranteed by law.
3
Findings on these other disclosures have been reported to the Board in separate reports; see Design and Testing of Truth in
Lending Disclosures for Home Equity Lines of Credit (available at http://www.federalreserve.gov/boarddocs/meetings/2009/
20090723/Full%20HELOC_Macro%20Report.pdf) and Design and Testing of Overdraft Disclosures: Phase Two (available
at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091112a4.pdf).
iii
Security Interest
All but one participant in the four rounds understood after reading the notice that by opening
the line of credit or obtaining a loan, they were giving the creditor the right to take their home if
they could not repay. All but two participants in the first three rounds understood after reading
the notice that if they cancelled their line of credit, the creditor would no longer have the right to
take their home.4 In most cases, participants seemed to understand this information even before
reading the rescission notice.
Fees
In the first round of testing, only three of 10 participants understood after reading the notice
that they would not be charged a fee for cancelling their HELOC, and six understood that any
fees they had paid to open the account would be refunded to them. In subsequent rounds,
information about fees was disclosed more prominently in a separate section of the notice
labeled “If You Cancel.” This revision proved effective, as 26 of 29 participants in the last three
rounds understood that they would not be charged a cancellation fee, and 20 of 29 understood
that any fees they paid to open the account would be refunded.
Understanding of How to Cancel
All notices that were tested indicated that borrowers could cancel by mail, e-mail, fax, or in
person. All participants but one in the four rounds of testing were able to identify these four
cancellation methods after reading the notice.
Of the two rescission notices shown to participants in the first round, one described these four
methods in a paragraph of text, while the other presented the methods as a bulleted list. Because
all participants preferred the bulleted list, all subsequent versions of the notice used this format.
When asked which of the four methods they would most likely use to cancel their HELOC or
loan, participants’ responses were mixed. Most indicated that they would use fax or e-mail,
because doing so would be relatively easy and would produce documentation of when
notification had been sent. Although few participants in the first three rounds said they would
deliver notification in person, five of the eight participants in the fourth round indicated they
would do so. A number of participants expressed concerns about submitting notification of
cancellation by mail (i.e., dropping it in the mail box) because of the difficulty of proving that the
notification was sent by the deadline.
A number of participants said they would provide notification to the creditor using at least two
methods of delivery to make sure that the creditor received their notification of cancellation by
the deadline.
Almost all participants indicated that if they were delivering their notification of cancellation in
person, they would not place it in the creditor’s drop box or give it to a bank teller, because they
would want to be certain that it reached the proper person by the deadline. Most participants
4
This question was not asked of participants in the fourth round because if a refinancing transaction were cancelled, the
creditor would still have the right to take their home for failure to repay the previous loan.
iv
said they would give the notification to a manager or loan officer, or would inquire about which
employee should receive the notification.
Of the participants who indicated that they would send their notification of cancellation by
e-mail, most said they would sign the cut-off portion of the notice, scan the entire notice, and
attach it to the e-mail message.
Understanding of Cancellation Deadline
In the first round of testing, half of the participants misidentified the deadline by which they
would have to cancel their transaction. In some cases participants mistakenly counted a federal
holiday toward the rescission period, or did not count Saturday. One participant was confused as
to whether midnight of a given day represented the beginning of the day or the end of the day.
Several participants in this round commented that the “Deadline to Cancel” section of the
notice would be easier to understand if a calendar date was provided, rather than instructions for
determining the deadline. For these reasons, at least one of the two notices tested in each
following round included a calendar date for when the rescission period would end.
Participants in the second round were shown two notices. One used language similar to that used
in the current notice of the right to rescind: a description of the three events, the latest of which
would trigger the rescission period. The other notice included the description of the three events
but it also included a calendar date by which the borrower could cancel if all three events
happened by a certain date (i.e., “If all borrowers sign the loan documents on January 19, 2010,
and you receive your Truth in Lending disclosures and this notice by that date, you must submit
your cancellation notice by 11:59 p.m. on January 22, 2010”). When asked about the deadline to
cancel if all three events happened by the date specified in the notice, most participants correctly
determined the deadline to cancel. However, the general understanding of the deadline to cancel
remained low when asked about dates other than those specifically listed on the notice. For
example, only two of six participants were able to correctly identify what their rescission deadline
would be if they opened their account on the day of the interview. One participant thought that
the deadline stated in the notice was a hypothetical example with little relevance to that borrower.
Nonetheless, most participants expressed their preference for being given a calendar date as the
deadline to cancel instead of having to calculate the deadline based on the three events. Therefore,
ICF Macro and Board staff decided to test a version of the notice in the following round that
provided only a specific calendar date as the deadline while simplifying the language.
As in the second round, participants in the third round were shown two notices. Again, one used
language similar to that used in the current notice of the right to rescind: a description of the
three events, the latest of which would trigger the rescission period, while the other provided a
description that included a calendar date for cancellation, without an explanation of how that
date was determined. The language that was used in the latter notice was very simple (i.e., “If
you want to cancel this line of credit, you must do so on or before March 26, 2010”). Most
participants in this round expressed a preference for the notice that provided a calendar date,
and testing results from this round implied that this notice was generally easier for participants
to understand. Therefore, ICF Macro and Board staff decided that the rescission notice should
include a calendar date by which cancellation would have to take place, and should not include
language describing the three events. This decision was validated during testing in the fourth
round, and the model notices that the Board intends to publish for comment use this format.
v
In some cases, the inclusion of a calendar date as the deadline was misleading to participants.
Some incorrectly assumed that the deadline shown on the notice would always apply, when in
fact there are situations when the deadline could change for reasons that are outside of the
borrower’s control. For this reason, the Board decided to require that creditors provide a new
rescission notice if the deadline changes from the date shown in the original notice. A model
notice that could be used for this purpose was successfully tested in the third round.
Acknowledgement Line
Participants were presented with a scenario in which they were given a packet of papers at
closing and were told to sign or initial each page to show that they had received it. They were
presented with a rescission notice as part of that packet that contained an “acknowledgment
line” with a space for the consumer to initial and date to confirm receipt. Some participants in
the first round of testing initially did not notice this line and said they would sign on the line that
would indicate that they wanted to cancel the transaction. In all subsequent rounds, however, the
vast majority of participants correctly indicated that they would initial the acknowledgement line.
Participants in the first two rounds were asked to compare two different locations for the
acknowledgment line: (1) at the top of the page and (2) near the bottom of the page immediately
above the line participants would be sign to indicate their intent to cancel. Participants were
almost evenly split as to which location they preferred. Those who preferred placement at the
top said that location made the line more apparent or decreased the likelihood that consumers
would confuse it with the line to cancel the transaction. Other participants preferred the
acknowledgement line near the bottom, either because they were used to looking for an
acknowledgement line at the bottom of forms or because they wanted to read the information
on the page before acknowledging receipt.
Although participants were split in their preferred location for the acknowledgement line, after the
second round of testing ICF Macro and Board staff decided to place this line at the bottom of the
notice. ICF Macro and Board staff were concerned that placing the line at the top of the page
might encourage borrowers to initial the form without reading the information on the page. Also,
because other changes to the notice (such as the addition of a cut-off section for the consumer to
notify the creditor of the cancellation) seemed to clarify the difference between the signature line
for cancellation and the acknowledgement of receipt line, there seemed to be little danger of
consumers confusing the two lines if they were both located at the bottom of the notice.
vi
Chapter I: Introduction
Background
In 1968, Congress enacted the Truth in Lending Act (TILA) to protect consumers by requiring
creditors to provide key pieces of information to consumers at various points in time. Congress
assigned the Federal Reserve Board (the Board) the responsibility of implementing TILA, which the
Board currently so through Regulation Z.
TILA and Regulation Z provide that, unless the transaction is exempted, a consumer has a right to
rescind a consumer credit transaction in which a security interest is or will be retained or acquired in a
consumer’s principal dwelling. Thus, under TILA consumers have the right to cancel (or “rescind”)
certain home-secured transactions. This right of rescission was created to allow consumers time to
reexamine their credit contracts and cost disclosures and to reconsider whether they want to place an
important asset—their home—at risk by offering it as security for the credit.
In a transaction subject to the right of rescission, TILA requires that consumers be given a notice of
the right to rescind. The notice must disclose that the creditor has a security interest in the
consumer’s home, that the consumer may rescind, how the consumer may rescind, the effects of
rescission, and the date the rescission period expires. The rescission period generally expires at
midnight after the third business day following the latest of three events: (1) consummation of the
transaction, (2) delivery of material TILA disclosures, or (3) receipt of the required notice of the
right to rescind.5 To exercise the right of rescission, the consumer must send notification to the
creditor or the creditor’s agent designated on the notice provided by the creditor.
Since 2004, the Board has been reviewing Regulation Z to determine whether revisions are
appropriate. One of the goals of this review is to ensure that the disclosures that are required by
TILA are structured and worded in a way that consumers are most likely to understand and use in
financial decision-making.
The Board contracted with ICF Macro in 2006 to assist with its review and revision of TILA
disclosure regulations. ICF Macro is a research and evaluation company with expertise in the design
and cognitive testing of effective consumer communication materials. ICF Macro worked with the
Board on its review of credit card disclosures and is currently contributing to its review of
disclosures for closed-end mortgages and home equity lines of credit (HELOCs).
This report describes ICF Macro’s work on the design and testing of rescission notices. Since
August 2009, ICF Macro has conducted four rounds of one-on-one cognitive interviews on this
topic with a total of 39 participants. For each round, ICF Macro developed a set of model rescission
notices to be tested. Interview participants were asked to review these notices and describe their
reactions, and were then asked a series of questions designed to test their understanding of the
content. Data were collected on which elements and features of each notice were most successful in
communicating information clearly and effectively. The findings from each round of interviews were
incorporated in revisions to the model notices for the following round of testing.
5
Material TILA disclosures consist of the finance charge, the annual percentage rate, the total of payments, the payment
schedule, the amount financed, and the disclosures and limitations for loans covered by the Home Ownership and Equity
Protection Act (HOEPA).
1
The findings from these interviews have informed the Board’s proposed revisions to Regulation Z
rules related to rescission, which the Board intends to publish for public comment in July 2010.
Methodology
Testing of the model rescission notices was carried out through four rounds of interviews held in
different locations, as shown in Table 1. Before each round of interviews, ICF Macro developed
model notices for testing. In many cases, multiple versions of the model notice were developed so
the impact of varying language or format could be studied. Board staff attended all rounds of testing.
After each round, ICF Macro briefed Board staff on key findings, as well as their implications for
notice design and layout. These results were then used to revise the model rescission notices for use
in the next round of testing.
Table 1: Timeline of Cognitive Testing
Location
Dates
Number of Interviews
Round 1
Bethesda, MD
November 4–5, 2009
10
Round 2
Tampa, FL
January 19–20, 2010
11
Round 3
Phoenix, AZ
March 23–24, 2010
10
Round 4
Memphis, TN
April 16, 2010
8
Participants in each round were recruited by telephone using a structured screening instrument in
order to ensure the selection of a range of participants in terms of gender, age, ethnicity, and other
characteristics. Participants were disqualified if they worked for a financial institution, or in the real
estate or mortgage industry.
The first three rounds tested rescission notices that would be given to borrowers opening a
HELOC. Most participants who were recruited for these rounds either had a HELOC or had
considered opening a HELOC in the past five years, although a few did not have any home equity
product. A sample recruitment screening instrument from the first three rounds is included as
Appendix A of this report.
The fourth round tested a rescission notice that would be given to borrowers who were refinancing
a closed-end mortgage with the original creditor and were borrowing additional funds.6 For that
round, participants had obtained a mortgage in the past two years. The recruitment instrument used
for that round is included as Appendix B of this report. A summary of participants’ background and
demographic information from all four rounds is provided as Appendix C of this report.
Individual interviews were approximately 75 minutes long. While the interview guide varied between
rounds, the structure of these interviews was very similar. Participants were given a rescission notice
and asked to “think aloud” while they reviewed the document, indicating whenever they found
something surprising, interesting, or confusing. Following this “think aloud” process, participants
were asked specific questions about the information on the notice to determine how well they could
6
TILA exempts purchase-money loans and transactions in which a consumer refinances a home-secured loan with the
original creditor and incurs no additional debt beyond the cost of refinancing the transaction—that is, where no “new
money” is advanced. For testing purposes, participants were asked to assume that additional funds would be borrowed
beyond the amount of the outstanding mortgage debt that the borrower had prior to refinancing.
2
find and interpret the content. The participants were then given a new notice to review, and the
interviewer would take them through the same process.
Variations in the interview protocol, as well as a description of the rescission notices that were
shown to participants, are provided in the description of each round of findings in Chapter III.
3
Chapter II: Guiding Principles for Disclosure
Design
ICF Macro’s design of rescission notices for the Board is based on findings from cognitive testing.
This reliance on direct consumer feedback is an important strategy for ensuring that disclosure
forms such as the rescission notices are useful and understandable to their intended audiences. At
the same time, there are also a number of principles to which ICF Macro’s designers try to adhere
whenever they are engaged in such projects. The principles that were most relevant to this work on
rescission notices included the following:
Use plain language. Jargon and technical language should be avoided whenever possible, and
replaced with words that are more easily understood by consumers. The use of simple language
is particularly important in the context of disclosures, because consumers who are at the greatest
risk of being taken advantage of are often those with lower literacy levels. While readability
metrics (such as the grade level of the writing) can be useful in this respect, the best way to
determine whether language is truly understandable is through direct consumer testing.
Prioritize information, and structure disclosures so that the most important information
for consumers is easiest to find. Consumers frequently do not read disclosures carefully; those
who review them often only skim them quickly to look for a few key pieces of information. If
consumers cannot quickly find the information they are looking for, they are likely to become
frustrated and give up. It is important to identify the most important pieces of information on
the form for consumers, so that these items can be most prominent on the disclosure. In the
context of rescission notices, the most important pieces of information are that borrowers have
the right to cancel, how they can cancel, and by when they will have to do so.
Use headings and titles to make documents more navigable, and to help consumers find
the most important information. When large amounts of text are included, plain-language
headings should be used to distinguish sections on different topics. In tables, rows and columns
should have short, easy-to-read titles that accurately describe the information provided. This
allows consumers to find information that they are looking for quickly and efficiently, and
decreases the likelihood that they will become distracted by unrelated text.
Build upon prior research whenever possible. While each type of disclosure is different,
findings from cognitive testing can often translate between different documents. The
applicability of a previously tested disclosure format to a new situation should always be
confirmed through cognitive testing, but the previously tested format often provides a useful
starting point. For example, the tabular structure used in most of the rescission notices tested
was based on earlier disclosures developed by the Board and ICF Macro for HELOCs, closedend mortgages, and checking account overdraft policies.
4
Chapter III: Testing of Revised Rescission Notices
Interviews in Bethesda, MD (November 2009)
The first round of 10 cognitive interviews was conducted in Bethesda, MD on November 4 and 5,
2009. Two different versions of rescission notices were used in this round of testing. The two
versions (RN-1 and RN-2) differed in the following three ways:
RN-1 provided information primarily in narrative format (paragraphs of text), while RN-2
provided information in tabular format.
In RN-1, the “acknowledgment line” that consumers could initial and date to indicate that they
had received two copies of the notice was located on the bottom of the page, while in RN-2 it
was located at the top.
In RN-2, the four different ways that consumers could contact the creditor to let them know
that they wished to rescind were provided in bulleted form. RN-1 provided this information as a
paragraph, with no bullets.
Participants were shown both RN-1 and RN-2, with half of the participants seeing RN-1 first and
the other half seeing RN-2 first. They were asked to read each notice while thinking aloud, and were
then asked to answer a series of questions to test their understanding of the content.
RN-1 and RN-2 are provided in Appendix D of this report.
Key Interview Findings
Shopping for HELOCs
Nine of the 10 participants had obtained HELOCs. The remaining participant said that she
applied for a HELOC but was turned down because of her financial status.
All the participants who had HELOCs said that the process of obtaining a HELOC was
relatively easy.
Prior Awareness of the Right of Rescission
Before they were shown any rescission notices, four of the 10 participants understood that they
would have some period of time after they opened a HELOC during which they could cancel it.
Of these four, two knew that they would have three days to cancel, one incorrectly thought he
would have 15 to 30 days to cancel, and the other indicated that he did not know the time limit.
The remaining participants did not know that consumers who opened a HELOC could rescind.
One knew that a right of rescission was provided for some financial agreements (such as buying
a car), but was not sure whether the same applied for HELOCs.
Those who did not know of the right of rescission indicated that if they decided the day after
opening a HELOC that they did not want it, they would call the creditor to ask about the
options available to them.
5
Review of Rescission Notices (RN-1 and RN-2)
General Understanding of the Right to Cancel
All participants understood that the main point of the notice was to inform them that they had
the right to cancel their transaction.
Four of the 10 participants understood that the creditor was informing them that they have the
right to cancel the transaction because of a federal law. Others thought that the creditor chose to
give its customers this right; one said that it was a “service offered by the bank so you could
reconsider,” and another commented that because opening a HELOC is a “big decision,” the
creditor gives its customers time to “make sure [they] are ready.” One participant said that the
creditor used the rescission period to perform research to protect itself from originating bad
loans or loans to consumers with bad credit.
When participants were asked why someone might want to cancel a HELOC, they provided a
variety of reasons, including acknowledgement that a consumer was financially over-committed,
a change in personal circumstances (death, sickness, or concern about job status), or a lastminute change of mind.
Security Interest
When participants were asked what would happen if they did not make the payments on their
HELOC, nine of the 10 understood that the creditor could take their home. Seven of those nine
participants saw this information in the notice, but all nine seemed to understand even before
reading the document that the creditor had this right. Four of the five who were shown RN-2
first found this information, along with three of the five who were shown RN-1 first.
The notice stated that by opening the account, the consumer was giving the creditor the right to
take his or her home if they “cannot repay the money they owe or otherwise default.” When
participants were asked, nine of 10 were unable to explain what the phrase “otherwise default”
meant, or to provide examples of when the creditor might take their home other than failure to
pay. One participant commented that falsification of information on a loan application might be
an example of “otherwise default.”
All participants understood that if they cancelled the line of credit within three days of signing
the final papers the creditor would no longer have the right to take their home.
Fees
Only three of the 10 participants saw in their initial review of the notice that they would not be
charged a fee for cancelling their HELOC; other participants guessed that they would not be
charged a fee but did not see this information in the notice. All three participants who saw the
information were shown RN-2 first; none of the participants who were shown RN-1 first found
this information on the notice.
Participants were asked whether they would be refunded a $25 fee they had paid for a credit
check (i.e., to a third party) if they rescinded. Even though the notice stated that “We must
refund to you any fees you paid to open the line of credit,” only six of the 10 participants (three
who were shown RN-1 first and three who were shown RN-2 first) understood that they could
get this fee back. One of them commented that this fee would not be refunded because the
6
creditor had already performed the services for which the fee was charged. One participant was
confused by this sentence and thought that she might be required to refund money to the
creditor in order to cancel.
Understanding of How to Cancel
All but one of the participants were able to easily identify the four ways they could contact the
creditor to indicate that they wanted to cancel—mail, fax, e-mail, or in person. The one
participant who did not initially answer the question correctly saw only the e-mail and mail
options; this participant was shown RN-1.
When participants were asked which method they would most likely use to cancel their HELOC,
they had mixed responses. Several participants expressed concerns about submitting notification
of cancellation by mail (i.e., dropping it in the mail box) because of the difficulty of proving that
the notification was sent by the deadline. For this reason, several participants said that if they
were mailing notice of cancellation to the creditor, they would be sure to send it registered or
certified, or use a service such as an overnight carrier.
Although there was no agreement upon which delivery method was preferred, several
participants said they would notify the creditor using at least two methods of delivery to make
sure that the creditor received their notification of cancellation by the deadline.
All participants indicated that if they were delivering their notification of cancellation in person,
they would not place it in the creditor’s drop box or give it to a bank teller because they would
want to be certain that it got to the proper person by the deadline. Most said that they would
give the notification to a manager or loan officer, or would inquire what employee should
receive the notification.
Of the participants who indicated that they would send their notification of cancellation by
e-mail, most said that they would sign the cut-off portion of the notice, scan the entire notice,
and attach it to the e-mail message.
Eight of the 10 participants understood after their first review of the notice that if they wanted
to cancel their HELOC, they could use the notice they were reading to notify the creditor. The
remaining two did not realize that the notice they were reading could be used as the actual
notification of cancellation.
Seven of the 10 participants understood that they could write their own notification to the
creditor to indicate that they wanted to cancel the HELOC. One misinterpreted the text that
stated they could sign, date, and return to the creditor “another notice that indicates you are
cancelling your line of credit.” This participant thought this meant that the creditor had posted a
different pre-printed form on its website to download and send in as an alternative. The
remaining two did not see the reference to “another notice,” and assumed that their only option
was to return the notice they had been given.
Some participants thought they had to use the notice provided and another notice to exercise their
right to cancel. Once it was explained to them that they had the choice to either return the
rescission notice or prepare and return another document, all participants said they would most
likely use the rescission notice. One person said that it looked “more official,” and another said
7
that he would use the pre-printed notice because it had been prepared by the creditor and,
therefore, he could be sure that the creditor would recognize his exercise of the right upon receipt.
All participants said they would keep a copy of the notification of cancellation they send to the
creditor. About half of participants saw the instruction on the notice to keep a copy, but it was
unclear if it was this sentence that led them to say they would keep a copy.
Understanding of Cancellation Deadline
When asked what the cancellation deadline would be if the account-opening papers were signed
and returned to the creditor on Thursday, November 5, half of the participants correctly
identified the deadline as midnight on Monday. Even though the notice specifically stated that
Sundays and federal holidays were excluded, four participants did not count Saturday, and thus
calculated incorrectly that the deadline would be midnight on Tuesday. The tenth participant was
confused as to whether midnight of a given day represented the beginning of the day or the end
of the day.
Participants generally understood from reading the notice that federal holidays would not count
when calculating the rescission deadline. When asked to calculate the rescission deadline when
the period included Veterans Day, about half of participants answered incorrectly. However, in
all cases it was because the participants did not see that the Wednesday on the calendar provided
was marked “Veterans Day” or they were not certain whether Veterans Day is a federal holiday,
and not because they misunderstood how federal holidays would be treated in this context.
Even though the notice stated that the notification of cancellation had to be “sent” (via mail,
fax, or e-mail) or “delivered” (if in person) to the creditor by the rescission deadline, many
participants incorrectly assumed that it had to be received by creditor by the deadline.
Participants generally thought that if the notification of cancellation was placed in a mailbox or
drop box at 11:30 p.m. on the third day, but was not picked up until after the deadline, it would
not be submitted on time. Generally, participants felt that they would need to be able to prove
that they had met the deadline through a method such as a postmark or receipt, and if they could
not, the creditor would not consider the notification as submitted on time.
Participants were asked when their deadline for cancellation would be if they had received the
rescission notice and loan documents on a Wednesday but did not sign the loan documents until
Friday. Only two of the 10 participants referred to the statement on the notice stating, “If you
receive this notice before you have signed the final documents to open your line of credit, the
deadline for your right to cancel may be later than the date given above.” Other participants
thought that their deadline would still be midnight after the third day following their receipt of
the notice, or were unsure how the deadline would be determined.
All participants indicated that if they wanted to cancel their line of credit, they would call the
telephone number provided on the notice to get the exact deadline before doing so.
All participants said they would prefer that the rescission notice identify a calendar date by which
they would have to cancel, rather than simply providing instructions for determining when the
deadline would be. Most said they wanted to avoid “doing the math” or “calculations.” Others
commented that a date certain would remove the “guess work” involved in making the
8
calculation. Another participant pointed out that a date certain would help her to avoid making a
mistake (i.e., incorrectly excluding a Saturday or incorrectly counting a federal holiday).
Release of HELOC Funds
After reading the notice, only two of the 10 participants understood that they would not have
access to any funds from their account until the rescission period ended. Five others thought
that there would be some waiting period before they had access to the funds, but they did not
connect this waiting period to the right of rescission. Several of these participants thought that
the creditor was engaged in administrative action related to opening the account or was
reconsidering whether to extend the loan during the delay in funding. The remaining three
participants incorrectly assumed that they would have access to their funds within 24 hours of
signing the papers for a line of credit.
Participants were asked what would happen if the creditor released to them funds from their
account, but they had already sent notification of cancellation to the creditor. All correctly
indicated that their cancellation would still be valid, despite the fact that they had received funds.
Most stated that they would have to return any funds that had been released.
Acknowledgement Line
Participants were presented with a scenario in which they were given a packet of papers and told
to sign or initial each page to show that they had received it. They were presented with a
rescission notice as part of that packet, and were asked where on the page they would sign or
initial that notice. While most participants indicated that they would initial on the
acknowledgement line provided, four said that they would sign on the line that indicated they
wanted to cancel their transaction. Three of the four quickly realized their mistake, but one
continued to confuse the two lines, even after re-reading the notice. Of the four who initially
made this mistake, two had reviewed RN-1 first and two had reviewed RN-2 first.
All but one participant understood that initialing the acknowledgement line indicated only that
they had received two copies of the notice, while signing on the signature line indicated that they
wanted to cancel the transaction.
Comparison of RN-1 and RN-2
All but one participant indicated that they preferred the tabular layout of RN-2 to the narrative
layout of RN-1. Participants commented that this format seemed more organized and easier to
follow. Several specifically commented that they liked the section headings in the left-hand
column of the table in RN-2.
Participants were split as to where the acknowledgement line should be located on the notice.
Four thought the line should be at the top of the page, as shown on RN-2, so that consumers
would be less likely to confuse it with the signature line. However, four others thought that the
acknowledgement line should be at the bottom of the notice, as shown on RN-1, either because
they found it a more logical location (since it would encourage consumers to read through the
notice before initialing), or because the proximity of the signature and acknowledgement lines to
each other would make it clearer that consumers should only sign one of the two lines. Two
participants had no preference for the location of the acknowledgement line.
9
All participants preferred the “How to Cancel” section of RN-2 because it presented the four
different ways to return the rescission notice (mail, e-mail, fax, or in person) in a bulleted list,
rather than as a paragraph.
Subsequent Design Decisions
All but one participant preferred the tabular format of RN-2 to the narrative format used in RN1. In addition, participants were more likely to notice information provided in RN-2 than in
RN-1. For example, three of the five participants who reviewed RN-2 first noticed that they
would not be charged a fee for cancelling the account. None of the participants who reviewed
RN-1 first noticed this information. Therefore, a tabular format was used in all subsequent
versions of the notice.
Several participants commented that the “Deadline to Cancel” section would be easier to
understand if a calendar date deadline was provided, rather than instructions for determining the
deadline. Comprehension of this section was low for participants in this round; many were not
able to correctly identify their rescission deadline. For these reasons, one of the two notices
tested in the following round (RN-4) included a calendar date for when the rescission period
would end.
Because participants were divided on whether the acknowledgment line should be located at the
top or the bottom of the notice, this variable was tested again in the following round.
Participants preferred to have the different cancellation methods provided as a bulleted list (as in
RN-2) rather than a block of text (as in RN-1). Therefore, bullets were used in all subsequent
notices.
Because nearly all participants were unable to explain the phrase “otherwise default” or provide
any examples of what such a default might be, this phrase was removed from all subsequent
notices.
Because only three of 10 participants understood after reading the notices that they would not
be charged a cancellation fee, and only six understood that any fees they had paid to obtain the
HELOC would be refunded to them if they cancelled the transaction, in subsequent notices this
information was disclosed more prominently in a separate row labeled “If You Cancel.”
10
Interviews in Tampa, FL (January 2010)
The second round of 11 cognitive interviews was conducted in Tampa, FL on January 19 and 20,
2010. Two different versions of rescission notices were used in this round of testing. The two
versions (RN-3 and RN-4) differed in the following two ways:
On RN-3, the acknowledgement line where consumers would put their initials to indicate that
they had received two copies of the notice was located at the top of the page. On RN-4 the
acknowledgement line was located at the bottom, just above the signature line for cancelling.
The deadline for cancelling was described differently on the two notices, as indicated below:
On RN-3, the deadline for cancelling was described as follows:
If you want to cancel your line of credit, you must submit your cancellation notice by 11:59 p.m. on the
third day (Monday through Saturday, except federal holidays) following the latest of:
(1) the opening date of your account, which is January 19, 2010; or
(2) the date you received the final Truth in Lending disclosures; or
(3) the date you received this notice.
Please call us at 1-800-555-1234 for the exact deadline.
RN-4 contained a more detailed explanation of the deadline for cancelling:
If you receive this form before you sign the loan documents and you sign the loan documents:
On or before January 19, 2010—you must submit your cancellation notice by 11:59 p.m. on
January 22, 2010.
After January 19, 2010—you must submit your cancellation notice by 11:59 p.m. on the third day
(Monday through Saturday, except federal holidays) after you sign the loan documents.
If you receive this form after you sign the loan documents, you must submit your cancellation notice by
11:59 p.m. on the third day (Monday through Saturday, except federal holidays) after you receive this form.
These deadlines may be different if you are not the only borrower. Please call us at 1-800-555-1234 for
the exact deadline.
One significant difference between the notices used in the first and second rounds was that the revised
notices in the second round included a cut-off section at the bottom of the page that could be
submitted to the creditor as a notification of cancellation. This cut-off section was included to make it
easier for borrowers to retain the rest of the information on the notice if they decided to rescind.
As in the first round, participants were shown both RN-3 and RN-4, with half of the participants
seeing RN-3 first and the other half seeing RN-4 first. Again, they were first asked to read each notice
while thinking aloud, and were then asked to answer a series of questions to test their understanding of
the content of the notice.
RN-3 and RN-4 are provided in Appendix D of this report.
11
Key Interview Findings
Shopping for HELOCs
Ten of the 11 participants had obtained HELOCs. The remaining participant had a home equity
loan, but had considered getting a HELOC instead.
All the participants who had gotten HELOCs said the process to obtaining one was
relatively easy.
Prior Awareness of Right of Rescission
Before participants were shown any rescission notices, six of the 11 understood that they would
have some period of time after they opened a HELOC during which they could cancel it. One
person said that once she had signed the papers she would assume that it was “a done deal.”
Several participants who did not know of the right of rescission indicated that if they decided
that they did not want a HELOC one day after opening it, they would call the creditor to ask
about the options available to them.
Review of Rescission Notices (RN-3 and RN-4)
General Understanding of the Right to Cancel
All participants understood that the main point of the notice was to inform them that they had
the right to cancel their transaction.
Only two of the 11 participants understood that the reason the creditor gave them the right to
cancel their HELOC was that it was a federal law. Several answered that the creditor gave its
customers this right in case they had “second thoughts;” one said, “Things happen; people
change their minds.”
When asked why someone might want to cancel a HELOC, participants provided reasons
similar to those mentioned in the first round, including a concern about financial overcommitment or job loss.
Security Interest
All but one participant understood that if they opened a HELOC and did not make payments,
the creditor could take their home. Most, if not all, of the participants understood even before
reading the document that the creditor had this right. However, most participants saw this
information in the notice as well.
All 11 participants understood that if they cancelled the line of credit within three days of
signing the final papers, the creditor would no longer have the right to take their home. Nine of
the 11 saw this information on the notice; the others did not see this reference on the notice but
answered the question based on prior knowledge.
Fees
All participants saw in their initial review of the notice that they would not be charged a fee for
cancelling their HELOC.
12
Participants were asked whether they would be refunded a $25 fee they had paid for a credit
check (i.e., to a third party) if they rescinded. Even though the notice stated that “We must
refund to you any fees you paid to open the line of credit,” three of the 11 participants initially
thought this fee would not be refunded.
Understanding of How to Cancel
All but one of the participants were able to easily identify the four ways they could contact the
creditor to indicate that they wanted to cancel—mail, fax, e-mail, or in person.
When asked which method they would most likely use to cancel their HELOC, the participants
had mixed responses. Most participants indicated that they would prefer fax or e-mail to the
other methods, as they were relatively easy and would produce documentation of when
notification had been sent.
A few participants said that they would use more at least two methods of delivery to make sure
that the creditor received their notification of cancellation by the deadline.
As in the first round, all participants indicated that if they were delivering their notification of
cancellation in person they would not to put it in a creditor’s drop box or give it to a bank teller.
Most said that they would give their notification to the person they had worked with previously,
or to another loan officer.
All participants understood after their first reading of the notice that if they wanted to cancel
their HELOC, they could sign and date the notice they were reading to notify the creditor.
All participants also understood that instead of signing and dating the notice, they could write
their own notification to the creditor to indicate that they wanted to cancel the HELOC.
However, all participants indicated they would prefer to sign and date the rescission notice.
All 11 participants said they would keep a copy of the notification of cancellation sent to the creditor.
However, nine of the 11 did not initially see the instructions to do so on the rescission notice
(i.e., “Keep a copy of this form because it contains important information about your rights”).
Understanding of Cancellation Deadline
When asked what the cancellation deadline would be if the account-opening papers were signed
and returned to the creditor “today,” only four of the 11 participants initially answered correctly
(two who were shown RN-3 and two who were shown RN-4). Several participants incorrectly
did not count Saturday towards the deadline, while two incorrectly counted the day they opened
their account as Day 1. One participant who was reading RN-3 commented that he was
confused by the “later of” language related to the deadline.
Only four of the 11 participants were able to correctly determine the deadline when a federal
holiday (Martin Luther King Jr. Day) was included in the time period, even though all
participants were shown a calendar that identified Martin Luther King Jr. Day as a federal
holiday. Of these four, three were reviewing RN-4 and one was reviewing RN-3. Other
participants thought the deadline was sooner because they incorrectly counted the holiday,
Sunday, or the day they opened their account towards the deadline. One participant who was
reading RN-3 was confused by the “later of” language related to the deadline.
13
As in the first round, several participants incorrectly assumed that the notice had to be received
by the deadline, even though the notice stated that the notification of cancellation had to be
“submitted” by the rescission deadline.
Nine of the 11 participants believed that they would miss the deadline if they dropped the notice
in a mail box at 11:30 p.m. on the third day, because they would have no evidence that they had
mailed the notification on time.
Nine of the 11 participants said they would likely call the toll-free number to determine the exact
deadline for rescission, if the creditor provided such a number on the notice.
All participants who received RN-4 first were able to correctly answer that the “countdown”
toward a deadline would not start until the last co-borrower had signed. Those who received
RN-3 first were not able to answer questions addressing a co-borrower scenario.7
All participants said they would prefer that the rescission notice identify a calendar date by which
they would have to cancel, rather than providing instructions or a formula for determining
the deadline.
Release of HELOC Funds
After reading the notice, seven of the 11 participants understood that they would not have
access to any funds from their account until the rescission period ended. Two others said that
there would be some waiting period before they had access to the funds, but their responses
were not based on anything they had read on the notice. The remaining two participants
incorrectly assumed that they would have access to funds within 24 hours of signing the papers
for a line of credit.
Participants were asked what would happen if the creditor released to them funds from their
account, but they had already sent notification of cancellation to the creditor. As in the previous
round, all correctly indicated that their cancellation would still be valid, despite the fact that they
had received funds. All participants also understood that would they have to return any funds
that had been released.
Acknowledgement Line
As in the previous round, participants were given a scenario in which they received the rescission
notice as part of a packet of papers they were signing to open their account, and were told to
sign or initial each page to show that they had received it. Unlike in the previous round, all
participants indicated that they should initial the acknowledgement line to indicate receipt of the
notice.
All participants understood that initialing the acknowledgement line indicated only that they had
received two copies of the notice, while signing on the signature line indicated that they wanted
to cancel the transaction.
7
RN-4 noted that rescission deadlines “may be different if you are not the only borrower.” RN-3 did not include this
language.
14
Comparison of RN-3 and RN-4
When participants were asked which wording for the “Deadline to Cancel” section they felt was
clearer, eight of the 11 indicated that they preferred the wording of RN-4 to that of RN-3.
Among those who preferred RN-4, several liked that the notice provided a specific calendar date
for the deadline; one commented: “The deadline to cancel is certain.” Another participant liked
that RN-4 provided an “example” of a deadline if you opened the account on a certain date. A
third participant liked that the deadline on RN-4 was displayed prominently in boldface type. Of
the three participants who preferred RN-3, one said she found it easier to understand, while
another indicated that he found it more “concise.” The third participant found the deadline
example provided in RN-4 confusing.
Participants were almost evenly split as to where the acknowledgement line should be located on
the notice, as indicated below.
Six of the 11 thought the line should be at the top of the page, as on RN-3. Of these six,
some thought the acknowledgement line was easier to notice at the top of the page. Another
participant commented that he liked the line at the top because it “instructs” borrowers as to
what they are supposed to do. Two participants were concerned that if the
acknowledgement line was located at the bottom of the notice, as on RN-4, borrowers might
confuse it with the signature line to cancel the line of credit.
The remaining five participants preferred the acknowledgement line near the bottom of the
page, as on RN-4. Some thought that consumers would be less likely to notice the line at the
top of the page. Others commented that it made more sense for the line to come after the
information about their right to cancel, so that they could read the content before
acknowledging that they had received the notice.
Subsequent Design Decisions
Although participants in the first two rounds were very evenly split as to whether they preferred
the acknowledgment line at the top or bottom of the notice, following this round, ICF Macro
and Board staff decided to locate the acknowledgement line at the bottom (as on RN-4) on all
subsequent versions of the notice. These staff were concerned that locating the line at the top of
the page might encourage borrowers to initial without reading the information on the page.
Also, because other changes to the notice (such as the addition of a cut-off section for the
consumer to notify the creditor of cancellation) seemed to clarify the difference between the
signature line for cancellation and the acknowledgement line, there seemed to be little danger of
consumers confusing the two lines if they were both located at the bottom of the notice.
Several participants commented that they preferred the wording of the “Deadline to Cancel”
section on RN-4 to that of RN-3, because RN-4 provided a calendar date by which they would
have to cancel. At the same time, the wording of RN-4 still seemed to confuse some
participants—for example, only two of six were able to correctly identify their rescission
deadline if they opened their account on the day of the interview. Therefore, ICF Macro and
Board staff decided to test a version of the notice in the following round (RN-6) that provided a
calendar deadline using simpler language than was used in RN-4.
15
Interviews in Phoenix, AZ (March 2010)
The third round, consisting of 10 cognitive interviews, was conducted in Phoenix, AZ on March 23
and 24, 2010. Three versions of rescission notices (referred to as RN-5, RN-6, and RN-7) were used
in this round of testing. RN-5 and RN-6 were identical, except that the deadline for cancelling was
described differently on the two notices, as shown below:
On RN-5, the deadline for cancelling was described as follows:
If you want to cancel your line of credit, you must place your cancellation notice in the mail or submit it by
fax, email, or in person by 11:59 p.m. on the third day (Monday through Saturday, except federal holidays)
after the latest of:
(1) the day you sign your loan documents (or the day the last borrower signs the loan documents, if you are
not the only borrower); or
(2) the day you received the final Truth in Lending disclosures; or
(3) the day you received this notice.
RN-6, on the other hand, provided a calendar date for the deadline:
If you want to cancel this line of credit, you must do so on or before March 26, 2010.
Unlike previous notices that had been tested, RN-7 was the model for a notice that would be sent to
borrowers after closing to inform them that their rescission deadline had changed from that shown
in the original notice. It was exactly the same as RN-6, except that (a) the deadline was March 29
instead of March 26; and (b) RN-7 included the following text at the top of the page:
***You are receiving this notice because the deadline to cancel your line of credit has changed from March 26,
2010 to March 29, 2010. Please refer to the “Deadline to Cancel” section below.***
Unlike notices used in previous rounds, all three notices used in this round included a reference to
an extended right of rescission for borrowers:
If your Truth in Lending disclosures or this notice has been delivered later or is incorrect or incomplete, you
may have up to 3 years to cancel this line of credit.
All participants were shown RN-5, RN-6, and RN-7. The order in which RN-5 and RN-6 were
shown to participants was rotated, with half of the participants seeing RN-5 first and the other half
seeing RN-6 first. All participants were shown RN-7 last. As in previous rounds, participants were
first asked to review each notice while thinking aloud, and were then asked to answer a series of
questions to test their understanding of the content of the notice.
RN-5, RN-6, and RN-7 are provided in Appendix D of this report.
Key Interview Findings
Shopping for HELOCs
Eight of the 10 participants had previously obtained HELOCs. Of these eight, all said that the
process of obtaining a HELOC was relatively easy.
16
Prior Awareness of Right of Rescission
Before they were shown any rescission notices, only one of the 10 participants understood that
they would have some time after they opened a HELOC during which they could cancel it.
When asked what they would do if they decided the day after opening a HELOC that they did
not want it, most participants indicated that they would call the creditor to ask if they could get
out of the agreement. A few assumed that they would have no choice—that once they signed the
papers they would be “stuck” with the loan.
Review of Rescission Notices (RN-5 and RN-6)
General Understanding of the Right to Cancel
All participants understood after reading the notice that they had the right to cancel
their transaction.
Only one of the 10 participants understood that the reason the creditor gave them the right to
cancel their HELOC was that it was a federal law. Other participants assumed that the creditor
provided this right to customers in case they had “buyer’s remorse” or “second thoughts.”
Security Interest
All participants understood that if they opened a HELOC and did not make payments, the
creditor could take their home. Unlike in previous rounds, all participants saw this information
on the notice.
All but one participant understood that if they cancelled the line of credit within three days of
signing the final papers the creditor would no longer have the right to take their home.
However, only five saw this information on the notice.
Fees
Seven of the 10 participants saw in their initial review of the notice that they would not be
charged a fee for cancelling their HELOC. The other three participants incorrectly thought they
would be charged a fee for doing so.
Participants were asked whether they would be refunded a $25 fee they had paid for a credit
check (i.e., to a third party) if they rescinded. All but two understood after reading the notice
that this fee would be refunded; the other two incorrectly thought it would not.
Understanding of How to Cancel
All participants understood that they could contact the creditor to indicate that they wanted to
cancel in person or by mail, e-mail, or fax.
When participants were asked whether it would be a problem for them if the creditor required
that notification of cancellation be provided through e-mail, two indicated that it would be
because they have limited access to computers. Several others said it would not be a problem for
them, but that it might be for some people.
Two participants indicated that if they delivered their notification of cancellation in person they
might give it to a bank teller; others said they would not. Most participants said they would give
17
their notification to the person they had worked with to open the account, or to a manager;
none would put it in a creditor’s drop box.
All but one participant understood that to notify the creditor of their intention to cancel, they
could either sign and date the cut-off section of the notice or write their own notification to the
creditor. Almost all participants said they would send the cut-off section rather than their own
notification, although two said they would send both to make sure that the creditor received
their notification of cancellation by the deadline.
All participants said that if they sent the bottom half of the notice to the creditor they would
keep a signed copy for themselves. However, three people did not see the instruction to do so
on the notice.
Understanding of Cancellation Deadline
When reviewing RN-5, participants were asked what the cancellation deadline would be if they
opened the account that day. Just over half of participants were able to correctly identify the
cancellation deadline. Three participants incorrectly counted the day they signed the papers as
the first day toward the deadline, and therefore thought the deadline was a day earlier than it
actually was. One participant initially thought that she would always have three years to cancel,
because the notice stated: “You may have up to 3 years to cancel this line of credit.”
Participants were also asked what their cancellation deadline would be according to RN-6 if they
opened the account that day. All five participants who were interviewed on March 23 said that
the deadline for cancellation would be March 26, which was the date shown on the notice and
also three days after they would have opened the account. Of the five participants who were
interviewed on March 24, four said that the deadline for cancellation was March 26, because that
was the date listed on the notice. The fifth—who had prior knowledge of rescission periods—
thought that he would have three days to cancel, and therefore despite what it said on the notice
his deadline would be March 27.
While participants were looking at RN-6 they were asked whether it would impact their deadline
if they waited several days before signing the account-opening papers. Half of the participants
indicated that it would not—in all cases their deadline would be the date stated on the notice.
The other half of participants said that in this situation their deadline might be different from
that shown on the notice. Most of these participants indicated that they did not know exactly
what their deadline would be, and they would call the creditor to find out. The one participant
with prior knowledge of rescission periods indicated that his deadline would always be three days
after he opened his account.
All but one participant said that if they faxed their notice of cancellation at 11:30 p.m. on the day
of the deadline, their cancellation would still be valid. The remaining participant thought that
because the fax would arrive after business hours, it would be considered late.
Regardless of which version they were shown, all participants indicated that they would have
missed the deadline if they dropped the notice in a mail box at 11:30 p.m. on the last day before
the deadline, because they would have no evidence that they had mailed the notification in time.
Two participants expressed concern about the effect of time zones and daylight savings time on
the deadline.
18
Extended Right of Rescission
Participants were asked what they would do if, a month after they had opened their account,
they noticed that the interest rate had been stated wrong on their account-opening statements.
All indicated that in this case they would contact the creditor, either by phone or in person.
When the participants were asked whether they would have the right to cancel their account in
this situation, four of the 10 referred to the statement on the notice indicating that their right to
rescind could be extended for up to three years if their disclosures were incorrect or incomplete.
The other six participants did not mention this statement on the notice.
As noted above, one participant misunderstood the text about the extended right of rescission,
and incorrectly thought that she would have three years to cancel her account in all cases.
Release of HELOC Funds
After reading the notice, only two participants understood that they would not have access to
any funds from their account until the rescission period ended. Six participants said there would
be some waiting period before they had access to the funds, but their responses were not based
on anything they had read in the notice. The remaining two participants incorrectly assumed that
they would have access to funds within 24 hours of signing the papers for a line of credit.
As in previous rounds, participants were asked what would happen if the creditor released funds
from their account to them, after they had already sent notification of cancellation to the
creditor. All understood that their cancellation would still be valid, despite the fact that they had
received funds.
Acknowledgement Line
As in previous rounds, participants were given a scenario in which they received the rescission
notice as part of a packet of papers they were signing to open their account, and were told to
sign or initial each page to show that they had received the notice. Eight of the 10 participants
said that they would initial the acknowledgement line on the notice. One indicated that he would
sign the line at the bottom of the notice, not realizing that doing so meant he wanted to cancel
his account. The remaining participant said he did not see any information on the notice about
where to initial.
Of the eight participants who had indicated they would initial the acknowledgement line, all
understood that initialing this line did not mean that they were giving up their future right to
cancel their account.
Comparison of RN-5 and RN-6
Participants were asked to compare the wording of the “Deadline to Cancel” section in RN-5
and RN-6. Seven of the 10 participants preferred the wording of RN-6 because they found it
simpler and easier to understand. Two participants preferred RN-5, in both cases because they
thought it provided more specific information. The final participant did not have a preference
between the two notices; he thought RN-5 was “too complicated” but RN-6 was “too simple.”
19
Review of RN-7
All but one participant understood that the purpose of RN-7 was to inform them that their
deadline for cancellation had changed. However, several people were confused by the notice
because they did not understand why they their deadline would have changed.
Participants who were confused by the notice said they would contact their creditor to get
clarification as to what it meant.
One participant incorrectly assumed that she would not be able to cancel after receiving this notice.
She believed that the deadline on the previous notice she had received (RN-6) would still apply.
Subsequent Design Decisions
Most participants in the first three rounds of testing expressed a preference for a calendar date
as the cancellation deadline on the notice. In addition, testing results from this round implied
that providing a calendar date generally made it easier for participants to understand their
cancellation deadline. For these reasons, ICF Macro and Board staff decided to provide such a
deadline (as on RN-6 and RN-7).
In some cases, the deadline provided on RN-6 was misleading to participants. For example,
some incorrectly assumed that the deadline shown on the notice would always apply, even if
there was a delay in opening the account. For this reason, the Board decided to require that
creditors provide a new rescission notice (similar to RN-7) if the deadline changes from that
shown in the original notice.
20
Interviews in Memphis, TN (April 2010)
The fourth round of eight cognitive interviews was conducted in Memphis, TN on April 16, 2010.
Only one notice (referred to as RN-8) was tested in Memphis. This notice was similar to RN-6, in
that it provided a calendar date for the rescission deadline:
If you want to cancel this loan, you must mail, fax, e-mail, or deliver the bottom portion of this notice on or
before April 20, 2010.
RN-8 is provided in Appendix D of this report.
The first three rounds tested rescission notices that would be given to borrowers opening a
HELOC. However, RN-8 was a notice that would be given to borrowers who were refinancing a
closed-end mortgage loan with their original creditor. Accordingly, references to a line of credit do
not appear in RN-8. The recruiting criteria were also different for this round; all participants had
obtained a mortgage in the past two years, and in four of the eight cases participants had obtained
their mortgage to refinance an existing loan. The remaining four participants had obtained closedend mortgages to finance the purchase of their home. Since purchase-money mortgages are exempt
from the right of rescission, these four participants would not have received the notices of rescission
in connection with their most recent mortgage transaction.
Key Interview Findings
Prior Awareness of Right of Rescission
When the participants were asked before they read the notice what they would do if they
decided the day after refinancing that they had made a mistake, two of the eight knew that they
would have the right to cancel their new loan. Three indicated that they would contact the
creditor to ask about their options, while one said he would contact an attorney. One participant
said she did not know what she would do in such a situation, while the remaining participant
indicated that there was “nothing” he could do at that point to get out of the new loan.
Review of Rescission Notice (RN-8)
General Understanding of the Right to Cancel
All participants understood after reading the notice that they had the right to cancel their
transaction. All of them also understood that they would be cancelling their new (i.e., refinanced)
loan, and not the original loan with the same creditor.
None of the participants understood that the reason the creditor gave them the right to cancel
their transaction was that it was a federal law. Almost all of them indicated that the creditor gave
its customers this right in case they had second thoughts or changed their minds. One
participant thought that this might be required of all creditors, but she did not see this
information in the notice.
When asked why someone might want to cancel their loan, most participants mentioned a
change in employment, such as job loss. Two participants said they might want to cancel the
loan if they read their account-opening forms more closely after returning home and found
terms they did not like.
21
Security Interest
All participants understood that if they refinanced their loan and did not make the required
payments, the creditor could take their home. A few did not see this information in the notice,
but they understood anyway that the creditor had this right.
Fees
All eight participants saw in their initial review of the notice that they would not be charged a fee
for cancelling their loan.
As in previous rounds, participants were asked whether they would be refunded a $25 fee they
had paid for a credit check (i.e., to a third party) if they rescinded. Four of the participants
understood after reading the notice that this fee would be refunded; the other four incorrectly
thought it would not.
Understanding of How to Cancel
All participants understood that they could contact the creditor to indicate that they wanted to
cancel in person or by mail, e-mail, or fax.
When the participants were asked which of the four methods they would be most likely to use to
notify the creditor of their desire to cancel, five of the eight indicated they would do so in
person, two participants indicated they would send a fax and one said he would use e-mail.
All participants said that if they delivered their notification of cancellation in person they would
give it either to the person they had worked with to refinance the loan, or to another loan
officer. All participants said they would not give their notification to a teller or put it in the
creditor’s drop box.
All participants understood that in order to cancel their loan they would need to date the notice
and return it to the creditor.8,9 Two participants incorrectly said that they would have to return
the entire notice, as opposed to just the bottom half.
Understanding of the Cancellation Deadline
When participants were asked what the cancellation deadline would be if they had completed their
refinancing that day, they all referred to the deadline indicated in the notice (April 20, 2010).10
All but one participant indicated that if they faxed their notice of cancellation to the creditor at
11:30 p.m. on the day of the deadline, their cancellation would still be valid. The remaining
participant thought that because the fax would arrive after business hours, it would be
considered late.
8
Unlike notices used in previous rounds, RN-8 only required that borrowers date the form to rescind; it did not require
a signature.
9
Unlike notices used in previous rounds, RN-8 did not offer borrowers the option of preparing another document to inform
their creditor of their decision to cancel.
10
The deadline provided in the notice was accurate if participants closed on their new loan on April 16, the day of
the interviews.
22
Half of the participants indicated that they would miss the deadline if they dropped the notice in
a mail box at 11:30 p.m. on the last day before the deadline, because they would have no
evidence that they had mailed the notification in time. The other half assumed that they would
have met the deadline. One participant noted the statement in the notice that “in certain
circumstances, your right to cancel this loan may extend beyond this date,” and used this as a
rationale for why the notification might still be considered valid in this situation.
Acknowledgement Line
As in previous rounds, participants were given a scenario in which they received the rescission
notice as part of a packet of papers they were signing to refinance their loan, and were told to
sign or initial each page to show that they had received the notice. All said that they would initial
the acknowledgement line on the notice.
Subsequent Design Decisions
Findings from this round of testing confirmed what had been learned through early rounds—
most importantly, that providing a calendar date leads to improved understanding among
borrowers of how long they have to rescind. Therefore, the proposed model notice published by
the Board in July 2010 will be based very closely on RN-8.
23
Chapter IV: Summary
This report summarizes work conducted by ICF Macro in support of the Board’s efforts to amend
Regulation Z rules related to the disclosure of the right of rescission to consumers.
ICF Macro conducted four rounds of consumer interviews between November 2009 and April 2010 to
test the effectiveness of revised rescission notices. Consumer testing informed Board staff’s decision to
propose a tabular format for the rescission notice, rather than the narrative format used in the current
model forms. The tabular format increased participants’ understanding of the fact that they would not
be charged a fee for cancelling their transaction, and that any fees they paid would be refunded.
The most significant revision to the rescission notice is in the description of the deadline to cancel.
Early rounds of testing found that the primary way in which the deadline is described in current
model forms—as three “business” days after the latest of three events—was confusing to
consumers and led to frequent misidentification of the deadline. Because of these findings, Board
staff decided to simplify the language on the notice and provide only the calendar date by which
cancellation must take place. Testing showed that participants preferred the revised wording which
resulted in a significant improvement of their ability to identify the deadline to cancel.
The Board intends to propose the revised model rescission notices for both closed-end mortgages
and HELOCs in connection with its proposed amendments to Regulation Z in July 2010. These
model forms were developed, in large part, based on findings from the consumer testing described
in this report. Consumer testing results indicate that the revised forms communicate important
information in a clear and effective way, which should enable consumers to understand this
important right and to make informed financial decisions.
24
Appendix A:
Sample Recruitment Protocol
(Rounds 1 through 3)
Participant Screener for Federal Reserve Board In-Depth Interviews
Phoenix, AZ
March 23 and 24, 2010
General Information and Recruiting Specifications
•
Interviews will be held on March 23 and 24 at the following times: 9:00, 10:30, 12:30, 2:00,
and 3:30.
•
INTERVIEWERS: Ask all participants to bring their reading glasses if necessary, because they
will be asked to read several sample mortgage documents as part of the interview or focus
group.
Recruiting Script
Hello, I am calling on behalf of the United States Federal Reserve Board. The Federal Reserve
Board is sponsoring a series of consumer interviews in your area so that we can learn more about
how people make financial decisions. We will use what we learn from these interviews to help
make sure that the information that banks provide to consumers about various financial products
is useful and easy to understand.
Q1: Do you currently own a home?
Yes Continue
No Thank respondent politely and end call.
Q2: Have you ever taken out a loan against equity in your home to pull money out for some
purpose, either as a second mortgage at the time you purchased your home, or for home
improvements, debt consolidation or to cover other expenses?
Yes Continue
No Participant qualifies for Group C: Skip to Q6
Q3: Was this loan related to a property for your own use, or a property you purchased solely as
an investment?
Own Use
Continue
Investment Thank respondent politely and end call.
Q4: There are at least two ways in which someone can borrow money against equity in his or
her home. One is a traditional mortgage where you borrow a fixed sum of money at once
and pay it back over time. The other is a home equity line of credit (also known as a
“HELOC”) which allows you to draw different amounts of money whenever you need it.
At any point in the past five years, have you had a home equity line of credit (or
“HELOC”)?
Yes Continue
No Thank respondent politely and end call.
Page 1 of 4
Q5a: Did you get your HELOC at the same time as your primary mortgage?
Yes Continue
No Participant qualifies for Group A: Skip to Q6
Q5b: Did you use money from your HELOC to help purchase your house?
Yes Participant qualifies for Group B: continue to Q6
No Participant qualifies for Group A: continue to Q6
Q6: Are you the person in your household who would be responsible for making decisions
related to a home equity line of credit or home equity loan?
Yes Continue
Yes, in cooperation with my [spouse, partner, etc.] Continue
No Ask the respondent whether the primary decision maker is available to join the
call. If not, thank respondent politely and end call.
Great. We will be holding interviews in Phoenix on March 23rd and 24th. I was wondering if
you would be interested in attending.
Yes Continue to screening questions
No Record reason (not interested, not available on that date, etc.). If unavailable
on that date, retain their information because we may do additional rounds of testing in
the future. Thank them politely and end call.
That’s great. I just need to ask you a few more questions to see if you qualify for one of
our interviews.
Q7: Do you work, or have you ever worked, for a bank or other financial institution, or in the
real estate or mortgage industry?
Yes Thank respondent politely and end call.
No Continue
ARTICULATION QUESTION: In a few sentences, could you explain what a home equity line
of credit is?
If respondent gives a thoughtful, articulate answer Continue
If respondent does not give a thoughtful, articulate answer Thank respondent politely
and end call.
Page 2 of 4
Screening Criteria
Recruiting Quotas
•
•
•
At least two participants must be in
Group B.
Exactly four participants must be in
Group C.
Rest of participants must be in
Group A.
Q8a: Have you experienced any of the following
financial hardships in the past 7 years:
bankruptcy, foreclosure, repossession, or a tax
lien?
a) Yes
b) No
At least three (but no more than five)
recruits must answer:
•
Q8b: How would you rate your credit?
a)
b)
c)
d)
•
“a” to Q8a; or
“c” or “d” to Q8b.
Excellent
Good
Fair
Poor
Q9a: [Groups A and B only] Do you currently have
an outstanding balance on your HELOC?
Yes
No
Q9b: [Groups A and B only] What is the current
outstanding balance on your HELOC?
At least three (but no more than six)
recruits should answer “Yes” to Q9a
$70,000+
$30,000–$70,000
$10,000–$30,000
Less than $10,000
Q10: What is your age?
At least 3 recruits should respond “a”
a) 18 to 35
b) 36 or above
Page 3 of 4
Screening Criteria
Recruiting Quotas
Q11: Which of the following categories best reflects
your race or ethnicity? You can choose more
than one category. [Respondents who wish to
choose more than one category should be
counted as minorities, even if one race
mentioned is White.]
a)
b)
c)
d)
e)
White
Black or African-American
Hispanic or Latino
Asian or Pacific Islander
Native American or Alaska Native
Q12: What is the highest level that you reached in
school?
•
•
•
•
a) High school degree or less
b) Some college work
c) College graduate
•
Q13: Gender
At least 4 recruits should respond “a”
At least 4 recruits should respond “b,”
“c,” “d,” or “e”
At least 2 recruits should respond “a”
At least 3 recruits should respond “b”
At least 3 recruits should respond “c”
At least 3 recruits of each gender
Page 4 of 4
Appendix B:
Recruitment Protocol
(Round 4)
Participant Screener for Federal Reserve Board In-Depth Interviews
Memphis, TN
April 16, 2010
General Information and Recruiting Specifications
•
Interviews will be held on April 16 at the following times: 9:00, 10:00, 11:00, 12:00, 1:00,
2:00, 3:00, and 4:00.
•
INTERVIEWERS: Ask all participants to bring their reading glasses if necessary, because they
will be asked to read several sample mortgage documents as part of the interview.
Recruiting Script
Hello, I am calling on behalf of the United States Federal Reserve Board. As you may know,
recently many Americans have had problems with their mortgages. In response to the recent
mortgage issues, the Federal Reserve Board is sponsoring a series of consumer interviews in
your area so that we can learn more about how people make decisions regarding their mortgages.
We will use what we learn from these interviews to help improve the information consumers
receive when they get a mortgage loan.
Q1: Have you obtained a new mortgage or refinanced a mortgage in the past two years?
Yes Continue to Q2
No Thank respondent politely and end call.
Great. We will be holding interviews in Memphis, Tennessee on Friday, April 16th. Participants
will receive a stipend in exchange for their time and input on this important topic. I was
wondering if you would be interested in attending.
Yes Continue to screening questions
No Record reason (not interested, not available on that date, etc); thank them
politely and end call.
Q2: Have you participated in any focus groups or in-person interviews in the past 6 months?
Yes Thank respondent politely and end call.
No Continue
Q3: Was this mortgage related to a property for your own use, or a property you purchased
solely as an investment?
Own use
Continue
Investment Thank respondent politely and end call.
Page 1 of 4
Q4: Were you the person in your household who was responsible for making decisions related
to this mortgage?
Yes Continue
Yes, in cooperation with my [spouse, partner, etc.] Continue
No Thank respondent politely and end call.
Q5: Do you work or have you ever worked for a bank or other financial institution, or in the
real estate or mortgage industry?
Yes Thank respondent politely and end call.
No Continue
Q6: ARTICULATION QUESTION: In a few sentences, could you describe the process through
which you found your current mortgage lender?
If respondent indicates that he/she got their mortgage through a family member or close
friend who was a broker or worked at a bank Thank respondent politely and end call.
In all other cases…
If respondent gives a thoughtful, articulate answer Participant qualifies in
Category A; continue to Q7
If respondent does not give a thoughtful, articulate answer Thank respondent politely
and end call.
At this point, I am going to ask you a few questions that pertain to financial information that you
might find personal or private. However, I want to assure you that none of this information will
be shared outside the group conducting this research, and all information will be kept
anonymous—your name will never be used in any reports.
Q7: How many mortgages do you currently have on your primary residence?
One (skip to Q9a)
Two or more
Page 2 of 4
Q8: Was the mortgage that you obtained in the past two years the larger or smaller of these
mortgages?
Larger (1st mortgage)
Smaller (2nd or 3rd mortgage) [NOTE: No more than 2 among interviews]
Both [Direct respondent to answer remaining questions based on larger (1st) mortgage]
If answer is
“a” or “c”
If answer is
“b”
Q9a: What is the current interest rate on
this mortgage?
Q9b: What is the current interest rate on
this mortgage?
7% or below
Above 7% Qualifies as SP
(Subprime)
Don’t know
9% or below
Above 9% Qualifies as SP
Don’t know
Q16: Have you experienced any of the following financial hardships in the past seven years:
bankruptcy, foreclosure, repossession, or a tax lien?
Yes Respondent qualifies as SP
No
Q17: In the past two years, have you been turned down for credit or have you been discouraged
from applying for credit?
Yes Respondent qualifies as SP
No
Screening Criteria
Recruiting Quotas
Does participant qualify as “SP”?
Q18: Was the mortgage that you obtained used to
re-finance an existing mortgage?
a) Yes (skip to Q20)
b) No
•
At least 3 recruits must be SP
•
At least 3 recruits must NOT be SP
•
No more than 3 recruits should answer “a”
•
At least 3 recruits should respond “a”
Q19: Was this the first home you ever purchased?
a) Yes
b) No
Page 3 of 4
Screening Criteria
Recruiting Quotas
Q20: Some mortgages have an adjustable interest
rate. Does your new mortgage have a rate that
is adjustable or will become adjustable in
the future?
a) Yes, adjustable
b) No, not adjustable Have you had an
adjustable rate mortgage in the past five
years? If Yes, then count as “a”
c) Don’t know
Q21: What is your age?
a)
b)
c)
d)
18 to 25
26 to 35
36 to 50
51 or above
Q22: Which of the following categories best
reflects your race or ethnicity? You can
choose more than one category. [Respondents
who wish to choose more than one category
should be counted as minorities, even if one
race mentioned is White.]
a)
b)
c)
d)
e)
White
Black or African-American
Hispanic or Latino
Asian
Native American or Pacific Islander
•
No more than 2 recruits should respond
“b” or “c”
•
At least 2 recruits should respond “a”
or “b”
•
At least 2 recruits should respond “c”
or “d”
•
At least 2 recruits should respond “a”
•
At least 4 recruit should respond “b,” “c,”
“d,” or “e”
•
At least 2 recruits should respond “a”
or “b”
•
At least 2 recruits should be “c”
•
At least 3 recruits of each gender
Q23: What is the highest level that you reached in
school?
a)
b)
c)
d)
e)
Some high school
High school graduate
At least some college work
College graduate
At least some graduate school
Q24: Gender
Page 4 of 4
Appendix C:
Participant Demographic
and Background Information
Bethesda, MD
(November 2009
Interviews)
Tampa, FL
(January 2010
Interviews)
Phoenix, AZ
(March 2010
Interviews)
Memphis, TN
(April 2010
Interviews)
Total
Male
4
5
3
3
15 (38%)
Female
6
6
7
5
24 (62%)
18-35
3
2
2
3
10 (26%)
36+
7
9
8
5
29 (74%)
Gender
Age
Ethnicity
White
6
7
6
2
21 (54%)
African-American
3
1
2
5
11 (28%)
Latino
1
2
2
0
5 (13%)
Asian
0
1
0
1
2 (5%)
High school or less
1
2
3
2
8 (21%)
Education Level
Some college
4
7
5
4
20 (51%)
College graduate
5
2
2
2
11 (28%)
Financial Hardship (e.g., bankruptcy, foreclosure) in Past Seven Years?
Yes
1
3
1
0
5 (13%)
No
9
8
9
8
34 (87%)
Excellent
5
3
3
0
11 (28%)
Good
3
3
3
4
13 (33%)
Fair
1
2
3
2
8 (21%)
Poor
1
3
1
2
7 (18%)
Self-Reported Credit Rating
Bethesda, MD
(November 2009
Interviews)
Tampa, FL
(January 2010
Interviews)
Phoenix, AZ
(March 2010
Interviews)
Memphis, TN
(April 2010
Interviews)
Total
Had a HELOC in the past 5 years?
9
10
8
—
27 (87%)
Had home equity loan in past 5 years;
considered HELOC as an alternative
0
1
0
—
1 (3%)
No HELOC or home equity loan
1
0
2
—
3 (10%)
Yes
6
9
5
—
20 (65%)
No
3
1
3
—
7 (23%)
No HELOC
1
1
2
—
4 (13%)
$70,000+
0
2
1
—
3 (15%)
$30,000 - $70,000
3
2
0
—
5 (25%)
$10,000 - $30,000
1
2
4
—
7 (35%)
Less than $10,000
2
3
0
—
5 (25%)
Yes
—
—
—
4
4 (50%)
No
—
—
—
4
4 (50%)
Previous Experience with HELOCs 1
HELOC Balance
Current HELOC Balance
Mortgage Used to Refinance Existing
Loan 2
Participants in the fourth round of testing were not screened on the basis of experience with HELOCs, because that round tested a rescission notice that would be given in the context of a
refinanced mortgage loan, not a home equity line of credit.
2 Participants in the fourth round all had obtained a mortgage in the past two years, and were asked whether this mortgage was used to refinance an existing loan. Participants in the first three
rounds were not screened on the basis of this question.
1
Appendix D:
Rescission Notices
Used in Testing
RN-1
RN-2
RN-3
RN-4
RN-5
RN-6
RN-7
RN-8
Account Number:_______________
Property Address: _________________________________
Your Right to Cancel This Line of Credit
By opening this home equity line of credit, you are giving us the right to take your home if you
cannot repay the money you owe, or otherwise default.
Your Right to Cancel
You have the right under federal law to cancel this line of credit without cost anytime before
midnight of the third day after you receive this notice (excluding Sundays and federal holidays).
We cannot make any funds available to you until after this deadline.
If you cancel this line of credit, we must refund to you any fees that you paid to open the line of credit.
We will no longer have the right to take your home.
How to Cancel
If you wish to cancel this line of credit, you must sign and date: (1) this notice; or (2) another notice that
indicates you are canceling your line of credit and includes your account number and property address.
You must then mail this notification to Solar Bank, P.O. Box 890, Wilmington, DE, 19805; fax it to 1
800-555-6789; bring it in person to Solar Bank, 500 Main Street, Calverton, MD; or e-mail it to us at
heloccancellation@solarbank.com.
Whether or not you choose to cancel this line of credit, keep a copy of this notice because it contains
important information about your rights.
Deadline to Cancel
If you want to cancel your line of credit, you must send your cancellation notice by midnight of the
third day after you receive this notice (excluding Sundays and federal holidays). If you bring the
notice in person, you must deliver it by this deadline.
If you receive this notice before you have signed the final documents to open your line of credit, the
deadline for your right to cancel may be later than the date given above. Call us at 1-800-555-1234 for
the exact deadline.
BY SIGNING BELOW, I AM CANCELING THIS LINE OF CREDIT.
_________________________
Signature
______________
Date
Initial here _____ to acknowledge the receipt of TWO copies of this notice on ______________ .
[initials]
[date]
RN-1
Initial here _________ to acknowledge the receipt of TWO copies of this notice on _______
[initials]
[date]
Your Right to Cancel This Line of Credit
Account Number:________________
Property Address: ___________________________________
You Could Lose Your
Home
By opening this line of credit, you are giving us the right to take your home if
you cannot repay the money you owe, or otherwise default.
Your Right to Cancel
You have the right under federal law to cancel this line of credit without cost
anytime before midnight of the third day after you receive this notice
(excluding Sundays and federal holidays). We cannot make any funds available
to you until after this deadline.
If you cancel this line of credit:
• We must refund to you any fees you paid to open the line of credit; and
• We will no longer have the right to take your home.
How to Cancel
You can sign and date either this notice OR another notice that indicates you are
canceling your line of credit and includes your account number and property
address. You must then submit that notice to us by mail, fax, e-mail or in person.
•
•
•
•
Mail the notice to Solar Bank, P.O. Box 890, Wilmington, DE, 19805; or
Fax the notice to 1-800-555-6789; or
E-mail us at heloccancellation@solarbank.com; or
In person: bring the notice to Solar Bank, 500 Main Street, Calverton,
MD.
Whether or not you choose to cancel this line of credit, keep a copy of this notice
because it contains important information about your rights.
Deadline to Cancel
If you want to cancel your line of credit, you must send your cancellation
notice before midnight of the third day after you receive this notice (excluding
Sundays and federal holidays). If you bring the notice to us in person, you must
deliver it by this deadline.
If you receive this notice before you have signed the final documents to open your
line of credit, the deadline for cancelling this line of credit may be later than the
date given above. Call us at 1-800-555-1234 for the exact deadline.
BY SIGNING BELOW, I AM CANCELING THIS LINE OF CREDIT.
_______________________________
Signature
______________
Date
RN-2
Initial here _________ to acknowledge the receipt of TWO copies of this form on ________________.
[initials]
[date]
Your Right to Cancel This Line of Credit
You Could Lose Your
Home
By opening this line of credit, you are giving us the right to take your home if
you cannot repay the money you owe.
Your Right to Cancel
You have the right under federal law to cancel this line of credit before the
deadline stated below. To give you time to decide whether to cancel this line of
credit, federal law prohibits us from making any funds available to you until after
this deadline. Keep a copy of this form because it contains important information
about your rights.
If You Cancel
If you cancel, we will:
• Not charge you a cancellation fee;
• Refund to you any fees you paid to open the line of credit; and
• No longer have the right to take your home.
How to Cancel
To cancel, you can either sign and date the bottom portion of this form OR prepare
another document that says you are cancelling this line of credit. Submit your
cancellation notice to us (choose one):
•
•
•
•
Deadline to Cancel
By mail to Solar Bank, P.O. Box 890, Wilmington, DE, 19805; or
By fax to 1-800-555-6789; or
By e-mail to heloccancellation@solarbank.com; or
In person at Solar Bank, 500 Main Street, Calverton, MD.
If you want to cancel your line of credit, you must submit your cancellation notice
by 11:59 p.m. on the third day (Monday through Saturday, except federal holidays)
following the latest of:
(1) the opening date of your account, which is January 19, 2010; or
(2) the date you received the final Truth in Lending disclosures; or
(3) the date you received this form.
Please call us at 1-800-555-1234 for the exact deadline.
[cut here - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -]
BY SIGNING BELOW, I AM CANCELLING THIS LINE OF CREDIT.
_______________________________
__________________________
Signature
Date
J. Smith
12345 1234
Print Name
_
Account Number
1234 Main Street, Anytown, ST 12345_____________________________________________
Property Address
RN-3
Your Right to Cancel This Loan
You Could Lose
Your Home
You are giving us the right to take your home if you cannot repay the money you
owe under this loan for an increased amount of credit.
Your Right to
Cancel
You have the right under federal law to cancel this loan on or before the date
stated below. Federal law prohibits us from making any funds available to you until
after this date.
If You Cancel
If you cancel, we will:
• Not charge you a cancellation fee; and
• Refund to you any fees you paid to get this loan.
If you do cancel this new loan, all of the terms of your previous loan with us will still
apply. You will still owe us your previous balance, and we will have the right to take
your home if you cannot repay that money.
How to Cancel
To cancel, write the date on the bottom portion of this notice and submit it to us
(choose one):
•
•
•
•
Deadline to Cancel
By mail to Solar Bank, P.O. Box 890, Wilmington, DE, 19805; or
By fax to 1-800-555-6789; or
By e-mail to loancancellation@solarbank.com; or
In person at Solar Bank, 500 Main Street, Calverton, MD.
If you want to cancel this loan, you must mail, fax, e-mail, or deliver the bottom
portion of this notice on or before April 20, 2010.*
*In certain circumstances, your right to cancel this loan may extend beyond this date.
Initial here _________ to acknowledge the receipt of this form on ____________.
[initials]
[date]
[cut here - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -]
I AM CANCELLING THIS LOAN.
Pat Consumer__________________________
__________________________
Name
Date
1234 Main Street, Anytown, ST 12345
12345 1234_____________________
Property Address
Identification Number
RN-8
ICF Macro
11785 Beltsville Drive
Calverton, Maryland 20705
icfmacro.com
@FedFRASER