Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

The Truth-in-Lending Act (TILA) is the law that specifically defines the right of rescission in mortgage transactions. This right allows borrowers to cancel certain types of credit transactions, such as refinancing or home equity loans, within three business days of closing. The purpose of this provision is to give consumers a chance to reconsider their decision by reviewing the terms of the loan and ensuring they fully understand their obligations.

The act requires lenders to provide clear disclosures about the costs and terms of borrowing, allowing consumers to make informed choices. By offering the right of rescission, TILA aims to protect consumers from potentially expensive or unsuitable financial commitments they may later regret, thereby fostering transparency and fairness in lending practices.

In contrast, the other options focus on different aspects of housing and lending regulations. For instance, the Fair Housing Act primarily addresses discrimination in housing, while the Real Estate Settlement Procedures Act (RESPA) pertains to the disclosure of settlement costs and processes in real estate transactions. The Equal Credit Opportunity Act focuses on preventing discrimination in credit lending. However, none of these laws specifically address the right of rescission as directly as the Truth-in-Lending Act does.