What type of loan does the rescission provision of truth-in-lending apply to?

The rescission provision of the Truth in Lending Act (TILA) specifically applies to home equity loans, which are often referred to as "second mortgages." This provision allows borrowers to cancel the transaction within a specified period, typically three business days, after the loan is finalized. The rationale behind this is to protect consumers by ensuring they have a clear understanding of their financial obligations and the implications of borrowing against their home equity.

Home equity loans involve using the borrower's home as collateral, which introduces a level of risk that the TILA aims to mitigate. By providing a right of rescission, the law acknowledges the gravity of potentially losing one's home if they fail to repay the borrowed amount.

In contrast, personal loans, conventional mortgages, and commercial loans are not covered by the rescission provision in the same manner. Personal loans often do not require collateral, conventional mortgages typically involve primary residence loans that don’t have the same type of rescission rights, and commercial loans are aimed at business ventures rather than individual consumers, which changes the context and regulatory focus.