Truth In Lending Act Requires Notice, Not Suit

In a unanimous and brief five page opinion, both rarities for the U.S. Supreme Court, the decision in Jesinoski v. Countrywide Home Loans (Docket 13-684, Jan. 13, 2015) made clear that the Federal Truth in Lending Act (“TILA”) only requires an aggrieved borrower to provide a notice of rescission of a loan transaction and not commencement of a lawsuit to rescind it.

TILA allows a borrower to rescind any residential mortgage transaction up to three days after the lender provides the loan disclosures (annual percentage rate, cost of loan (points, etc.), and other loan details) that TILA requires.  Normally, a lender provides the disclosures at the loan’s closing.  If it does so (and usually borrowers are required to sign that they have received the disclosures), the right to rescind expires three days later. If the lender fails to provide the disclosures, or if the borrower claims that the lender failed to provide the disclosures, then the rescission period could continue for three years after the loan closing. In any event, the right to rescind ends after three years.

The facts of the case are simple.  Exactly three years after borrowing money from respondent Countrywide Home Loans, Inc., to refinance their home mortgage, Larry and Cheryle Jesinoski sent Countrywide and respondent Bank of America Home Loans, which had acquired Countrywide, a letter purporting to rescind the transaction. Bank of America replied, refusing to acknowledge the rescission’s validity. One year and one day later, the Jesinoskis filed suit in federal court, seeking a declaration of rescission and damages. The District Court entered judgment on the pleadings for respondents, concluding that a borrower can exercise the Truth in Lending Act’s right to rescind a loan, see 15 U. S. C. §1635(a), (f), only by filing a lawsuit within three years of the date the loan was consummated. The Jesinoskis’ complaint, filed four years and one day after the loan’s consummation, was ineffective. The U.S. Court of Appeals for the Eighth Circuit affirmed.  The Jesinoskis then appealed to the U.S. Supreme Court which reversed and remanded the case to the Eighth Circuit.

Countrywide contended that the statute required the borrower to commence litigation in order to exercise the right to rescind.  However, the Court agreed with the borrower stating that the law was written unequivocally to provide only a requirement of notice to the lender by the borrower of the latter’s intention to rescind.  The Court opined that there was “no doubt” on that point.

Countrywide’s concern was to the effect that borrowers might sit on their rights, default on their loan, claim they did not receive the TILA disclosures, claim an intent to rescind their loan by merely giving notice within the three years, and avoid foreclosure.  Lenders the size of Countrywide might have a practical problem in fighting such actions by their inability to maintain adequate records, perhaps not easily found, as to whether the TILA disclosures were made at the time of the loan closing.  Filing a lawsuit could provide a higher hurdle for the borrower to overcome in claiming a right of rescission.  The Supreme Court was not persuaded by any of Countrywide’s concerns.

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