On April 28, 2014, the Supreme Court granted certiorari to decide whether, as held by the Eight Circuit, a borrower must file a lawsuit to exercise and preserve her TILA rescission right within three years of consummating the loan, or whether simply providing written notice of rescission is sufficient to do so. See Jesinoski, 736 F.3d 1134 (8th Cir. 2013). LLW covered the case this previous post. On January 13, 2015, the Supreme Court reversed the Eighth Circuit, holding that providing a notice of rescission within the three-year period is sufficient to trigger rescission within the meaning of 15 U.S.C. § 1635(f).
In any “consumer credit transaction” that results in the creditor retaining or acquiring a security interest in the borrower’s principal dwelling – a definition that includes subordinate mortgage loans and refinance mortgage loans wherein borrowers receive additional credit – creditors must notify borrowers in writing that borrowers have three business days to rescind the credit transaction by providing written notice of their intent to do so to the creditor. § 1635(a). Where creditors fail to provide written disclosures, or provide inadequate written disclosures, borrowers’ rescission rights are extended to three years after the loan was originated. § 1635(f). The question before the Supreme Court was whether borrowers are required to provide notice of intent to rescind, or affirmatively sue the creditor to effect their rescission rights within the three year limitation period. See Jesinoski, 135 S.Ct. 790, 790 (2015). The Supreme Court held that the statute’s plain language requires only the former, stating that “[t]he language of the statue leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind.” Id., 792. In arriving at its holding, the Supreme Court also opined that common law principles relating to rescission – such as the equitable principle that a borrower must be able show that she can tender the property she received at origination back to the creditor before being permitted to rescind the loan – cannot be applied to interpret the TILA rescission regime. Id., 793.
The impact of Jesinoski is clear:
- Borrowers can now preserve their TILA rescission claims by merely notifying their creditors in writing of their intent to rescind within the applicable three-year time period. Creditors could therefore see an uptick of TILA rescission notices received and will continue to see distressed borrowers allege TILA rescission claims – some potentially commenced many years after rescission notices are received.
- In the event that a creditor disputes a borrower’s rescission notice, it is now an open question as to when the borrower must file suit to enforce his rescission right. It is possible that the limitations period could be indefinite, as long as the borrower timely provides the rescission notice. Or, as the CFPB posited in Sherzer v. Homestar Mortgage Services, the general TILA one-year statute of limitations in 15 U.S.C. § 1640(e) may begin to run from the date the borrower sent the rescission notice. 707 F.3d 255, 266 n. 8 (3rd Cir. 2013). The CFPB’s position is particularly pertinent, given that it is now the entity responsible for promulgating the implementing regulations for TILA. See Jesinoski, 135 S.Ct. at 792 n. * (citations omitted).
- Creditors may now need to reevaluate their responses to borrower rescission notices that they intend to dispute. A pertinent part of this calculus involves weighing the cost of immediately disputing the rescission attempt against the potential added cost and complexity of rescinding a loan many years after origination. This is particularly the case given that the mechanics of rescission appear to require creditors to return all funds received from the borrower and to terminate security interests even if borrowers are unable to return any funds they received at origination – a proposition that becomes exponentially more expensive for creditors the further in time the rescission takes place from the date of the loan. See 12 U.S.C. 1635(b).
LenderLaw Watch will continue to monitor major developments in the TILA rescission regime, and will post updates as they occur.