The Lawletter Vol 40 No 1
The federal Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601–1677, was enacted to ensure "a meaningful disclosure of credit terms" to give consumers the opportunity to make informed credit decisions. Id. § 1601(a). In relevant part, TILA grants consumers a right to rescission, no questions asked, under certain circumstances. See id. § 1635(a); 12 C.F.R. § 226.15(a)(3). Once a consumer validly exercises the right to rescind, the entire transaction is voided without any liability or encumbrances. See 15 U.S.C. § 1635(b); 12 C.F.R. § 226.15(d)(1).
To effectively rescind, however, consumers must timely do so. Specifically, consumers must notify the lender prior to the later of "midnight of the third business day following the consummation of the transaction or the delivery of the [requisite disclosures under the Act]." 15 U.S.C. § 1635(a). Although the second alternative seems open-ended, the Act further states that in no event shall the right of rescission extend beyond "three years after the date of consummation of the transaction or upon the sale of the property, whichever comes first." Id. § 1635(f). But what exactly must be exercised no later than three years after the transaction—the notice of intent to rescind, or the lawsuit seeking rescission? Abrogating the law of the Eighth Circuit Court of Appeals and applying the plain language of TILA, the U.S. Supreme Court held that it was the former. See Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), rev'g 729 F.3d 1092 (8th Cir. 2013).
In Jesinoski, the borrowers refinanced their mortgage in February 2007, and in February 2010 (three years after the refinance), they mailed the lender a letter purporting to rescind the loan. The lender refused to recognize the rescission, and the borrowers filed suit in February 2011 (four years after the refinance). Although the parties did not dispute that the borrowers' notice was timely, the parties' dispute hinged on whether the lawsuit was timely. Agreeing with the lender, the trial court held, and the Eighth Circuit affirmed, that unless a borrower has filed a suit for rescission within three years of the consummation of the transaction, then § 1635(f) will preclude the borrower's right to rescission under TILA. See Civ. No. 11-474 (DWF/FLN), 2012 WL 1365751 (D. Minn. Apr. 19, 2012), aff'd, 729 F.3d 1092 (following Keiran v. Home Capital, Inc., 720 F.3d 721, 727-28 (8th Cir. 2013)).
The Supreme Court granted certiorari in the matter, and Justice Scalia authored the Court's unanimous decision. In relevant part, TILA states in plain and unambiguous terms that a borrower "shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so," id. at 792 (Court's emphasis) (quoting 15 U.S.C. § 1635(a)), but it "does not also require him to sue within three years," id. Although § 1635(f) states "when the right to rescind must be exercised, it says nothing about how that right is exercised." Id. at 793 (Court's emphasis). "To the extent § 1635(b) alters the traditional process for unwinding such a unilaterally rescinded transaction, this is simply a case in which statutory law modifies common-law practice." Id. Simply stated, then, only the written notice of intent to rescind, rather than a lawsuit seeking rescission, must be made within the three-year period for exercising that right under TILA. Therefore, the Supreme Court reversed the decision below and remanded the case for further proceedings.