The Truth in Lending Act (“TILA”) gives borrowers the right to rescind certain loans up to three years after the loan transaction is consummated if a lender fails to provide certain TILA disclosure. 15 U.S.C. § 1635(f). In Jesinoski v. Countrywide Home Loans, Inc., ___ U.S. ___, 2015 WL 144681, 2015 U.S. LEXIS 607 (January 13, 2015), the United States Supreme Court addressed what steps a borrower has to take under TILA to rescind the loan within three years.
In Jesinoski, plaintiffs-borrowers refinanced the mortgage on their home on February 23, 2007. Three years later, the borrowers mailed a letter to Countrywide Home Loans, Inc. (“Countrywide”), their lender, purporting to rescind the loan transaction. Borrowers file suit against Countrywide and others over a year later. Countrywide and other lender-defendants argued that borrowers’ suit was barred because they were required to file a lawsuit within three years to properly rescind the loan. Both lower courts agreed with lenders. The United States Supreme Court, unanimously, did not.
As the Court explained, TILA unequivocally provides that a borrower “shall have the right to rescind … by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” 15 U.S.C. § 1635(a). The Court concluded that the language of § 1635(a), “leaves no doubt that rescission is effected” by a borrower’s written notice to lender, and therefore, a borrower is not required to additionally file a lawsuit within three years in order to rescind the loan.
The Court addressed and rejected several arguments made by lenders. First, the Court rejected lenders’ argument that written notice effects rescission only if a borrower’s TILA claims are legitimate, because § 1635(a) does not contain a distinction between disputed rescission and undisputed rescission, must less a lawsuit required for the latter.
Second, the Court reasoned that other provisions of TILA do not alter its conclusion. The Court found § 1635(f) only dictates when the right to rescind must be exercised – not how that right is exercised. The Court also found § 1635(g)’s provision of additional judicial relief available to a borrower for lenders’ violations does not indicate that judicial action is required for a borrower to effectively rescind the loan transaction.
Third, and most persuasively, lenders argued that permitting rescission of a loan by simple notice to the borrower effectively rendered common law rescission avenues (rescission at law which requires the borrower to tender the amount due and rescission in equity which requires a judicial decree) meaningless. This argument was a practical one; however, it was also rejected by the Court. The Court specifically responded:
Nothing in our jurisprudence, and no tool of statutory interpretation requires that a congressional Act must be construed as implementing the closest common-law analogue.
The lenders’ statutory argument in Jesinoski was difficult. It is surprising that both the Eighth Circuit and Ninth Circuit had previously held that a borrower is required to file suit within the three year deadline to effect a rescission of the loan given TILA’s statutory language. Despite the difficult statutory arguments in support of lenders’ position, there is certainly potential for abuse by borrowers as a result Jesinoski. The holding could allow a borrower to assert frivolous claims that a lender failed to provide the borrower with certain TILA disclosures in an effort to avoid foreclosure. So long as a borrower alleges he provided lender with written notice of lender’s failure to provide the statutory disclosures within three years after the consummation of the loan, most courts will likely find a properly stated claim for relief.