January 16, 2015 Practice Points

SCOTUS Resolves Truth in Lending Act Circuit Split

The Court held that borrowers exercising the right to rescind under TILA need only provide written notice to the lender within the three-year period.

By M. Lane Molen

In Jesinoski v. Countrywide Home Loans, Inc., decided January 13, 2015, the U.S. Supreme Court resolved a circuit split and clarified that borrowers need not file a complaint to invoke their right to rescind within the three-year window of the Truth in Lending Act (TILA). In a short opinion by Justice Scalia, the Supreme Court unanimously reversed the Eighth Circuit Court of Appeals and held that borrowers exercising the right to rescind under TILA need only provide written notice to the lender within the three-year period. The decision resolves what had been a split between the circuits: The Third, Fourth, and Eleventh Circuits had held that written notice is itself sufficient; meanwhile, the First, Sixth, Eighth, Ninth, and Tenth Circuits had held that TILA required a borrower to file suit, not just provide notice.

On February 23, 2007, the Jesinoskis borrowed $611,000.00 from Countrywide Home Loans to refinance the mortgage on their home. Exactly three years after borrowing the money, the Jesinoskis mailed Countrywide a letter notifying respondents Countrywide and Bank of America that they intended to rescind the loan. Bank of America responded with its refusal to acknowledge the validity of the rescission. One year and a day later (four years and one day after the refinancing) the Jesinoskis filed a complaint in the District Court for the District of Minnesota, seeking a declaration of rescission and damages. The district court entered judgment on the pleadings in favor of the defendants, on the grounds that the rescission right required the Jesinoskis to file a lawsuit within three years of the loan’s consummation. The Eighth Circuit affirmed.

The TILA provision at issue grants borrowers an unconditional right to rescind for three days, after which they may rescind up to three years after the transaction in the event the lender does not comply with TILA disclosure requirements. 15 U.S.C. § 1635(a). In the opinion, Justice Scalia relied upon the plain language section 1635(a), stating that a borrower may rescind “by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” Scalia explained that this language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.”

The Court rejected the respondents’ attempts to rely upon the Court’s prior holding in Beach v. Ocwen Fed. Bank, 523 U. S. 410, 417 (1998). Justice Scalia explained that while Beach settled the issue of when the right to rescind must be exercised, it said nothing about how it is exercised. The Court further rejected the respondents’ attempt to make a distinction between disputed and undisputed rescissions, finding no support in TILA’s plain language for any distinction.

Finally, the Court rejected the respondents’ claims that common law implicitly suggested the requirement to file a complaint. Specifically, the respondents argued there were two methods of rescission at common law—(1) that the rescinding party first tender what it had received (rescission at law), and (2) that a court affirmatively decree rescission (rescission in equity). The respondents further argued that because TILA disclaimed the rescission-at-law requirement of tendering proceeds, it inherently recognized rescission in equity. Justice Scalia reasoned that the negation of one did not imply the other and stated that “[t]o the extent [TILA] alters the traditional process for unwinding such a unilaterally rescinded transaction, this is simply a case in which statutory law modifies common-law practice.”

For lenders, this decision only further reinforces the importance of providing proper TILA disclosures. In addition, lenders and servicers who receive written notices of rescission should not wait until a lawsuit is filed before addressing them.

M. Lane Molen, Snell & Wilmer L.L.P., Salt Lake City, UT


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