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The Effect of Jesinoski v. Countrywide Home Loans, Inc. on Litigation under the Truth in Lending Act

Justin E Fine

The Effect of Jesinoski v. Countrywide Home Loans, Inc. on Litigation under the Truth in Lending Act
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The recent Supreme Court decision in Jesinoski v. Countrywide Home Loans, Inc. concerned a dispute about rescinding loans under the Truth in Lending Act (TILA): whether borrowers, who do not receive financial disclosures required by TILA, can exercise their statutory rights to cancel certain types of loans by merely notifying their lenders in writing within three years after the loans are finalized, or whether those borrowers must file lawsuits within those three years. See 135 S. Ct. 790, 792 (2015). The Court decided that TILA only requires written notice. See id. In the wake of this clarification, many courts have been tasked with addressing claims about Jesinoski’s effect on the law of TILA rescissions.

One of the more popular contentions is that Jesinoski recognized an “automatic rescission” of certain loans upon delivery of a written rescission notice to the lender. Many courts have been unwilling to stretch Jesinoski to support this argument. These courts maintain that the Court’s decision was limited to whether written notice alone is sufficient to trigger the right to rescind under TILA and not whether a written notice completes the exercise of that right to rescind and cancels the underlying debt as a matter of law. See, e.g., In re Kelley, 545 B.R. 1, 12 n.5 (Bnkr. N.D. Cal. 2016). But at least one court has reached the opposite conclusion: that a written rescission notice itself effects a complete rescission of the loan. See Paatalo v. JPMorgan Chase Bank, 146 F. Supp. 3d 1239, 1244 (D. Or. 2015). Based on this difference in interpretation of Jesinoski alone, the Supreme Court may have to further clarify the precise effect of a written rescission notice under TILA.

Further, even before Jesinoski, there was a split among the U.S. Courts of Appeals about whether a unilateral, written rescission notice alone entitles a borrower to a loan cancellation as a matter of law under TILA. The Fourth and Ninth Circuits require the additional step of a court decision in order to complete a rescission, where the parties dispute whether the right to rescind was properly invoked and thus have not unwound the transaction among themselves voluntarily, after the rescission notice was given by the debtor. See Gilbert v. Residential Funding, LLC, 678 F.3d 271, 277 (4th Cir. 2012); Yamamoto v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir. 2003). In contrast, the Third and Eleventh Circuits have held that an automatic TILA rescission occurs upon the giving of timely written notice by the borrower, with the creditor required to bring suit to challenge the validity of that rescission thereafter. See Sherzer v. Homestar Mortg. Servs., 707 F.3d 255, 258-260 (3d Cir. 2013); Williams v. Homestake Mortg. Co., 968 F.2d 1137, 1139-40 (11th Cir. 1992).

Litigants have also been arguing that Jesinoski changed TILA law, and that they are entitled to reopen or collaterally attack prior judgments to assert “new” TILA rescission rights. However, the Tenth Circuit Court of Appeals in Kirby v. Ocwen Loan Servicing, LLC, concluded that Jesinoski “does not constitute an intervening change of controlling law.” 641 Fed. Appx. 808, 813 (10th Cir. 2016). Moreover and even assuming that Jesinoski did change the meaning and effect of TILA, litigants will still need to contend with the doctrine of claim preclusion. See Kirby, 641 Fed. Appx. at 812; GMAC Mortg., LLC v. McKeever, 651 Fed. Appx. 332, 343-44 (6th Cir. 2016). Claim preclusion generally provides that a party is barred from raising claims that were or could have been raised in a prior lawsuit that has gone to final judgment. The doctrine usually prevents further litigation, even if there is an intervening change of law, in order to promote the finality of judgments. McKeever, 651 Fed. Appx. at 344. Notably, the Supreme Court denied petitions for certiorari in the Kirby and McKeever cases.

So, while Jesinoski decided whether a written notice is sufficient to exercise the right to rescind a loan under TILA, it remains unclear whether that written notice alone also automatically cancels the loan as a matter of law. Regardless, since the Supreme Court handed down Jesinoski, the courts have been uniform in their unwillingness to allow litigants to use that holding to revisit prior final judgments.