U.S. Supreme Court Rules for Homeowners in Landmark TILA Case

The United States Supreme Court in a 9-0 decision resolved a split of the federal courts by ruling that a borrower exercises his right to rescind a transaction in satisfaction of the Truth in Lending Act, 15 U.S.C. 1635, by “notifying a creditor” in writing within three years of the consummation of the transaction. Jesinoski v. Countrywide Home Loans, Case No. 13-684, 2015 U.S. LEXIS 607 (U.S. Jan. 13, 2015). The United States Courts of Appeals for the First, Sixth, Eighth, Ninth and Tenth Circuits held previously that a lawsuit must be filed within three years of of the consummation of the transaction while the Third, Fourth and Eleventh Circuits held that the creditor had to be notified in writing within the three year period to invoke the conditional rescission provision under the Truth in Lending Act.

In Jesinoski, Larry and Cheryle Jesinoski borrowed money from Countrywide Homes to refinance their home mortgage. Exactly three years after borrowing the money, Jesinoski sent Countrywide and Bank of America Home Loans a letter purporting to rescind the transaction due to improper disclosures. Bank of America replied refusing to acknowledge the rescission and one year and one day later, Jesinoski filed a declaratory judgment action in federal court seeking rescission and damages. ┬áThe District Court entered judgment for Bank of America and held that a borrower can exercise its Truth in Lending Act right to rescind a loan only by filing a lawsuit within the three year period after the loan’s consummation. Because the lawsuit was filed four years and one day after the loan’s consummation, the District Court held that the rescission was ineffective. The Eighth Circuit affirmed.

In reversing, Justice Scalia writing for a unanimous court, reviewed the purpose of the Truth in Lending Act (“TILA”) which was to help consumers “avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing.” Acknowledging that the Truth in Lending Act grants borrowers two different rights of rescission. The unconditional right to rescind a loan until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required by the TILA, whichever is later by notifying the creditor of his intention to do so and an unconditional right to rescind for three years, after which a borrower can only rescind if the lender failed to comply with TILA’s disclosure requirements. Further, Justice Scalia, opined, even if a lender never makes the required disclosures, the right to rescission based on a failure to make the required disclosures shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever comes first. The requirement that a lawsuit be filed is improper because Section 1635(a) of the TILA provides that a borrower “shall have a right to ┬árescind…by notifying the creditor, in accordance with regulations of the Board (i.e. Federal Reserve Board), of his intention to do so.” The statute does not require a borrower to sue within three years.

The opinion by the United States Supreme appears to continue the trend of literally reading and applying the statutes passed into law. While not unexpected, the opinion in Jesinoski is definitely a win for consumers. The opinions in this Blog are solely the author’s and any comments, suggestions or replies can be sent to me at john@jrjoneslaw.com.