TILA Rescission Case

The Supreme Court will hear arguments in November that will be of interest to all lenders that originate mortgages.

The question before the Supreme Court is:

Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 of the Truth in Lending Act (“TILA”) by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f).

The American Bankers Association along with other trade groups filed a friend-of-the-court brief urging the Supreme Court to uphold the appellate court decision in Jesinoski v. Countrywide. The appellate court in Jesinoski ruled that to rescind a mortgage, a borrower must file a lawsuit before three years are up, as most other appellate circuits have found.

The petitioners are urging the Supreme Court to find that a written notice of intent to rescind a mortgage is sufficient within the three-year window.

ABA and the other groups argued that the petitioners’ approach, however, would “fundamentally undermine the finality and clarity Congress intended this statute to provide.”

Moreover, the petitioners' approach would allow a borrower to strip a creditor of its security interest instantaneously and unilaterally — even if the creditor complied fully with TILA. But most importantly, it would cast a shadow of uncertainty over the housing finance market, resulting in additional costs to borrowers.

Read the brief.