The Truth in Lending Act (TILA) grants borrowers certain rights, including the right to rescind or cancel a mortgage contract within three days of signing the mortgage. It also gives borrowers three years to rescind if the lender fails to provide all of the required disclosures at closing. The statute provides that a borrower must exercise the right to rescind “by notifying the creditor...of his intention to do so.”
The TILA’s mortgage contract cancellation provisions have been the subject of debate and litigation in recent years, with lenders arguing that simple written notice is insufficient. What is required by the statute, according to lenders, is the initiation of a court action. Lenders have had some success with this argument, and a split emerged among the U.S. Courts of Appeal as to the proper interpretation of the TILA.
The U.S. Supreme Court recently weighed in on the issue, and came down on the side of borrowers. On January 13, 2015, in the case of Jesinoski et al. v. Countrywide Home Loans Inc., the Court unanimously ruled that borrowers may exercise a right to rescission by simply notifying creditors of their intent to rescind a loan within three years after receiving the loan if the lender did not disclose the borrower’s three-day right to rescind. No court action is required.
The case involved a lawsuit filed by Larry and Cheryle Jesinoski against Bank of America (BOA) after its subsidiary Countrywide Home Loans, Inc. refused to rescind a mortgage loan to the Jesinoskis. The Jesinoskis sent a rescission notice by letter exactly three years after issuance of the loan. Countrywide refused to rescind the loan on the basis of the letter. The Jesinoskis then filed suit, and lost at the district court and court of appeals. Both courts held that the TILA requires borrowers to bring suit within three years of the loan being issued in order to effect the right to rescission.
Writing for the unanimous Court, Justice Antonin Scalia stated that the statutory language “leaves no doubt” that a borrower need merely notify the lender to effect a rescission. Court action is not required. The brevity of the opinion - barely five pages - underscores the unanimity of the Court.
Indeed, the Court described the statute’s provisions on this point as “unequivocal.” Its terms are clear about how “the right to rescind is to be exercised: It 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.’” The Court also focused on Congressional intent in passing the TILA, noting that the statute is intended to help consumers “avoid the uninformed use of credit and to protect consumers against inaccurate and unfair billing.” 15 U.S.C. § 1601(a).
The Court’s holding upholds the approach followed by the Third, Fourth, and Eleventh Circuits - which simply required notice to the creditor - and overturned First, Sixth, Eighth, Ninth, and Tenth Circuit precedent which required borrowers to bring a lawsuit to affect rescission.
In light of this case, lenders need to be diligent to ensure that all required disclosures are provided to borrowers at the time of closing. Failing to do so will extend a borrower’s right to rescind to three years, and only a written notice - as opposed to the initiation of a lawsuit - will be required to exercise that right.
 Case no. 13-684 (Decided Jan. 13, 2015).