Supreme Court Rules for Consumers in TILA Case
The Supreme Court decided the first of a series of cases this year that may impact your credit union’s operations. In Jesinoski v. Countrywide Home Loans, Inc., the Court decided a narrow but important issue involving the right to rescind that has split the federal courts.
As you undoubtedly know, the Truth in Lending Act mandates that lenders provide consumers notice of a right to rescind certain mortgage transactions, which grants them three days to rescind the transaction. This means that the member who gets cold feet about taking out a home equity loan to finance his dream addition has three business days to notify you that he wants to opt out. The right of rescission does not apply to home purchases.
The statute provides that a consumer may exercise the right to rescind until midnight of the third business day following delivery of the notice. It also provides that in the event that notice of the right to rescind has not been provided, a consumer has “three years after consummation” to rescind the loan. In the case decided by the Court, our homeowners took out a $635,000 loan. They were not given the notice of the right to rescind. They subsequently waited exactly three years before informing the lender that they wanted to rescind the loan. The bank argued, and the Eighth Circuit agreed, that the homeowners were out of luck. The lower court concluded that the failure to provide notice of the right to rescind gave homeowners the right to commence a lawsuit within three years of consummation.
The homeowners appealed and the Supreme Court ruled in their favor. In the unanimous and wonderfully concise opinion written by Justice Scalia, the Supreme Court concluded yesterday that the plain language of the Truth in Lending Act “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 statute does not also require him to sue within three years.”
A couple of quick thoughts about this case. Obviously, the situation that Countrywide found itself in can be easily avoided by your credit union provided you have the procedures in place to give consumers the necessary disclosures in a timely fashion. In those situations where you let the disclosures fall through the cracks, this decision does extend the amount of time a lawsuit requesting the right to rescind is hanging over your head. Finally, the Court’s ruling underscores yet again that for all its regulatory complexity, TILA is at its core a federal disclosure statute. If you have the proper disclosure procedures in place, there is very little TILA will prevent you from doing. If you don’t, Congress and the courts have little sympathy for you.
Incidentally, this is why it is so important to keep track of what disclosures your vendors are sending out on your behalf, and when they are being sent.