Posted in Foreclosure Defense, Legal News

TILA EXPLAINED: The Jesinoski Opinion

The U.S. Supreme Court issued an opinion in Jesinoski v. Countrywide, 574 U. S. ____ (2015) on January 13, 2015.  The case was a Truth in Lending Act (“TILA”) case.  The opinion was delivered by Justice Antonin Scalia for a unanimous court.  Justice Scalia did not mince any words.  The opinion was short and to the point.  As far as opinions are concerned, this opinion is probably one of the shortest I have ever read.  However, the opinion was quite powerful by emphasizing that borrowers only need to notify the creditor in order to exercise their right of rescission under the Truth in Lending Act.  The Court states, “Section 1635(a)’s unequivocal terms—a borrower “shall have the right to rescind . . . by notifying the creditor . . .of his intention to do so” (emphasis added)—leave no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. ”

By way of background, Congress enacted TILA in 1968 as a consumer protection statute. As such, Congress put the onus on the creditor to make clear, conspicuous, and accurate material disclosures.  The purpose of TILA is to “assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a).  The Act requires creditors to make “clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower’s rights.” Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998).  If the creditor fails to do so, it can be held liable for criminal penalties, see 15 U.S.C. § 1611, and a debtor can sue for damages (including a statutory penalty of twice the finance charge), see 15 U.S.C. § 1640(a). Beach, 523 U.S. at 412.

Beginning with the Beach opinion I n 1998, the judicial system began eviscerating consumer protections in favor of banking protections.  Courts in various circuits interpreted Beach as terminating a borrower’s right to rescind if the borrower did not file suit in addition to notifying the creditor within three years of the loan’s consummation of their intent to rescind.  The cite from Beach used most often was “We respect Congress’s manifest intent by concluding that the Act permits no federal right to rescind, defensively or otherwise, after the 3-year period of §1635(f) has run.”  However, the Beach case concerned borrowers who first notified the creditor of their intention to rescind six years after the consummation of the loan.  In Jesinoski, the Court clarified Beach by stating “We concluded only that there was “no federal right to rescind, defensively or otherwise, after the 3-year period of §1635(f) has run,” id., at 419, not that there was no rescission until a suit is filed.”

The Court also clarified what is most commonly termed as the “tender rule” as it relates to TILA.  Under common law rescission, a borrower is required to tender first before rescission can be effected.  Rescission under TILA is quite different and is a three step process: (1) consumer send letter to creditor advising creditor that consumer rescinds credit transaction (this voids the security interest), (2) creditor returns all property and/or money paid by consumer, and (3) consumer returns all property and/or money received from creditor.  The Official Staff Commentary to Regulation Z states that only steps 2 and 3 may be modified by a court.  Step 1 cannot be modified.  In other words, once a consumer rescinds, the security interest is void – no ands, ifs, or buts about it.  Under TILA, the borrower is under no obligation to tender first.  However, beginning with Yamamoto v. Bank of New York 329 F.3d 1167 (9th Cir. 2003), courts in several jurisdictions have taken the position that rescission should be conditioned on the consumer’s tender.  These courts go so far as to require consumers to plead tender or risk an immediate dismissal of their claims.

In Jesinoski, the Court states “that the Act disclaims the common law condition precedent to rescission at law that the borrower tender the proceeds received under the transaction.”  The Court further states, “To the extent §1635(b) alters the traditional process for unwinding such a unilaterally rescinded transaction, this is simply a case in which statutory law modifies common-law practice.”

So there you have it.  Clarification at last that a borrower need only “provide written notice to a lender in order to exercise his right to rescind”.  Additionally, there is no requirement for a borrower to tender first.  Stay tuned because my prediction is that the banking industry will try as hard as they can to have Congress gut TILA.


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