Once upon a time, there was a land where consumers were at the mercy of the lending industry. Consumers were not entitled to know the terms of loans, and often, were tricked into signing loans with very oppressive terms. So consumers cried to their leaders. The leaders, hearing the cries of the consumers, passed the Truth in Lending Act (or TILA, as it’s loving called). The purpose of TILA was to protect consumers from the deceptive and dishonest practices of the lending industry. No longer were the real terms of loans to be hidden. Consumers would be told the truth about the loan products and could compare loan terms in order to find a loan that met their needs. This made the lending industry very, very sad.
TILA required that certain disclosures be given to consumers who take out certain types of loans. If the disclosures are not given, then the consumer can rescind the loan. All a consumer has to do is send the lender a notice letting them know that they are exercising their right of rescission. Once a consumer exercises a valid right of rescission, the security interest is automatically voided. The lender then has 20 days to return all the money that the consumer gave to the lender. Once the lender returns that money, then the consumer has to return to the lender the property or money given by lender. TILA was written so that consumers could act like a “private attorney generals”, Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178, (11th Cir., 1982); Mills v. Home Equity Group, Inc., 871 F. Supp. 1482, 1486 (D.D.C. 1994).
Whenever the lending industry acted badly, consumers looked to the courts to enforce their rights under the new law. Take the case Genoveva Sosa, an immigrant who did not speak English. Mrs. Sosa hired a contractor to install some siding on her home. The contractor presented Mrs. Sosa with a stack of documents to sign, one of which was a deed of trust in favor of the contractor. Didn’t I tell you that lenders were sneaky and deceptive? When the contractor’s work turned out to be very shoddy, Mrs. Sosa rescinded the loan. The contractor/lender would hear none of that and completely ignored Mrs. Sosa’s rescission notice. As a matter of fact, the contractor/lender foreclosed on Mrs. Sosa’s home and sold the home in an auction. Well, Mrs. Sosa was not about to allow the contractor/lender to get away with stealing her home, so she filed a lawsuit to enforce her rescission right. The trial court upheld her right of rescission and reversed the foreclosure but the court also awarded the contractor/lender a lien against Mrs. Sosa’s home. Mrs. Sosa did not think that was right so she appealed.
In Sosa v. Fite, 498 F.2d 114 (5th Cir., 1974), Sosa argued “that the court’s judgment against her is at odds with the express directions of the Truth-in-Lending Act”. The Fifth Circuit Court of Appeals agreed. The Court opined:
In view of this statutory scheme, several facts with respect to the Sosa-Fite transaction take on particular relevance. First, included in Sosa’s notice of rescission was an express offer to return the aluminum siding, an overture which elicited no response whatsoever from the creditors. Second, neither Fite nor Tropical, both of whom were statutory “creditors,” see 15 U.S.C.A. § 1602(f), ever performed their statutory obligations imposed by section 1635(b) since, for one, they utterly failed to take any steps to reflect termination of the security interest in Sosa’s property. The significance of Sosa’s proffered return and the creditors’ failure to comply with clear statutory directives is that Sosa did in fact attempt to make a tender, even though under a literal reading of the statute the creditors were unentitled to any tender at all by virtue of their failure to perform their express obligation of expurgating records of references to the invalidated security interest. See Palmer v. Wilson, supra. at 1102.
It is true that the statute contemplates an orderly progression of specific events, culminating in the debtor’s tender and the creditor’s recoupment, which never came to pass in this case. Specifically, section 1635(b) envisions responsive action on the creditor’s part to a rescission notice, after which the debtor then becomes obligated to tender either the property or a sum reflecting its reasonable value. This precise statutory scheme was abhorted in this case due to the creditors’ failure to comply with statutory requirements, hence Sosa’s responsibility to make the specific statutory tender was excused by the creditors’ omissions.
Id at 118, 119
The Fifth Circuit goes on further chiding the contractor/lender by stating that:
“The creditors, of course, failed to carry out any of their statutory duties, and thus their lament of any inequity being visited upon them is utterly unpersuasive, for the power was completely theirs to prevent this parade of creditor horribles from ever occurring.
Indeed, Fite and Tropical are by no means the unsuspecting victims of some complex regulatory entrapment, for they were at all times on clear notice of the possible forfeiture of both money and property resulting from their pattern of continuous misconduct.”
Id. at 120.
As you can see, in the beginning, the courts clearly understood the purpose of TILA. For the most part, courts around the country understood TILA’s “hypertechnicality”. This made the lenders very angry and they swore to change TILA. The lenders managed to make some small changes to TILA but they could never strip TILA of her power. Until Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998). You see, one of the changes that the lenders were successful in making was putting a statute of limitations on the time when a consumer could exercise their right of rescission. In Beach, the Beaches attempted to exercise their right of rescission six years after they signed the loan documents. Since TILA was amended to give consumers only three years to exercise their right of rescission, the U.S. Supreme Court ruled that the Beaches had not exercised their right of rescission in a timely manner. This made the lenders very, very happy.
In case after case, the lenders argued that TILA was a statute of repose with a three-year absolute limitation. In these courts, the lenders further argued that if a consumer wanted to exercise their right of rescission, they needed to file suit within that three year timeframe. Additionally, the lenders were arguing that the consumer had to tender first or at least plead tender. So in case after case, courts were dismissing consumers’ lawsuits stating that the courts are deprived of subject matter jurisdiction when a TILA claim is brought outside the three-year limitation period. These same courts were dismissing TILA lawsuits brought by consumers because the consumer had failed to plead tender. Remember, under TILA, it’s the lenders that have to tender first unless a court orders otherwise. There is no provision in TILA that states that a consumer has to plead tender. Just the opposite, TILA states that if a consumer offers to tender but the lender does not take the property within 20 days, then the consumer gets to keep the property free and clear.
A handful of courts still recognized the “hypertechnicality” of TILA and observed that under the plain language of TILA, when a consumer exercises a valid right of rescission within the three year timeframe, the security interest is automatically void. TILA does not impose on the consumer a duty to also file a lawsuit in order to preserve that right of rescission.
For many years, the courts in this nation remained deeply divided. Then along came Jesinoski v. Countrywide Home Loans, Inc., et al., 574 U. S. ____ (2015). The issue before the United States Supreme Court was whether a consumer exercises their right of rescission simply by giving notice to the lender within the three year timeframe or does a consumer also have to file suit within the three year timeframe in order to preserve their right of rescission. In a very short, curt opinion delivered by Justice Antonin Scalia, the Court opined that under the plain language of TILA, a consumer exercises their right of rescission simply giving notice to the lender. In reading the Court’s opinion, you could almost hear the Justices scolding the lending industry and the words written so long ago in Sosa v. Fite resonate once more.
“Nothing in our jurisprudence, and no tool of statutory interpretation, requires that a congressional Act must be construed as implementing its closest common-law analogue. Cf. Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U. S. 104, 108-109 (1991). The clear import of §1635(a) is that a borrower need only provide written notice to a lender in order to exercise his right to rescind. 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. TILA says what it means and means what it says. But this story is far from over. The lending industry, as you may have guessed, is not very happy with this decision. I am sure their sneaky, sly, and devious little brains are hard at work.