A recent Supreme Court opinion interprets a provision of the Truth-in-Lending Act (“TILA”) favorably to borrowers. Most borrowers are aware of the three-day right of rescission: For most federally-insured mortgages on a primary residence, the transaction isn’t considered effective until three business days after the closing (i.e., the signing of all of the final loan documents), as the borrower enjoys an absolute right to rescind the loan. However, there’s another type of rescission available under TILA, and that’s what was at issue in the case. Lenders are required to issue certain disclosures to potential borrowers prior to the actual closing. This reduces the ability of the lender to surprise a borrower with hidden fees. If the lender fails to make the required disclosures, the borrower has three years to notify the lender that he wishes to rescind the loan.
The question before the Supreme Court in Jesinoski v. Countrywide Home Loans, Inc. was whether the borrowers were required 1.) to file a lawsuit within three years, or 2.) merely notify the lender in writing of their intention to rescind. The trial court and Eighth Circuit sided with Bank of America, but the Supreme Court reversed. In an uncharacteristically short, five-page opinion, Justice Scalia pointed out that the language of the statute required merely notification and not the filing of a lawsuit. Bank of America claimed that cases where disclosures were missing should be treated differently from cases where, as in Jesinoski, the disclosures were made but their sufficiency was questioned, inferring such a distinction from a neighboring subsection of TILA. The Court was not convinced, noting that while Section 1635(g) allowed for the possibility of a lawsuit, it didn’t have any language requiring one.
It’s a shame that the borrowers in this case were required to fight all the way to the Supreme Court to enforce a statutory provision that clearly allows them a practically cost-free means to do so, but at least you won’t have to fight so hard if you find yourself in their position.
For more on the Court’s opinion, you can read it here.
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