Seventh Circuit Rules in Andrews that TILA Rescission Class Actions May Not Be Maintained

Earlier today, the Seventh Circuit ruled that TILA rescission class actions may not be maintained as a matter of law. In Andrews v. Chevy Chase Bank, plaintiffs filed a putative class action alleging violations of TILA and seeking rescission of their and all class member loans. The district court granted plaintiffs’ motion for class certification under Fed. R. Civ. P. 23(b)(2), and the defendant-lender appealed. In a 2-1 decision, the Seventh Circuit reversed the certification order, holding that the “rescission remedy prescribed by TILA is procedurally and substantively incompatible with the class-action device.” The Seventh Circuit’s decision and reasoning follows that of the First Circuit in McKenna v. First Horizon Home Loan Corporation – a case handled by Goodwin Procter partners Tom Hefferon and Gwyn Williams and reported in the April 10, 2007 issue of this Alert. Specifically, the Seventh Circuit explained that TILA’s “cap on class-action recovery in [its] damages provision,” the “absence of any reference” to “class recovery in [its] rescission provision,” and “the mechanics of the rescission process spelled out in § 1635” all point to the conclusion that “TILA’s rescission remedy – by its terms an individualized, restorative rather than compensatory remedy – is just that, a purely individual remedy that may not be pursued on behalf of a class.” In addition, the Seventh Circuit expressed that it has “serious questions as to whether a TILA rescission class could ever be properly certified under” Rule 23(b)(2). As the Seventh Circuit explained, a declaration of a “rescission class” can only “initiate a process of individual rescission actions,” leaving “[s]ignificant individual aspects of the remedy” to be worked out before rescission could be affected as to any loan. Thus, “rather settling the legal relations at issues, a judicial declaration”… would be essentially advisory,” as opposed to the “form of final declaratory relief” necessary to secure class treatment under Rule 23(b)(2).