Alert April 17, 2012

CFPB Continues to Push Its Interpretation of the Rescission Period under TILA

The CFPB continues to push its interpretation of the rescission period under the Truth in Lending Act by filing an amicus brief in the Third Circuit (see April 3, 2012 Alert for previous discussion of Tenth Circuit case). TILA provides consumers a statutory right to rescind certain types of mortgages within three days after consummation of a loan where a lender provides the required disclosures. If a lender fails to provide the consumer with the required disclosures, the right to rescind expires three years after consummation of the loan or upon sale of the home, whichever occurs first. A consumer can exercise the right to rescind by notifying the creditor of his/her intention to rescind the loan.

In this case, plaintiffs sent notices of rescission to defendants within three years and subsequently filed suit after the lenders refused to rescind the loans. However, in ruling on defendants’ motion to dismiss, the district court held that “mere invocation without more . . .will not preserve the right [to rescind] beyond the three-year period” and dismissed the suit as time-barred. Similar to the argument presented in its amicus brief filed in the Tenth Circuit, the CFPB argued that the recession period under TILA only defines the time to notify the lender and not the time to sue the lender.

Whether a consumer must both notify and sue a lender within the three year deadline under TILA is being heavily contested. In fact, as the CFPB noted in its amicus brief, there are at least 10 appeals pending in four circuits presenting the same issue. Click here for the CFPB’s amicus brief.