Alert September 05, 2012

First Circuit Refuses to Extend the Scope of the Rescission Period

The Court of Appeals for the First Circuit affirmed a lower court ruling that a bank that foreclosed on plaintiff did not violate the Massachusetts Consumer Credit Disclosure Act, the state analog to the federal Truth in Lending Act. Plaintiff alleged defendant violated the Massachusetts law by providing her with only one disclosure statement and by under-disclosing the finance charge in the statement. As a result of these failures, plaintiff sought to assert her rescission rights under the Massachusetts law, which creates a four-year rescission period (unlike the three-year period in the federal TILA). Under the Massachusetts analog to TILA, a creditor is required to provide the borrower with two copies of the notice of the right to rescind.

The Court rejected plaintiff’s argument, holding that there is “nothing [in the statute] about the lack of multiple copies being a basis for rescission.” The Court also cited the purpose of the rescission statute which was to give a consumer the information needed to intelligently decide whether to cancel the loan. One copy, according to the Court, “performs this function as well as two.” Moreover, the First Circuit rejected plaintiff’s argument that finance charges were under-disclosed, agreeing instead with the lower court that fees for title insurance are not finance charges under Massachusetts law. Under the Massachusetts law, title insurance fees may qualify as finance charges if the fees are not bona fide or reasonable in amount. The Court noted that plaintiff failed to allege that the title insurance fees were either unreasonable or not bona fide.