On April 28, 2014, the U.S. Supreme Court granted certiorari in an Eighth Circuit case which held that a borrower exercises and preserves her TILA rescission right by filing a lawsuit within three years of consummating the loan, not simply by providing written notice of rescission to the creditor in that time. Jesinoski v. Countrywide Home Loans, Inc., No. 13-684.
The Eighth Circuit is in the majority of circuit courts that have addressed this issue. The First, Sixth, Ninth, and Tenth Circuits have also held that a borrower must file suit to exercise the TILA rescission right, whereas the Third, Fourth, and Eleventh Circuits have held that providing written notice to the creditor is sufficient to preserve the rescission right. That said, two of the three Eighth Circuit judges that decided Jesinoski indicated in concurring opinions that they were merely following Eighth Circuit precedent which they believe was wrongly decided by prior panels. Jesinoski v. Countrywide Home Loans, Inc., No. 12-2202 (September 10, 2013).
In Jesinoski, the Eighth Circuit relied upon its earlier decision in Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. 2013). There, the Eighth Circuit panel agreed with the Tenth Circuit that – under the Supreme Court’s holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998) – 15 U.S.C. § 1635(f) is a statute of repose that “completely extinguishes” the right of rescission after the 3-year period. The Keiran court noted that rescission is an equitable remedy justified by “remedial economy” and would become “prohibitively difficult or even impossible to enforce” if a borrower must only notify the lender of her intent to rescind at some uncertain future date. The borrower may or may not take action upon that intent, and so the notice would “serv[e] as a cloud on the bank’s title if the property proceeded to foreclosure” before any rescission action is filed.
Petitioners in the Jesinoski matter counter that Beach does not answer the question presented here because the borrowers there had not provided either written notice or filed suit within the 3-year period. Petitioners highlight that § 1635(a) says a borrower shall have the right to rescind “by notifying the creditor…of his intention to do so,” and does not mention legal action. Further, Regulation Z which implements the Act states “to exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram, or other means of written communication.” 12 C.F.R. § 226.23(a)(2). Petitioners also argue that interpreting TILA to require the filing of a lawsuit within three years will encourage needless litigation in what was intended to be a private rescission process, and will undermine the consumer protection aims of the statute.
Given the circuit split, the Supreme Court’s review of Jesinoski will have important implications for lending institutions across the country.