CFPB Files its First Amicus Brief on TILA Rescission Issue
The Consumer Financial Protection Bureau (CFPB) has filed an amicus brief in the U.S. Court of Appeals for the 10th Circuit, arguing that certain borrowers who did not receive important disclosures mandated by the Truth-in-Lending Act (TILA) may cancel their loans so long as they notify the lender of their intent to cancel within three years, even if litigation is not filed within that period. The question presented in the 10th Circuit appeal concerns the timeliness of lawsuits arising out of a consumer’s exercise of the right to rescind under TILA.
The TILA provides consumers a statutory right to rescind certain types of mortgage loans. This rescission right expires three days after consummation of the loan, unless a lender fails to provide the consumer with disclosures mandated by the Act, in which case, the right to rescind is extended until the lender provides the disclosures. If the disclosures are never provided, the right to rescind expires three years after consummation of the loan or upon sale of the home, whichever occurs first. Some courts view the three-year period as s statute of repose, meaning that any action, including litigation, must be commenced within that period. The CFPB disagrees with that position.
According to the CFPB, if a bank or mortgage company fails to provide adequate disclosures regarding interest rates or other details of a mortgage, the borrower has three years to rescind the mortgage under the law. If the company does not respond within that period, the borrower can sue after the three year period expires. “Requiring consumers not only to notify their lender but also to file a lawsuit within three years would incentivize consumers to file suit immediately, rather than working privately with the lender to unwind the transaction,” the CFPB said. “It would also encourage lenders to stonewall in response to a notice of rescission, because if the consumer failed to file suit before the right expired, even a valid rescission would become a nullity.”
This amicus brief is the first in what will likely be many such briefs filed by the CFPB. The CFPB indicates that it is committed to filing amicus briefs in litigation involving the federal consumer financial protection laws that it oversees in order to ensure that those statutes are correctly and consistently interpreted by the courts. The CFPB’s amicus brief is available on their website.