Court Holds That Borrower is Not Required

Court Holds That Borrower is Not Required to File Lawsuit to Effect Notice of Rescission Under TILA

In Jesinoski v. Countrywide Home Loans, Inc. (January 2015), the U.S. Supreme Court considered the issue of how a borrower gives notice of rescission under the Truth in Lending Act ("TILA"). Under TILA, borrowers have a right to rescind up to three years after obtaining the loan if the lender did not satisfy TILA's disclosure requirements. The Court considered whether this right can be exercised by sending written notice to the lender or whether the buyer must also file a lawsuit before expiration of the three-year period.

The Jesinoskis obtained a loan in 2007. Exactly three years later, they sent written notice to their lender purporting to rescind the loan. The bank refused to acknowledge the notice. In 2011, the Jesinoskis filed suit in federal district court. The lender filed a motion for judgment on the pleadings on the basis that the Jesinoskis had not filed a lawsuit within three years of consummation of the transaction. The court granted the motion. The Jesinoskis appealed. The Eighth Circuit affirmed.

The Supreme Court considered the plain language of the statute, which states that the borrower has a right to rescind "by notifying the creditor...of his intention to do so." The Court explained that the statute requires only notification and that if the borrower notifies the lender within the three year time period, the rescission is timely. The statute does not require the borrower to sue within three years. The lender argued that the outcome should be different if there is dispute between the lender and the borrower as to whether the lender made the required disclosures. The Court noted that the statute does not distinguish between rescissions where the lender disputes the borrower's claim that the lender failed to satisfy the disclosure requirements and rescissions whether there is no dispute. Regardless of whether there is a dispute as to the disclosure issue, TILA does not obligate the borrower to file a lawsuit within the three year period.

The lender also argued that under the common law, the borrower must return what he received before the rescission could be effected. However, the Court explained that TILA has no such requirement.

Hannah M. Shafsky, Attorney,