On March 26, 2012, the US Consumer Financial Protection Bureau ("CFPB" or "Bureau") filed an amicus brief in Rosenfield v. HSBC Bank, USA, an appeal to the Tenth Circuit involving the Truth in Lending Act ("TILA"). The question presented in this appeal is whether a lawsuit seeking rescission of a mortgage loan is timely where the consumer provided notice of rescission to the lender within the three year time frame but the lender does not recognize the rescission, and the consumer did not file suit until after the three-year deadline had passed.
HSBC Bank's position, which was adopted by the District Court in granting a motion to dismiss the Plaintiff's complaint, is that a suit must be filed within three years of the consummation of a mortgage loan for a right of rescission to be available. In its amicus brief, the CFPB argues that a borrower must only send notice of the rescission to the lender within the three-year period to validly exercise a right to rescind and need not file suit within this time frame.
Section 1635(f) of TILA provides consumers with a statutory right to rescind certain types of mortgage loans by notifying their lenders of their cancellation. This right of rescission expires three days after consummation of the loan unless the lender fails to provide the consumer with disclosures mandated under TILA. In a case where the mandated TILA disclosures are not provided, the right to rescind expires three years after consummation of the loan or upon the sale of the home, whichever comes first.
The question raised in this case is whether borrowers also must file a rescission suit against lenders within three years. The CFPB asserts that they do not need to do so. The CFPB takes the position in its amicus brief that "[section] 1635(f) [of TILA] defines the time to notify the lender, and not the time to sue the lender." The CFPB contends that, if a lender ignores the consumer's timely notice or refuses to cancel the loan, a court can determine in subsequent litigation whether the consumer's exercise of the right to rescind was valid, even if that litigation starts after the three-year timeframe has expired.
The CFPB published a press release regarding its filing of an amicus brief in Rosenfield and announced that it is committed to filing amicus briefs in litigation involving the federal consumer financial protection laws that it oversees and in which the CFPB believes that its views will assist the courts in correctly resolving the matters. The Bureau sees the filing of amicus briefs as an important way to ensure that the statutes it oversees are correctly and consistently interpreted by the courts, even in cases in which the CFPB is not itself a named party.
"We are committed to making sure that borrowers can exercise their rights to the full extent allowed under this law," said CFPB Director Richard Cordray. "The consumer's right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices."
SNR Denton Observations
First, while the legal issue has not yet been conclusively resolved, the CFPB's position in its amicus brief is inconsistent with the stance of the majority of courts that have decided this issue, including the U.S. Supreme Court's decision in Beach v. Ocwen Fed. Bank. In this and other opinions, courts have concluded that the requirement for a borrower to not only give notice but also file suit within the three-year time period is the correct interpretation of section 1635 of TILA.
Second, nonetheless, however the legal issue is ultimately resolved, it is worth noting that there appear to be distinct differences between the CFPB's approach and that of the Federal Reserve Board when the two agencies seek to have input on the interpretation of a statute. The CFPB is taking a decidedly proactive approach by asserting its authority to interpret and promulgate rules regarding TILA by filing the amicus brief in this case. In contrast, when the Federal Reserve administered the implementation of federal consumer financial protection statutes, it generally addressed such issues of statutory interpretation by proposing amendments to the implementing regulation, by issuing guidance or through official staff commentary. There are strong reasons to believe that the CFPB will continue to take this active role: the CFPB has stated in a recent press release that it plans to file amicus briefs on the rescission issue in at least three other appellate cases in the Third, Fourth and Eighth Circuits.
Third, although the CFPB argues that section 1635 of TILA does not mandate that a borrower file suit to rescind within the three-year period. However, the CFPB does not provide any straightforward alternative cut-off point beyond which borrowers can no longer file suit. The CFPB suggests that a time limit for filing a rescission suit may nonetheless exist and argues that, "[t]he fact that § 1635 does not expressly limit the time period for litigation does not mean no limit exists." The CFPB then offers possible sources for limiting the time period, arguing that "[s]ome courts have concluded that TILA's one-year statute of limitations . . . permits consumers to bring suit to compel compliance with their rescission within one year of the lender's refusal to unwind the transaction after receiving the notice of rescission." Nonetheless, if the court were to adopt the CFPB's position as expressed in its amicus brief, it is unclear what the cut-off point would be, if any, for borrowers to file rescission suits. Borrowers would merely have to give notice of their rescission to the lender within three years of consummation of the loan.
Finally, extending the time frame for filing a rescission suit beyond the three-year period specified by TILA could have significant adverse consequences for the mortgage industry. Since the inception of the mortgage crisis, borrowers have frequently sent lenders rescission notices--even when the borrower does not intend to rescind--as a tactic to delay foreclosure proceedings. As a result, there may be a considerable number of pending and completed foreclosures, in addition to loans not yet in the foreclosure process, where the borrower gave notice of rescission before the three-year statutory expiration, but did not file suit. If the court were to take the CFPB's approach and expand the deadline for filing a rescission suit, borrowers would be given yet another opportunity to delay foreclosure. While it is unclear what would happen in the case of a completed foreclosure, it is possible that lenders could also find themselves exposed when litigation ensues after a borrower asserts the right to unwind a completed foreclosure for failure to grant rescission.