On June 11, 2012, the United States Court of Appeals for the Tenth Circuit ruled that borrowers are prohibited from seeking rescission after the expiration of the Truth in Lending Act’s (TILA) three-year statute of repose, even if the borrower had sent a notice of rescission within the three-year period. In Rosenfield v. HSBC Bank, USA, No. 10-1442, the borrower sent a notice of rescission after a foreclosure complaint was filed against her, but did not file suit to enforce her purported right of rescission until more than three years after her loan was originated—a common ploy used by borrowers to delay foreclosure. The district court granted the bank’s motion to dismiss on the grounds that the borrower's complaint was time barred under TILA’s statute of repose. 15 U.S.C. § 1635(f). The Tenth Circuit agreed.
On appeal, the CFPB filed an amicus brief arguing that the district court’s ruling was in error because “[u]nder the plain terms of § 1635—and the Bureau’s controlling interpretation of that provision—consumers exercise their rescission right by providing notice to their lender within three years of obtaining the loan” and “consumers need not go to court to unwind the loan.” In affirming the district court’s ruling, the Tenth Circuit rejected the CFPB’s arguments holding that the United States Supreme Court’s decision in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), definitively established that TILA’s three-year statute of repose (15 U.S.C. § 1635(f)) extinguishes “a claim for rescission, unless it is both noticed and sued.”
The court specifically stated that, while the CFPB’s position had “some superficial appeal” it was “not consistent with the effect of a strict repose period—which [the Supreme Court in Beach] held that § 1635(f) establishes in this context—one that operates to completely extinguish the right being claimed after it lapses.” It added that the CFPB’s position was not only in “conflict with the [Beach] court’s conception of repose under TILA,” but that following it “would effectively create commercial uncertainty.” The court explained that “accepting a consumer’s unilateral notice of an intent to rescind as a legally effective exercise of rescission, where the creditor has not in any sense actually acted on the consumer’s wishes, would indirectly enlarge the congressionally established three-year time period under TILA, and it could work to cloud the title of the property for an indefinite period of time.”
The Tenth Circuit’s Ruling is in line with Third and Ninth Circuits that have also held that notice alone within the three-year period is insufficient to exercise the right to rescind. Currently, the Fourth Circuit is the only federal appellate court to hold to the contrary. The court in Rosenfield, addressed the Fourth Circuit’s reasoning and determined that it “simply [could not] square the Fourth Circuit’s view with the Supreme Court’s strong pronouncement in Beach that the TILA rescission right is extinguished if it is not exercised within the three-year statutory period.”
The CFPB is currently 0-for-2 this spring in its efforts as Amicus Curiae. In Freeman v. Quicken Loans, the United States Supreme Court unanimously rejected the CFPB’s interpretation of Real Estate Settlement and Procedures Act (RESPA) as “manifestly inconsistent with the statute” and a “palpable overreach.” In May, the CFPB joined the Department of Justice and Federal Trade Commission in filing a memorandum in support of the constitutionality of the Fair Credit Reporting Act. That case, King v. General Information Services, Inc., is pending in the U.S. District Court for the Eastern District of Pennsylvania.