Massachusetts consumers take note! In a case of first impression, the First Circuit recently held that the class action is not an available vehicle for rescission suits under the Truth in Lending Act (the “TILA”) and its Massachusetts counterpart, the Massachusetts Consumer Credit Cost Disclosure Act (the “MCCCDA”).
In McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (2007), the plaintiffs initiated a class action in the United States District Court for the District of Massachusetts on behalf of themselves and similarly situated Massachusetts homeowners alleging that First Horizon Home Loan Corporation (“First Horizon”) had violated the TILA and the MCCCDA. Specifically, the plaintiffs claimed that First Horizon inaccurately disclosed certain information pertaining to the putative class members’ rescission rights in connection with their home-refinancing transactions and had failed to respond appropriately to requests for rescission. The plaintiffs sought a declaration that the class members could rescind their credit refinancings with First Horizon within a particular period following the consummation of the transactions.
Pursuant to Fed. R. Civ. P. 23, the plaintiffs timely moved for class certification. The magistrate judge recommended that the class be certified. The recommendation stated that: “[C]lass relief would take the form of a declaration that any class member who so desires may seek to rescind their transaction. Should such a declaration issue, members of the class who then elected to rescind could proceed to seek reimbursement of amounts previously paid, statutory damages, and attorneys’ fees.” The district court adopted the magistrate judge’s recommendation in its entirety. Pursuant to Fed. R. Civ. P. 23(f), First Horizon then filed a petition for interlocutory review of the class certification order, which the First Circuit granted.
Reviewing the lower court’s decision for abuse of discretion, the First Circuit reversed the class certification decision holding that class action treatment for rescission claims under the TILA and the MCCCDA is unavailable. (Because the MCCCDA mirrors its federal counterpart, the Court conducted its analysis of plaintiffs’ claims under the TILA.) The Court based its decision primarily on its conclusion that Congress did not intend rescission suits under the TILA to receive class action treatment. TILA, the Court explained, expressly recognizes the availability of the class action as a means of pursuing damages claims (although it limits recovery to $500,000). The statute makes no similar mention, however, of the class action as a vehicle for seeking rescission. Based on the absence of such statutory language, the Court concluded that Congress intended class action treatment to be unavailable for rescission claims under the TILA.
In so holding, the Court explained that unrestricted class action availability for rescission claims would “open the door to vast recoveries” and subject residential lenders to “crushing liability,” a result that Congress clearly did not intend. The Court reasoned, “[t]he notion that Congress would limit liability to $500,000 with respect to one remedy while allowing the sky to be the limit with respect to another remedy for the same violation strains credibility.” The Court found further support for its conclusion in the legislative history of the TILA. In 1995, Congress enacted a six month moratorium on class actions for certain minor violations of the TILA. Subsequently, Congress amended the TILA to limit the grounds upon which a borrower could seek rescission. Proponents of this amendment emphasized that the “threat of wholesale rescissions present[s] a real danger to our modern system of home financing.” In light of this sentiment, the Court concluded that Congress had clearly meant to protect residential lenders by limiting the prospect of large-scale rescission liability.
With its decision in McKenna, the First Circuit has clarified the landscape of remedies available to Massachusetts consumers under the TILA and the MCCCDA. Consumers in other jurisdictions, however, face less certainty. Whether class certification of TILA rescission actions is appropriate remains an open question in other circuits and, indeed, a number of district courts throughout the country have certified such classes on the theory that nothing in the TILA expressly prohibits their maintenance.