On March 26, 2012, the Consumer Financial Protection Bureau filed an Amicus Brief in the United States Court of Appeals for the Tenth Circuit in which it took the side of the consumer in an interpretation of Section 125 of the Truth in Lending Act relating to the statutory right to rescind certain types of mortgage loans.
The Consumer Financial Protection Bureau (“CFPB”) announced on March 26, 2012 that it would be filing amicus briefs in at least four Appellate cases in the Third, Fourth, Eighth and Tenth Circuits in which briefing was underway. In each of these cases, the CFPB announced its interpretation of Section 125 of the Truth in Lending Act. Under its interpretation, the rescission right of the homeowner expires three days after consummation of the loan, unless a lender fails to provide the consumer with disclosures mandated by the Act. See 15 U.S.C. §1635(a). In that case, according to the Bureau, the right to rescind is extended until the lender provides disclosures. Id. The Bureau also takes the position that if the disclosures are never provided, then the right to rescind expires three years after consummation of the loan or upon the sale of the home, whichever occurs first. Id. According to the Bureau, the consumer exercises the right to rescind “by notifying the creditor in accordance with regulations of the Consumer Financial Protection Bureau of his intention to do so, i.e., rescind”. Id at §1635(a).
In each of the cases in which the Bureau has announced its intention to file an amicus brief, the appeal, according to the Bureau, presents a question concerning the timeliness of lawsuits arising out of a consumer’s exercise of the right to rescind under the Act. The Bureau takes the position that a consumer timely exercises its right of rescission by providing notice to the lender within three years. According to the Bureau, the consumer is not required to file a lawsuit against the lender within that same three year period. [Emphasis added.]
The Bureau’s position is that many courts incorrectly restrict the consumer’s rescission rights under the Truth in Lending Act by concluding that consumers must both exercise their right of rescission by providing notice to their lenders within three years of the loan’s consummation and sue their lenders within that same three year period to resolve any disputes that arise regarding the rescission.
In one of the first amicus briefs filed, the Bureau reluctantly acknowledged that in the District Courts there is a split of authority, but that the majority view that has been adopted by the Courts has held that consumers need to timely exercise their right of rescission by providing notice to the lender within three years and are also required to file a lawsuit within the time prescribed under §1635(f), i.e., the three year period. By contrast, the minority view holds that §1635(f) only limits the time during which the consumers must exercise their right of rescission by notifying the lender within three years. The borrower, under the minority view, does not have to also sue within three years.
It appears that the majority view is well rooted in prior decisions. The United States Supreme Court in Beach v. Owen Federal Bank, 523 US 410 (1998) held that a consumer’s rescission must both be noticed and, if ignored or rejected by the lender, sued upon within three years.
The United States Supreme Court in Beach stated that:
the three year period that marks the lifespan of the right of Rescission must necessarily be coterminous with the ‘limitation on the time for seeking a remedy’ of Rescission, as the statutory language made it ‘superfluous’ to have a separate limitations period for enforcing the right.
Beach, 523 US at 417.
The Consumer Financial Protection Bureau promised to be the “cop on the beat” for the nation’s consumers in their dealing with the financial services industry. Its new amicus role is possibly only a logical extension of that announced mission. It will now be interesting to see if CFPB chooses to intervenes in other cases involving other financial related statutes, and which ones. In the meantime, residential mortgage lenders can only carefully watch to see how the Courts reconcile the Bureau’s position with existing and contrary TILA case law authority.