TILA Rescission Effective upon Notification

In a unanimous decision delivered by Justice Scalia, the Supreme Court held that so long as the borrower notifies the lender within three years of the transaction, his rescission is timely. Jesinoski v. Countrywide Homes, 574 U. S. ____ (2015), No. 13-684 (Jan. 13).

Less than three years after they entered into a lending agreement with Countrywide, the borrowers notified the lender in writing that they were rescinding the agreement. Four years and one day after entering into the agreement the borrowers filed suit under the Truth in Lending Act seeking rescission and damages.

TILA gives a borrower the unconditional right to rescind a lending contract within three days of entering into it, and a conditional right to rescind if the lender has not made the required disclosures, within three years. The question before the Supreme Court was whether TILA’s three year rescission deadline was met upon notification or if the borrowers were required to file a lawsuit to render their rescission effective. The district court found the latter. 2012 WL 1365751, *3 (D Minn., Apr. 19, 2012). The Eighth Circuit affirmed. 729 F. 3d 1092, 1093 (2013) (per curiam).

The Supreme Court reversed.

Section 1635(a) provides that the borrower “shall have the right to rescind . . . by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” The Court found that this “language leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to re­scind.” The Court rejected Countrywide’s argument that notification is sufficient when the debtor seeks to rescind within three days or when there is no dispute as to the failure of the lender to provide the required disclosures, but where, as here, the lender disputed the lack of disclosures, mere notification was insufficient. The Court found that the statute did not distinguish between disputed and undisputed claims. Section 1635(g), which refers to a court’s power to “award relief” upon a finding of violation of the notice requirements, does not change the analysis. While that provision contemplates a judicial action it does not require that rescission be accomplished only through judicial action.

To the extent that this interpretation of the rescission provision of the TILA modifies the pre-Act common law, the Court was untroubled. It acknowledged that “[i]t is true that rescission traditionally required either that the re­scinding party return what he received before a rescission could be effected (rescission at law), or else that a court affirmatively decree rescission (rescission in equity),” but found that Congress modified the common-law practice when it enacted the TILA. The “Act disclaims the common-law condition precedent to rescission at law that the borrower tender the proceeds received under the transaction. 16 U.S. § 1635(b). But the negation of rescission-at-law’s tender requirement hardly implies that the Act codifies rescission in equity. . . The clear import of §1635(a) is that a borrower need only provide written notice to a lender in order to exercise his right to rescind. . . . [T]his is simply a case in which statutory law modifies common-law practice.”

The Court reversed the judgment of the Eighth Circuit and remanded for proceedings consistent with its opinion.

Jesinoski USSCt opinion