The U.S. Court of Appeals for the Ninth Circuit recently held that: (1) a borrower's signed acknowledgment of receipt of the Notice of Right to Cancel did not amount to conclusive proof that notice was delivered as required; and (2) a Notice of Right to Cancel that does not include the numerical date of closing and the numerical date on which the right to cancel expires violates TILA.
A copy of the opinion is available at:
The plaintiff borrowers, who allegedly could not read English, claimed that they received an unsolicited offer from a mortgage broker to refinance their home loan. Subsequently, the borrower's mortgage broker appeared at the Borrowers' home with loan documents supposedly drawn up using allegedly inflated income figures taken from a loan application that had been filled out by an agent of the lending Bank ("Bank"). Despite the Borrowers' supposed protests, the mortgage broker allegedly refused to leave or reschedule until such time as the Borrowers' English-speaking daughter could assist them with understanding the loan documents. After these alleged pressure tactics, the Borrowers signed the documents and accepted the loan proceeds.
The Borrowers sought to rescind the loan by contacting both the mortgage broker and the Bank, but were allegedly informed that it was too late to rescind. The Borrowers then filed a lawsuit alleging that the right-to-cancel notice provided to them violated the Truth in Lending Act ("TILA") in that it supposedly lacked material provisions, including the date of closing and the date on which the right to rescind expired.
The Bank filed a motion to dismiss, which the district court granted, ruling that the Borrowers were entitled to a three-day rescission period because the notice provided to them complied with TILA. In so ruling, the district court focused on the form the Borrowers signed — and attached to their complaint — acknowledging their execution of a proper notice.
The Borrowers appealed, and the Ninth Circuit reversed, ruling that the complaint was not subject to dismissal, because the Borrowers might be able to prove at trial that the notice they in fact received did not comply with TILA.
As you may recall, TILA provides in pertinent part that a consumer may rescind a loan up to three business days after a loan transaction and that the rescission period is extended up to three years "[i]f the required notice or material disclosures are not delivered." 15 U.S.C. §1635(a); 12 C.F.R. §226.23(a)(3). Further, a creditor must "deliver two copies of the notice of the right to rescind to each consumer" and those copies must include "[t]he date the rescission period expires." 12 C.F.R. §226.23(b)(1). The disclosure of the right to cancel must be set forth "clearly and conspicuously in writing, in a form the consumer may keep." 12 C.F.R. §226.17(a)(1).
Focusing on the copy of the Notice of Right to Cancel that the Borrowers attached to the complaint, the Ninth Circuit ruled that the document merely proved that the Borrowers had signed the Notice of Right to Cancel. This created a rebuttable presumption that the required disclosures had been delivered to the Borrowers. See 15 U.S.C. §1635(c)("written acknowledgment of receipt of any disclosures . . . does no more than create a rebuttable presumption of delivery thereof").
However, in so ruling, the Court rejected the Bank's argument that the Borrowers' signatures on the Notice of Right to Cancel proved conclusively that it had been "delivered" to them as required by TILA. The Court noted that TILA's requirements are not satisfied merely by providing someone a document just long enough to sign it. The Court stressed that "[d]elivery under TILA requires a permanent physical transfer" of the Notice of Right to Cancel from the creditor to the consumer, as opposed to mere signing of the disclosures.
The Court also rejected the Bank's argument that the Borrowers failed to allege enough facts in their complaint to rebut the presumption of delivery of the Notice of Right to Cancel. Citing its opinion in In re Gilead Sciences Sec. Litigation., 536 F.3d 1049, 1057 (9th Cir. 2008), the Court stated that if the "plaintiff alleges facts to support a theory that is not facially implausible, the court's skepticism is best reserved for later stages of the proceedings when the plaintiff case can be rejected on evidentiary grounds."
Noting that the Borrowers had alleged in their complaint that the notice they received did not comply with TILA, the Court concluded that they could present evidence at trial at which point the trier of fact could decide whether the Borrowers had been able to rebut the statutory presumption. Accordingly, the court ruled that the complaint was not subject to dismissal, because "a complaint containing allegations that, if proven, present a winning case is not subject to dismissal . . . no matter how unlikely such winning outcome may appear to the district court."
The Court also took issue with the alleged deficiencies in the notice of right to cancel disclosures, which supposedly omitted the date of closing and the date on which the right to rescind expired, as well as a potential misdating of the disclosures. The Ninth Circuit held that, if the Borrower could prove that they were not allowed to keep two completed and accurate copies of the disclosure notice, the Bank would have forfeited the benefit of the three-day cooling off period and the Borrowers would have three years to rescind. See Semar v. Platte Valley Fed. Sav. & Loan Ass'n, 791 F.2d 699, 701-02 (9th Cir. 1986) ("If the lending institution omits the expiration date . . . the borrower may rescind the loan within three years after it was consummated."). There is no indication that the Court took into account contrary authority under TILA, Regulation Z, and from other Circuits.
The Court noted that if the Borrowers could prove at trial that the notice they received violated TILA, they would be entitled to the three-year rescission period.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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