Thursday, March 29, 2012

FYI: CFPB Gets It Wrong on Rescission

As widely reported in the media, the federal Consumer Financial Protection Bureau filed its first amicus brief in the U.S. Court of Appeals for the Tenth Circuit, in connection with a TILA rescission appeal.  A copy of the amicus brief is attached.
The issue in the case is whether a TILA rescission lawsuit filed more than three years after closing is timely, when the borrower demanded rescission under TILA in writing and before the three year period under 15 U.S.C. § 1635(f) expired.  The CFPB takes the position that "§ 1635(f) defines the time to notify the lender, and not the time to sue the lender."
However, the CFPB states in its brief (at p. 4):
"Specifically, the right to rescind applies to open-end and closed-end loans secured by a lien on the consumer's principal dwelling (e.g., home equity lines of credit, second mortgages, and refinances). See generally 12 C.F.R. §§ 1026.15, 1026.23. The right to rescind does not apply to first mortgages. 15 U.S.C. § 1635(e)(1)."
Although the recitation of the borrower's allegations is not completely clear, it appears that under the CFPB's reading of TILA, the borrower in this case has no right to rescind under TILA.

Also of note, the CFPB states (at p. 24):
"The fact that § 1635 does not expressly limit the time period for litigation does not mean no limit exists. Some courts have concluded that TILA's general one-year statute of limitations, 15 U.S.C. § 1640, permits consumers to bring suit to compel compliance with their rescission within one year of the lender's refusal to unwind the transaction after receiving the notice of rescission. See, e.g., In re Hunter, 400 B.R. at 660-61 (N.D. Ill. 2009); Barnes, 2011 WL 4950111. There is some support for this approach in the legislative history. See S. REP. NO. 96-368, at 32 (1979), reprinted in 1980 U.S.C.C.A.N. 236, 268. Other courts have criticized application of § 1640 to rescission under § 1635. See, e.g., McOmie, 667 F.3d at 1327-28; Bradford, 799 F. Supp. 2d at 632-33.  If § 1640 does not apply, courts may apply well-established borrowing doctrines to find an analogous statute of limitations. See, e.g., Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409, 414-15 (2005); Bowdry v. United Air Lines, 956 F.2d 999, 1004-05 (10th Cir. 1992)."
The CFPB indicates that it "a
lso plans to file amicus briefs in at least three other appellate cases—in the Third, Fourth and Eighth Circuits—in which briefing is still pending. See Sherzer v. Homestar Mortg. Servs., No. 11-4254 (3d Cir. docketed Dec. 16, 2011); Wolf v. Fed. Nat'l Mortg. Ass'n, No. 11-2419 (4th Cir. docketed Dec. 23, 2011); Sobieniak v. BAC Home Loans Servicing, LP, No. 12-1053 (8th Cir. docketed Jan. 1, 2012)."

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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