U.S. Supreme Court Clarifies Scope of Lending Law
On January 13, 2015, the Supreme Court of the United States issued an opinion in Jesinoski v. Countrywide Home Loans, Inc. The incredibly brief opinion clarified what is needed for a homebuyer to effectively cancel certain loan transactions under the Truth in Lending Act (“TILA”) and operates as a cautionary tale for lenders.
In 1968, Congress passed TILA in an effort to educate consumers about certain aspects of consumer credit transactions. To this end, TILA requires that a lender provide certain disclosures to consumers if the lender loans money for a primary residence and retains a lien on the house as collateral. Once the disclosures are delivered, the individual who borrowed the money has an unconditional right to cancel the transaction at any time in the three days following delivery. If a lender fails to issue the required disclosures, the individual can cancel, or rescind, the transaction within three years after the original transaction date or until the sale of the residence, whichever first occurs. To rescind the transaction, TILA requires that the borrower “notify” the lender.
On February 23, 2007, the Jesinoskis borrowed money from Countrywide Home Loans, Inc., and refinanced their home mortgage. Following the transaction, Countrywide failed to issue the TILA-required disclosures. On February 23, 2010, exactly three years after the refinancing transaction, the Jesinoskis mailed Countrywide a notification letter to rescind the transaction. Countrywide refused to acknowledge the cancellation, and the Jesinoskis filed a lawsuit one year later, seeking a court order to rescind the transaction. Both the trial court and appellate court ruled in favor of Countrywide, determining a consumer had to file a lawsuit within three years of the transaction for TILA to apply. Since the Jesinoskis only sent a letter within the three-year window, the courts reasoned that the Jesinoskis did not comply with TILA’s notification requirements.
The Supreme Court granted review of the case to determine whether a borrower can rescind a credit transaction by providing notice to the lender via written notice or if the borrower must file a lawsuit within the three-year cancellation window. In a short five-page opinion, Justice Antonin Scalia determined that under TILA a borrower only needs to provide written notice to the lender within three years to nullify the transaction. The statute, according to the opinon, does not require a borrower to file a lawsuit within the cancellation window. Based on this interpretation of TILA, the Jesinoskis properly provided written notice to Countrywide by sending a letter on the last possible cancellation day.
For borrowers, this decision clarifies what level of notice is necessary to cancel credit transactions under TILA. For lenders, it outlines the importance of competently and promptly providing all legally required loan documentation. Garfield & Hecht, P.C. has extensive experience representing lenders and borrowers in credit transactions. If you have any questions or require assistance, please contact any of the following attorneys: Ronald Garfield (e-mail:), Christopher J. LaCroix (e-mail: ), and E. Michael Hoffman (e-mail: )