The parties’ dispute concerned section 1635 of TILA,
which governs the means by which a borrower may
rescind and the time period during which a borrower
may do so. As to the means, section 1635(a) simply
provides that a borrower may rescind “by notifying
the creditor, in accordance with regulations of the
Bureau, of his intention to do so.” As to timing,
section 1635(a) allows a borrower to rescind within
the later of two periods: (1) until midnight of the
third business day following the consummation
of the transaction; or (2) after the lender provides
the disclosures required by TILA. However, section
1635(f) places an outer limit on the right to rescind,
providing that the “right of rescission shall expire
three years after the date of consummation of
the transaction or upon the sale of the property,
whichever occurs rst.”
The district court granted the defendants’ motion
for judgment on the pleadings, holding that section
1635(a) requires a borrower to le suit in order to
exercise his right of rescission. The Eighth Circuit
Court of Appeals afrmed, holding that section
1635(f) extinguishes the right to rescission if the
borrower does not le suit within three years.
Reversing the lower courts, the U.S. Supreme Court
held that TILA’s plain language only requires
a borrower to notify the lender of its intention
to rescind within the requisite time period. The
Court noted that, although section 1635(f) puts an
outer limit on when the right to rescind may be
exercised, it says nothing about
how
the right must
be exercised.
The defendants conceded that written notice would
be adequate for a rescission being exercised within
three business days following consummation of the
transaction. The defendants further conceded that
written notice would sufce if the creditor conceded
that it provided inadequate disclosures. However,
The Dodd-Frank Wall Street Reform and Consumer
Protection Act was enacted as a measure to promote
nancial stability and protection for consumers
through increased regulation of nearly every aspect
of the consumer nance industry. In the years
since its enactment, the Dodd-Frank Act has led to
signicant industry reforms and the promulgation
of numerous new laws and regulations. In an
effort to stay apprised of these signicant industry
changes, Burr & Forman’s Dodd-Frank Newsletter
will serve as a periodic update of recent case law,
news, and developments related to the Dodd-Frank
Act.
---- RECENT CASES ----
TILA
Jesinoski v. Countrywide Home Loans, Inc., 574 U.S.
—, 2015 WL 144681 (2015).
The United States Supreme Court recently held
in
Jesinoski v. Countrywide Home Loans, Inc., et al.
,
574 U.S. — (2015), that the Truth in Lending Act’s
(“TILA”) rescission provision, 15 U.S.C. § 1635, does
not require a borrower to le a lawsuit within the
three-year time period under 15 U.S.C. § 1635(f) in
order to rescind.
The
Jesinoski
borrowers had renanced their
mortgage in 2007. Exactly three years later, the
borrowers sent their lender and loan servicer a
letter purporting to rescind the transaction. The
lender and loan servicer refused to acknowledge the
rescission. One year and one day after sending their
rescission letter, the borrowers led suit in federal
district court against the lender and loan servicer,
seeking a declaratory judgment and damages. The
defendants moved for judgment on the pleadings,
arguing that TILA required the borrowers to le a
lawsuit in order to rescind.
April 2015
Contract”), wherein she agreed to pay $595
for GAP insurance. GAP insurance covers the
difference between the consumer’s insurance
coverage on the vehicle and the amount still owed
by the consumer in the event the vehicle is totaled
or stolen.
Both the retail installment sales contract and
the GAP Contract contained recitals that the
GAP Contract was optional. Robinson alleged
that during negotiations, however, Carport’s
salesperson told Robinson that she was required
to purchase GAP insurance in order to obtain
nancing for the vehicle. Robinson complained
that under 15 U.S.C. § 1605(a), Carport was
required to include the charge for GAP insurance
in the “nance charge,” rather than in the
“amount nanced,” “because the purchase of
GAP insurance was imposed directly or indirectly
by Carport as an incident to or a condition of
the extension of credit.”
Id.
at *1. Specically,
Robnison’s causes of action were founded under
subsections (2), (3), and (4) of 15 U.S.C. § 1638(a),
on the grounds that the retail installment sales
contract misstated the amount nanced, nance
charge, and annual percentage rate.
Carport led a motion dismiss under Rule 12(b)
(6). After outlining the required disclosures a
creditor must make to a consumer in a consumer
credit transaction pursuant to § 1638(a), including
the “amount nanced,” the “amount of credit of
which the consumer has actual use,” the “nance
charge,” and the “annual percentage rate,” the
court explained that the parties’ dispute boiled
down to whether the $595 cost for GAP insurance
coverage was part of the “nance charge,” as
Robinson argued, or part of the “amount nanced,”
as Carport argued.
TILA denes “nance charge” as “the sum of
all charges, payable directly or indirectly by
the person to whom the credit is extended, and
imposed directly or indirectly by the creditor as
an incident to the extension of credit.” 15 U.S.C.
§ 1605(A). The regulations implementing TILA
provide that charges or premiums paid for debt
cancellation or debt suspension coverage may be
2
DODD-FRANK NEWS
the defendants argued that written notice does not
sufce where, as in
Jesinoski
, the creditor disputed
the inadequacy of the disclosures. Rejecting this
argument, the Court noted that nothing in section
1635(a) distinguishes between undisputed and
disputed rescissions, let alone makes a lawsuit a
requirement for the latter.
In further support of their position, the defendants
pointed to section 1635(g), which provides: “In any
action in which it is determined that a creditor has
violated this section, in addition to rescission the
court may award relief under section 1640 of this
title for violations of this subchapter not relating
to the right to rescind.” The defendants argued
that, because 1635(g)
allows
courts to rescind a
transaction, rescission therefore
must
be obtained
through the courts. Rejecting this argument, the
Court held that while 1635(g)
allows
a court to
award rescission, it has no bearing on whether
and how borrower-initiated rescission under
section 1635(a) may occur.
The Court also rejected defendants’ attempt to
invoke common-law rescission principles. While
acknowledging that common law generally
requires a contracting party to obtain a judgment
in order to effectuate a rescission, the Court
held that section 1635 of TILA “is simply a case
in which statutory law modies common-law
practice.”
Robinson v. Carport Sales & Leasing, Inc., No.
6:14-CV-1358-ORL-TBS, 2015 WL 224655 (M.D.
Fla. Jan. 15, 2015).
The United States District Court for the Middle
District of Florida recently held that a creditor’s
alleged oral requirement that a consumer obtain
GAP insurance as a requirement for obtaining
nancing for the purchase of an automobile,
despite the retail installment sales contract
containing a recital stating GAP insurance
was optional, could result in a TILA disclosure
violation. Plaintiff Melissa RobiQson purchased
an automobile from Defendant Carport Sales &
Leasing, Inc. (“Carport”). When she purchased
the vehicle, Plaintiff also executed a Guaranteed
Asset Protection (“GAP”) Waiver (“GAP
