Circuit holds TILA bars rescission suits filed more than 3 years after consummation

9 Mar

From: Charles Cox []
Sent: Friday, March 09, 2012 6:30 AM
To: Charles Cox
Subject: Circuit holds TILA bars rescission suits filed more than 3 years after consummation

Circuit holds TILA bars rescission suits filed more than 3 years after consummation

· Bryan Cave LLP

· James Goldberg and Leena Rege



· March 6 2012

In McOmie-Gray v. Bank of America (9th Cir. Feb. 8, 2012), the Ninth Circuit Court of Appeals held that under the Truth in Lending Act (“TILA”), 15 U.S.C. Section 1601 et seq., “rescission suits must be brought within three years from consummation of the loan, regardless whether notice of rescission is delivered within that three-year period”. It ruled that the three year period for rescission in Section 1635(f) is an absolute limitation on rescission actions and that the one year period for bringing claims under Section 1640(e) applies only to damages actions and does not extend the time to file a claim for rescission even where the borrower has sent the Bank a written notice of rescission within three years of loan signing or “consummation”. It also held that an agreement to toll the time to file a rescission action is ineffective, because Section 1635(f) is a statute of repose.

In McOmie-Gray, the borrower obtained a loan in April 2006. She sent a notice of rescission to the bank in January 2008, well within the three-year period provided in § 1635(f), claiming that the copies of the statutory Notice of Right to Cancel which she had received did not identify the exact date that her right to cancel would expire. The Bank denied her request because it had a completed copy of a Notice of Right to Cancel in its files, but at some point in time agreed to toll her time to file a lawsuit. The borrower filed suit in August 2009, outside the three-year period provided by § 1635(f). The district court granted the Bank’s motion to dismiss on the grounds that every TILA rescission claim is subject to the three-year period in 15 U.S.C. Section 1635(f) and that the period constitutes a statute of repose which cannot be tolled. The borrower opposed the motion on the grounds that sending a notice of intent to rescind the loan within the three years following loan signing satisfied § 1635(f) and automatically effectuated rescission, that the Bank then had twenty days to accept and comply with the demand under § 1635(b), and that under § 1640(e) the borrower had one year thereafter to file an action for rescission.

Prior decisions in the Ninth Circuit had left open the question of whether a rescission claim was barred if the borrower had given notice of rescission, but not filed suit, within the three-year period.

The Ninth Circuit’s decision affirms the district court’s dismissal. It relies in part on the Supreme Court’s decision in Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998). Beach addressed whether mortgagors, who never sent a notice of rescission to the lender, could nonetheless raise the right of rescission as “an affirmative defense in a collection action brought more than three years after the consummation of the transaction.” Id. at 411-12. Beach held that TILA “permits no federal right to rescind, defensively or otherwise, after the 3-year period of §1635(f) has run”. Id at 419.

The Ninth Circuit’s decision may be persuasive precedent in other Federal Circuits because of its reliance on Beach. It is authored by Judge Rebecca R. Pallmeyer of the Northern District of Illinois, sitting by designation, who had previously issued two opinions suggesting that if the borrower had mailed a rescission notice within three years, a rescission suit filed after three years would be timely.


One Response to “Circuit holds TILA bars rescission suits filed more than 3 years after consummation”

  1. MARIO KENNY March 9, 2012 at 7:12 am #

    I understand the rule to be like this; upon rescission and within the 3 yrs requirement, and if the bank does nothing, then the homeowner has 1 year to bring a suit from the date of the requested rescission date. Now if this 1 year period extends beyond the 3 year requirement, then I would understand that this should be allowed, this is my understanding of the rule.

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