Wednesday, April 23, 2014

FYI: 9th Cir Holds TILA Rescission Demand w/in 3 Yrs of Closing Does Not Toll TILA Rescission Statute of Repose

Saturday, February 11, 2012

The U.S. Court of Appeals for the Ninth Circuit recently upheld the dismissal of a borrower's TILA rescission claim, holding that TILA's three-year rescission period is a statute of repose which extinguishes the right to rescind three years after the closing of a loan transaction, even where the borrower demanded rescission within the 3-year period.
A copy of the opinion is available at: 
Plaintiff-appellant ("borrower") refinanced her home mortgage loan.  Within three years of the loan closing, the borrower notified defendant bank of her intent to rescind the loan, claiming that the TILA right to cancel forms did not advise her of the deadline for canceling the refinance loan.  The bank allegedly refused rescission, contending that the borrower had received proper notice of her right to rescind. 
Subsequently, more than three years from the date of the loan closing, the borrower filed suit against the bank seeking rescission of the loan and similarly claiming that the original lender had failed to inform the borrower of the date when her right to rescind would expire.  Upon the bank's motion, the district court dismissed plaintiff's claim as time-barred.  The Ninth Circuit affirmed.
As you may recall, TILA provides that a consumer ordinarily has three days from the date of a loan closing to cancel a loan transaction.  15 U.S.C. § 1635(a).  However, the right to rescind is extended to three years from the date of closing where the lender fails to provide certain material disclosures, including notice of the borrower's rescission rights.  15 U.S.C. § 1635(f).    TILA also provides a one-year statute of limitations for actions seeking damages for violations of the statute.  15 U.S.C. § 1640(e). 
The Ninth Circuit noted, first, that, contrary to the borrower's assertion, rescission does not occur automatically upon a borrower's rescission notice to a creditor.  The Court also observed that TILA does not explicitly establish a time limit in which a borrower must file suit for rescission where a creditor, as here, rejected the borrower's timely request for rescission.  The Court nevertheless rejected the borrower's argument that, because she gave the bank notice of her intent to rescind within the three-year rescission period, she was not required to file suit within that same period.    
The Court found unpersuasive borrower's argument that, under section 1640(e) she had one year from the date on which the bank rejected her rescission notice to file suit, because that section relates only to claims for damages.   
In ruling that the borrower's claim was barred as untimely, even though she had provided timely notice of rescission to the bank, the Court relied on Supreme Court and Ninth Circuit precedent concluding that Section 1635(f) is a statute of repose and, as such, establishes a strict three-year duration on the right to rescind.   
The Ninth Circuit concluded that Section 1635(f) extinguished the underlying right to rescind three years after the loan closing and thus required dismissal of the borrower's claim as time-barred, regardless of when the borrower sent notice of rescission to the defendant bank.   

Eric Tsai
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