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CFPB flexes TILA muscle in 10th Circuit

The Consumer Financial Protection Bureau flexed its muscle as interpreter of the Truth in Lending Act, filing a friend-of-the-court brief in the United States 10th Circuit Court of Appeals.

The CFPB filed the brief to back a homeowner, who claims an automatic rescission right exists when a loan fails to provide borrowers with disclosures required under Section 1635 of the TILA Act — those relating specifically to home-equity loans and second mortgages.

The CFPB's brief is a significant step for the bureau since it shows the regulator engaging in court disputes where the bureau's interpretation of TILA can give additional weight to consumer arguments.

The issue before the 10th Circuit is whether notification of a borrower's rescission right within an established, three-year statutory period is enough to get the borrower out of a non-compliant loan. The second question is whether a borrower is required to follow up on its rescission notice by filing suit against the lender within the same three-year period.

Section 1635 of TILA essentially gives consumers a rescission right that can be claimed within three years of obtaining the mortgage if the borrower can show the lender violated TILA. The lender in this case claims a notice of recission is not enough, and the borrower has to follow up with an actual lawsuit.

The CFPB defended the homeowner in its brief saying: "The language of § 1635 is plain: Within three years of loan consummation, consumers must exercise their right of rescission by notifying their lender that they are doing so. If there were any ambiguity in that mandate, Regulation Z resolves it by also specifying that consumers exercise the right to rescind by providing written notice to the lender. Section 1635 and Regulation Z require no more."

"We are committed to making sure that borrowers can exercise their rights to the full extent allowed under this law," said CFPB director Richard Cordray. "The consumer’s right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices."

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