Attorney advises caution on CFPB's latest TILA interpretation
The Consumer Financial Protection Bureau jumped into the fray this week over a Truth in Lending Act loan rescission case on behalf of the borrower, but an attorney interpreting the case views it in a far different light than the CFPB.
The CFPB in its brief claims homeowners under Section 1635 of TILA have an automatic rescission right on home equity loans and second mortgages that lack compliance with TILA disclosures as long as they file notice within the allotted, three-year period.
The dispute in court is over whether notice is enough or if a homeowner has to file a lawsuit to keep a rescission request alive.
While the CFBP argues notice is enough, Anthony Laura, an attorney with Patton Boggs, points out that a "vast majority of courts deciding this issue have held that a borrower must commence suit within the three-year period or else be barred from pursuing rescission claims under TILA." He added that some courts have even pushed to require that the borrower tender the original mortgage loan proceeds to clearly state a rescission claim.
As for what the CFPB's amicus brief means, Laura said, "As for CFPB's involvement, CFPB director Cordray has already acknowledged that the bureau's greatest focus will be on the protection of consumers in the mortgage market, and this amicus brief is directly in line with that."
Rob Mowrey, a partner at Locke Lord in Dallas, added, "Although the Supreme Court has never directly addressed the issue, based on a prior decision, I think the better reasoned position is that the right to rescission expires within three years and thus suit must be brought within the three years. This was the opinion of the lower court in the Rosenfield case. The primary problem with the CFPB’s position that only the rescission claim must be made within three years is that it does not address the issue of uncertainty that would be created if there is no deadline to file suit. As I understand it, under the CFPB’s position, if the rescission claim is made within three years, there is no deadline to file suit – it could be 1 or 10 years later. This seems to be over reaching and contrary to both the wording and intent of the statute."