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The Truth in Lending Act (TILA)
requires that certain disclosures be given at the time of a
refinance of a mortgage loan, including notice of a three-day
cooling-off period. The purpose of the cooling-off period is to
provide the consumer with three days to think it over and back out
or unwind the transaction. If the creditor fails to give notice of
the right to cancel, then the consumer has three years to exercise the right.
But is it enough to send a letter to
the creditor saying "I rescind" or must the consumer
actually file his/her lawsuit within the three years? Various
federal courts of appeal have reached different conclusions
creating a split of authority among the circuits.
The Eighth, Ninth, and Tenth Circuits (and probably the Sixth), relying on the Supreme Court's Beach v. Ocwen Federal Bank decision,
have held that the consumer must actually file a lawsuit within the
three year period.
The Third and Fourth Circuits have held that mere notice is
enough to exercise the right — although in practice, consumer
correspondence often provides less than clear notice of a desire to
cancel (see Sixth Circuit's opinion in Lumpkin).
America's newest consumer
watchdog, the Consumer Financial Protection Bureau, has weighed in
with amicus briefs in the Third, Fourth, Eighth, and
Tenth Circuits, arguing that bare notice is enough.
The disappointed consumers in the
Eighth Circuit case have filed a petition for certiorari with the United State
Supreme Court, asking it to resolve the split.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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