Truth In Lending Rescission: A Letter Is Enough

The Supreme Court gave a unanimous opinion in Jesinoski v. Countrywide Home Loans, Inc., agreeing in substance with an amicus brief filed by five consumer and civil rights groups: National Consumer Law Center, Center for Responsible Lending, AARP, ACLU and the National Association of Consumer Advocates. This is a rare victory before the Supreme Court for consumers.

Jesinoski is important because it determines how a consumer can exercise a “right to rescind” under the Truth in Lending Act. The right to rescind under the Act is time limited: normally it must be exercised within three days, but, if a lender fails to comply with the Act’s disclosure rules, the right can last up to three years. Rescission is a powerful right – it allows the consumer to undo the deal made with the lender. In particular, rescission can remove the lender’s mortgage over the consumer’s home and recover payments of interest , although the consumer must repay the money originally borrowed. This means that rescission can be used to stop a foreclosure, provided that the right is exercised in time.

Mr. Jesinoski tried to exercise this right to rescind on the third anniversary of his mortgage, by sending a letter to his mortgage lender, invoking the right. His lender rejected the letter, and, one year later, Mr. Jesinoski filed a lawsuit.

The courts hearing the case thought that, to invoke the right to rescind, consumers must file a lawsuit, so Mr. Jesinoski filed too late. The Supreme Court, in a brief opinion, disagreed. Justice Scalia said:

That was error. Section 1635(a) explains in unequivocal terms how the right to rescind is to be exercised: It provides that a borrower “shall have the right to rescind . . . by notifying the creditor, in accordance with regulations of the Board, of his intention to do so” (emphasis added). The language leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.

Consumers can rescind without any of the formalities, cost or delay of filing a lawsuit.