Supreme Court Clarifies Borrowers’ Right to Rescind Under TILA

In a major, unanimous decision on the Truth in Lending Act, the Supreme Court resolved a circuit split and clarified borrowers’ rescission rights under TILA, potentially making rescission of a loan transaction easier for borrowers. Under TILA, the time period governing the right to rescind a loan transaction depends on whether all required disclosures have been delivered to the borrower. A borrower has (i) three business days to rescind from the date when all required disclosures have been delivered, or (ii) three years from the date when the loan transaction is consummated, if the required disclosures have not been delivered.

The Supreme Court reversed an Eighth Circuit ruling, which held that a borrower seeking to exercise the three-year rescission right must do so by filing a lawsuit within that period. The Supreme Court held that the borrower need only give the creditor written notice of rescission within the three-year period. Key to the decision was the language of 15 U.S.C. §1635(a), which the Court said “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 [Federal Reserve] Board, of his intention to do so’ (emphasis added).” Prior to the ruling, the First, Sixth, Ninth, and Tenth Circuits shared the Eighth Circuit’s interpretation of the statute, while the Third, Fourth, and Eleventh Circuits viewed TILA as requiring only the notification of the creditor in writing within three years of the consummation of the transaction.