Consumer Need Only Send Written Notice Of Rescission, Not Actually Sue To Rescind, Within Three Years To Preserve A Claim Under TILA

The Chapter 7 trustee in In re Hunter, 400 B.R. 651 (Bkrtcy. N.D.Ill., March 2009) filed an adversary complaint against the originator of two consumer residential mortgage loans obtained by debtor prepetition and assignee of one of the loans, seeking damages and rescission of both loans on the basis of defendants’ alleged Truth in Lending Act (TILA) violations. The borrower sent notice to rescind both loans two weeks shy of the third anniversary of the transaction. She filed bankruptcy a month or so later and the trustee brought his TILA rescission suit nearly six months after the loan closed. Defendants moved to dismiss the rescission claims on the basis that they were time-barred. The court denied the motion finding that the rescission request was timely and that neither TILA nor the Supreme Court in _Beach v. Ocwen Fed. Bank,_523 U.S. 410 (1998) required that suit be brought within three years. Because Regulation Z provides that to exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. 12 C.F.R. § 226.23(a)(2). The court determined that the written notice sufficed to trigger and preserve the right to rescind. It also found that TILA does not require the consumer to file a lawsuit to exercise the right to rescind. Both the statute and the regulation require only notification to the creditor. If the consumer timely exercises the right to rescind and the creditor fails to respond, the consumer should have a year to file suit. Id. According to the court, the Defendants’ interpretation would unfairly reward creditors for failing to take the steps upon receipt of notice set forth in 15 U.S.C. 1635(b).

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