Eighth Circuit Holds Borrowers Must File Suit Within TILA Three-Year Rescission Period

CFPB TILA

On July 12, the U.S. Court of Appeals for the Eighth Circuit held that a borrower seeking rescission under TILA must file suit within three years, and that merely providing the lender notice is insufficient to preserve the borrower’s right of rescission. Keiran v. Home Capital, Inc., No. 11-3878 (8th Cir. Jul. 12, 2013). As the Tenth Circuit did last year, the Eighth Circuit reasoned that the text of the statute, as explicated by the Supreme Court in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), establishes that filing suit is required. Also like the Tenth Circuit, the court expressly rejected the CFPB’s argument that the lender, rather than the obligor, should be required to file suit to prevent rescission. To adopt the CFPB’s position, the court explained, “would create a situation wherein rescission is complete, in effect, simply upon notice from the borrower, whether or not the borrower had a valid basis for such a remedy.  Under this scenario, the bank’s security interest would be unilaterally impaired, casting a cloud on the property’s title, an approach envisioned and rejected by Beach.” The holding is the latest in a series of circuit court decisions on this issue, with the majority of circuits now holding in favor of the lender and rejecting the position that notice extends the three-year TILA rescission right. BuckleySandler LLP filed an amicus brief in Keiran on behalf of the American Bankers Association, Consumer Bankers Association, and Consumer Mortgage Coalition.