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Supreme Court Grants Cert in Truth in Lending Act Circuit Split

By Gabriella Khorasanee, JD on May 09, 2014 | Last updated on March 21, 2019

The Supreme Court recently granted a petition for writ of certiorari for a case originating in the Eighth Circuit. The case is a classic example of a circuit split.

Essentially, the question before the Court is: What is sufficient notice of a rescission request under the Truth in Lending Act? That is, whether a borrower who intends to rescind a loan under the Truth in Lending Act must file a suit in federal court, or whether a letter to the lender is sufficient.

Borrower's Right of Rescission

Under Section 1635 of the Truth in Lending Act, a borrower has a right of rescission within three years from the date of the loan, if required disclosures have not been delivered to the borrower, according to HousingWire. As you can imagine, this is quite a popular issue since the housing bubble burst in 2008.

In the present case, Larry and Cheryle Jesinoski took out a $611,000 home loan. Exactly three years to the day after getting the loan, the Jesinoskis mailed a letter to the lender seeking to rescind their mortgage on the basis of Truth in Lending Act violations. One year after mailing the letter (four years after the granting of the loan), the Jesinoskis sued the lender for rescission of the loan.

Eighth Circuit's Position

The only issue on appeal was "whether mailing a notice of rescission within three years of consummating a loan is sufficient to 'exercise' the right to rescind a loan transaction pursuant to 15 U.S.C. § 1635(a)." The Eighth Circuit, bound by another recent decision with the same issue, adopted the reasoning of the Tenth Circuit and "held that a party seeking to rescind a loan transaction must file suit within three years of consummating the loan."

Circuit Split

The Third, Fourth, and Eleventh Circuits have held that a letter of written notice to rescind is sufficient under Section 1635(a), while the First, Sixth, Eighth, Ninth, and Tenth Circuits all require that a lawsuit be filed within the three-year window.

The petition for writ of certiorari was granted on April 28, 2014, and the appeal is set for the Supreme Court October 2014 term. Oral arguments have yet to be scheduled.

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