Getting asked to review and sign a contract is just as exciting as getting asked to read the index of your favorite encyclopedia. If you are like most of us, then you probably have no idea where to begin reading and probably end up skimming rather than reading...
Truth In Lending Act
The Truth in Lending Act (TILA) is a federal law legislated on May 29, 1968 under the Consumer Credit Protection Act. The TILA was created to protect consumers involved in contracts with credited purchases with creditors and lenders. Essentially the TILA act enforces loan companies and credit card companies to provide all information regarding interest rates and other fees before a consumer agrees to borrow.
TILA covers open-ended credit and close-ended credit. Open-ended credit includes borrowed funds such as credit cards, debit cards and home equity loans. Examples of close-ended credit include auto loans and home mortgages. Information regarding terms of an Annual Percentage Rate (APR), the total amount offered in a loan and the frequency of due dates to repay the loan is now obligatory for the loaner to provide to the consumer under this act. The dispense of required information now allows consumers to be aware of contracts, costs of credit and so-called hidden fees. Consumers are also able to be more confident and comfortable agreeing to credit related contracts because they can use the provided information to compare a variety of loans or borrowed money.
Failure of cooperation by a loaner or creditor to provide the required information to the consumer can result in rescission in certain instances. The loan or credit transaction would be disentangled and canceled, and all fees and paid money would be returned back to the consumer in a rescission. Lenders and credit companies are more disposed and willing to provide the required information based on TILA due to the amount of loss which could generated during a rescission.
You can find out more information about the Truth in Lending Act (TILA) regarding home owners and foreclosure by reading 23 Legal Defenses to Foreclosure: How to Beat the Bank by Troy Doucet.
Right of Rescission
A borrower facing foreclosure has a number of defenses to losing his or her home. One such defense is the right of rescission. One can think of rescission as the ending of a contract or agreement. Under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1635, a borrower has the right of rescission as to certain transactions including mortgage refinancing, a home equity line of credit, a home improvement plan, or any other non-purchase credit transaction secured by the borrower’s principal dwelling . However, TILA’s right of rescission does not apply to the purchase of a home.
TILA “requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower’s rights[.]” Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006). See also 12 C.F.R. § 226.1(b) (“The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost.”).
Normally, a borrower is allowed until midnight of the third business day after the consummation of the transaction or delivery of the required TILA disclosures to the borrower, whichever is later, to rescind the transaction. But if the lender does not provide the required TILA forms and disclosures to the borrower, the borrower’s right of rescission may extend up to three years. In other words, a borrower has an “unconditional right to rescind for three days,” after which the borrower has three years to rescind if the lender fails to satisfy TILA’s disclosure requirements. Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790, 792 (2015).
If a lender does not meet its TILA disclosure obligations and the borrower wishes to rescind the transaction within the three year time period, the borrower may do so by giving notice to the lender in accordance certain Federal Reserve Board regulations. For a borrower, a rescission of a transaction means the borrower is refunded all payments, fees, and costs, essentially placing the borrower in a position as if the transaction never occurred.