Consumer Finance Litigation

In Hartman v. Smith, --- F.3d ---, 2013 WL 4407058 (8th Cir. 2013), the Court of Appeals for the Eight Circuit extended its prior holding and held that a borrower must file suit before foreclosure to exercise his or her right of rescission under the TILA. Plaintiffs RogerHartman, Mavis Hartman, and Maul Lee Hartman filed suit against defendants alleging violations of the TILA and state law. The district court granted summary judgment in favor of defendants on plaintiffs' TILA rescission claim and various state law claims, and the jury found for defendants on the remaining claims. Plaintiffs appealed the lower court's decision granting summary judgment in favor of defendants. Defendant Prime Security Bank (the "Bank") cross-appealed the district court's decision finding that plaintiffs' notice was sufficient to trigger the TILA statutory right of rescission. On appeal, the Bank argued that plaintiffs' rescission claim failed because they did not file suit prior to the foreclosure sale. The court found 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. . . ." See 12 C.F.R. § 226.23(a)(2). The court noted the circuit split regarding whether a borrower must file suit within the repose period to exercise their right to rescind. See Sherzer v. Homestar Mortg. Servs., 770 F.3d 255, 258-61 (3d Cir. 2013) (finding notice by itself sufficient to effectuate rescission); Gilbert v. Residential Funding LLC, 678 F.3d 271, 276 (4th Cir. 2012) (same). But see McOmie-Gray v. Bank of Am. Home Loans, 667 F.3d 1325, 1327-30 (9th Cir. 2012) (finding notice insufficient and borrower must file suit to exercise rescission); Rosenfield v. HSBC Bank, USA, 681 F.3d 1172, 1185 (10th Cir. 2012) (same). The court had recently joined the Ninth and Tenth Circuits and found that notice by itself, while necessary, was insufficient to exercise rescission. See Keiran v. Home Capital, Inc., Nos. 11-3878. 12-1053, 2013 WL 3481366, at 5 (8th Cir. July 12, 2013). The court held that plaintiffs were required to file suit within three years and prior to the foreclosure of the loan. Accordingly, the court held that the lower court erred in finding that notice was sufficient and reversed its decision with respect to rescission. In a concurring opinion, Judge Melloy agreed with the opinion only to the extent the court was bound by prior decisions. However, he agreed with the reasoning in the Keiran dissent and stated that sending notice within three years should be sufficient to effectuate rescission. He further noted that the CFPB had recently weighed in on this issue through amicus curae briefs and argued that a borrower properly exercises the right to rescind a loan transaction by sending notice. Judge Melloy suggested that deference should be granted to the CFPB's interpretation of the TILA. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.