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Consumer Protection – TILA – Mortgage Loan Rescission – Deposit Refund

Homeowners who changed their mind about refinancing lose their Truth-in-Lending claim against a lender who deducted credit report and appraisal costs from their $500 deposit; the 4th Circuit says the right to rescind under 15 U.S.C. § 1635(a) is available only to rescind a consummated credit transaction, and because the borrowers elected not to go through with the loan, they were not entitled to TILA relief.

Although Baxter v. Sparks Oldsmobile Inc., 579 F.2d 863 (4th Cir. 1978), and Nigh v. Koons Buick Pontiac GMC Inc., 319 F.3d 119 (4th Cir. 2003), both dealt with TILA liability under § 1638 for improper disclosures in connection with consumer credit transactions relating to the purchase of an automobile, we believe the principle that a credit transaction must be consummated to trigger TILA liability applies with equal force to the right to rescind created by § 1635(a). Rather than dealing exclusively with some aspect of TILA unique to § 1638 or to the automobile context, these cases stand for the broader principle that only when a loan has been consummated does a “credit transaction’ exist that gives rise to liability under TILA. We conclude no “consumer credit transaction” exists for which the right to rescind can be exercised until that transaction has been consummated, or until credit is in fact extended.

The language and operation of § 1635(a) also support our conclusion that the right to rescind under § 1635(a) can only arise when a transaction has been consummated. Finally, our conclusion is consistent with the interpretation of TILA advanced by the board of governors of the Federal Reserve System in Regulation Z.

While the deposit agreement in this case was undoubtedly a “transaction” entered into before consummation of the credit transaction, TILA would certainly not apply to that transaction because it did not involve an extension of credit.

Judgment for the lender affirmed.

Weintraub v. Quicken Loans Inc. (Niemeyer, J.) No. 08-2373, Feb. 5, 2010; USDC at Alexandria, Va. (Hilton) Anthony J. Brady Jr. for appellants; Michael R. Ward for appellee. VLW 010-2-042, 12 pp.

VLW 010-2-042

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