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Consumer Protection – TILA – Rescission Notice – Payment Schedule

Rejecting the “hypertechnical” enforcement of Truth-in-Lending remedies used in some federal circuits, an Alexandria U.S. District Court dismisses a borrower’s suit seeking rescission on the grounds that the lender allegedly did not clearly state payments were due at monthly intervals and did not use the right rescission-notice form.

Specifically, plaintiff alleges the disclosure statement delineating the terms of the loan failed to accurately articulate the amount, number and due dates of payments. Plaintiff maintains that the disclosure statement stated that all payments on the loan but one were due the same day – approximately 45 days after closing. Plaintiff further contends that in a second refinance credit transaction one year later, Countrywide violated TILA by providing her with the incorrect version of the required Notice of Right to Cancel/Rescission. She maintains the version she received improperly bore the notation “Different Lender” rather than more accurately, “Same Lender.”

Bank of America stresses the reluctance of the 4th Circuit to adopt the level of strict application of TILA seen in a few federal circuits. A survey of decisions applying the TILA enforcement provisions demonstrates a clear philosophical fissure among federal circuits. Some award rescission based on hypertechnical violations, while others take a more moderated approach. In the bank’s view, an award of the relief sought by plaintiff, which would include forgiveness of finance charges and interest, would permit plaintiff to reap an inequitable economic windfall without proof of any actual financial injury.

With respect to the 2006 loan, plaintiff contends the lender failed to accurately disclose the number and due dates of payments under the 2006 credit transaction.

Under plaintiff’s theory, the lender’s failure to clearly specify that the 359 payments of $652.66 were payable in monthly intervals, as opposed to 45 days from the date of loan closing, was an actionable TLA violation. Under this strict liability approach, logic and common sense are a secondary consideration at best. Plaintiff’s position, however, enjoys some support in the 7th Circuit, Handy v. Anchor Mtge. Corp., 464 F.3d 760 (7th Cir. 2006).

Under plaintiff’s theory of the case, an objective reading of the payment schedule would require a person borrowing $99,358 for 45 days to pay $234,305. This computes to an interest rate of 235 percent. No reasonable consumer would construe the payment schedule in such a fashion.

Most federal circuit espouse a policy of “strict compliance” in enforcement of the material provisions of TILA. But as the 4th Circuit stated in American Mtge. Network Inc. v. Shelton, 485 F.3d 815 (4th Cir. 2007), absolute compliance and strict enforcement do not imply that the act’s requirements should not be reasonably construed and equitably applied. The court finds plaintiff’s strained interpretation of the disclosure form defies objective reasonableness.

As to the notice form, even if the form sent to plaintiff was technically incorrect, it provided her with all the information necessary to exercise her right of cancellation. An examination of the notes evidencing the 2006 and 2007 transactions would confirm that each involved different lenders. The fact that Lending Tree may have immediately transferred the loan to Countrywide is of no moment. It therefore appears that plaintiff received the appropriate notice of right to rescind form in 2007.

The issues raised in this case highlight the deep division among circuits as to what constitutes strict compliance with TILA. A survey of TILA jurisprudence would seem to yield a clear majority favoring a reasoned rather than absolute approach. The 7th Circuit appears to stand alone in its rigid hyper technical construction of the statute’s requirements.

The court dismisses plaintiff’s TILA claim.

Larrabee v. Bank of America N.A. (Hudson, J.) No. 3:09cv712, Feb. 16, 2010; USDC at Richmond, Va. VLW 010-3-077, 14 pp.

VLW 010-3-077

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