QUESTION
Our banking department wrote us up for not complying
with the timeline requirements for the revised Closing Disclosure.
Our view was that providing a corrected Closing Disclosure extends the period a consumer may rescind a loan or take action for a TILA violation. That view came from our attorney. He now agrees with the banking department.
We want a straight answer to our question to find out who is right.
Does providing a corrected Closing Disclosure extend
the period when a consumer may rescind a loan or take an action for a TILA
violation?
ANSWER
Regulation Z, the implementing regulation of the Truth in Lending Act (TILA), generally[i]
requires a Loan Estimate (LE) and then a Closing Disclosure (CD) for
residential mortgage loans. The creditor is responsible for ensuring that the
consumer receives the CD no later than three business days before consummation
and that the CD meets TILA’s content, delivery, and timing requirements.
If
the CD becomes inaccurate before consummation, the creditor must provide
corrected disclosures reflecting any changed terms, so the consumer receives a
corrected CD at or before consummation.
If the creditor makes any of three significant changes between the time the CD is given and consummation, the creditor must provide a new CD and an additional 3-business-day waiting period before consummation.
The three changes are:
(1) the disclosed APR becomes inaccurate, specifically, it is more than 1/8 of one percent (1/4 % for a loan with irregular payments or periods) above or below the actual APR;
(2) the loan product is changed, causing the loan product disclosed on the first page of the CD to become inaccurate; or
(3) a prepayment penalty is added, causing the prepayment penalty statement in the Loan Terms table on the first page of the CD to become inaccurate. Less significant changes can be disclosed on a revised CD received by the consumer at or before consummation without delaying the closing.
Clerical errors discovered after consummation are subject to redisclosure. No later than 60 calendar days after consummation, a creditor must provide a revised CD to correct non-numerical clerical errors and document refunds for tolerance violations.
What is a clerical error? An error is “clerical” if it does not affect a numerical disclosure and does not affect the timing, delivery, or other requirements for the CD.
During the 30-day period after consummation, if an event causes the CD to become inaccurate and the inaccuracy results in a change to an amount actually paid by the consumer from that disclosed, the creditor must deliver or place in the mail a corrected CD no later than 30 days after receiving information sufficient to establish that the event has occurred.
A creditor is not required to provide a corrected CD (or a refund) for any per diem interest disclosure considered accurate under Regulation Z § 1026.17(c)(2)(i), that is, if the CD were based on the best information reasonably available at the time it was provided, even if the amount actually paid by the consumer differed from the amount disclosed.[ii]
Having set forth some of the basics, I will answer your question about whether giving a corrected CD extends the period during which a consumer may rescind a loan or bring an action for a TILA violation?
A recent case decided in a Hawaiian federal district court offers a resolution to your question.
In Mathias v. HomeStreet Bank, Inc.,[iii] Mathias took out a $276,250 mortgage loan in 2009 with HomeStreet Kapolei to purchase a lot. On March 1, 2018, Mathias signed a 30-year note and mortgage with HomeStreet Bank to refinance the earlier loan.
On April 18, 2018, HomeStreet Bank provided a revised CD that updated certain loan terms, including changing the closing date from March 1 to March 2.
On March 22, 2021, Mathias sued to rescind the 2018 loan. He contended that the 3-year period for rescinding his loan because of TILA violations started running on April 18, 2018, the day he was given a revised CD.
Not so, said the court, because his claim was time-barred since his right to rescind had expired before he filed his lawsuit. The parties did not dispute that Mathias had executed the loan – at the latest – on March 2, 2018. Accordingly, the right to rescind had expired several weeks before Mathias filed his lawsuit on March 22, 2021.
The plain language of the TILA statute makes clear that the time period for exercising rescission does not restart if a creditor provides disclosures after the loan has been consummated, to wit, the statute states that “[a]n obligor’s right of rescission shall expire three years after the date of consummation of the transaction … .”
So what is the takeaway from the Mathias case?
Clearly, Mathias did not notify the creditor in writing of his intent to rescind until he filed the complaint to begin his court action. Had he done so before March 2, 2018, his suit most likely would have been timely. The U.S. Supreme Court, in Jesinoski v. Countrywide Home Loans, Inc.,[iv] held that a borrower need not file suit within the 3-year period so long as the borrower notified the creditor of their intent to rescind within the 3-year period.
TILA states explicitly that a borrower “shall have the right to rescind … by notifying the creditor, in accordance with regulations of [the CFPB], of his intention to do so.” Regulation Z § 1026.23(a)(2) allows the consumer to exercise the right to rescind “by mail, telegram or other means of written communication” and provides that “[n]otice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor’s designated place of business.” TILA does not also require the consumer to sue within three years.
Granted, if an action is filed after the 3-year period, an issue may arise as to how much time is allowed for filing. Some courts have applied the 1-year limitation on actions contained in TILA § 130(e). As the CFPB suggested in amicus curiae briefs filed in numerous actions, others may apply borrowing doctrines to find an analogous limitation on actions.[v]
Mathias included a TILA claim for statutory damages—for failing to notify him of his right to cancel. The court also found this claim time-barred by TILA’s 1-year limitation on actions for statutory damages, which ran from the date of the occurrence of the disclosure violation (i.e., the date of closing).[ii] Regulation Z Comment 19(f)(2)(iii)-2
[iii] Mathias v. HomeStreet Bank, Inc., 2021 U.S. Dist. (D. Haw. June 21, 2021), and after amended complaint.
[iv] Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015),
[v] For instance, example, in Hoang v. Bank of America, 910 F.3d 1096 (9th Cir. 2018), the 9th Circuit applied what it found to be the most analogous state law statute of limitation - Washington State’s 6-year statute of limitation under general contract law for a written agreement, and in Mitchell v. Deutsche Bank Nat’l Trust Co., 714 Fed. Appx. 739 (9th Cir. 2018), the 9th Circuit applied the State of California’s 4-year statute of limitation for rescission of a contract. This question was not before the Supreme Court in Jesinoski, and that Court has not yet addressed the issue.
