Eleventh Circuit Clarifies Pre-Consummation Disclosure Requirements under TILA

by Ballard Spahr LLP
Contact

Under the Truth in Lending Act (TILA), lenders are required to make certain disclosures to borrowers before consummating mortgage loans. If a lender fails to make these disclosures, the borrower may have the right to rescind the loan. Recently, the U.S. Court of Appeals for the Eleventh Circuit reaffirmed that to be entitled to rescind, a borrower must establish a lender's failure to make "material" pre-consummation disclosures, which are narrowly limited to those described in the controlling regulations promulgated under the TILA.

Specifically, the Eleventh Circuit upheld the lower court's dismissal of the plaintiffs' claim that they were entitled to rescind their mortgage loan under the TILA because the lender failed to make certain material disclosures before consummating the mortgage loan. To support this claim, the plaintiffs alleged, inter alia, that the mortgage company from which they obtained their loan failed to disclose the identity of the "real lender" of the loan; namely, the bank that provided funding for the loan. The plaintiffs also alleged various improper disclosures relating to the loan's yield spread premium and the lender's processing and administrative fees on the loan.

The court explained, however, that none of the lender's alleged disclosure errors constituted "material disclosures" under the TILA that would trigger the plaintiffs' rescission rights. Instead, as the Eleventh Circuit noted, the only information required to satisfy the TILA's pre-consummation disclosure requirements is:

  • The loan's annual percentage rate
  • Its finance charge
  • The amount financed
  • The total amount to be paid over the life of the loan
  • The payment schedule
  • Certain other disclosures referred to in 12 C.F.R. Sections 226.32(c)-(d) and 226.35(b)(2)

In this case, the court found that the lender properly disclosed each of these "material" factors. Consequently, it found that dismissal of the plaintiffs' rescission claim was appropriate because they failed to plead any allegations that would support their right to rescind under the TILA.

Moreover, the court explained that under 15 U.S.C. Sections 1635 and 1641, even when a lender or its assignee violates the TILA's disclosure requirements, such a violation will only give rise to a cause of action if the violation is "apparent on the face of the disclosure statement." Section 1641 provides that "a violation apparent on the face of the disclosure statement includes, but is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure which does not use the terms required by this subchapter." The court concluded that because there were no material disclosures absent from the pre-consummation disclosure statement at issue in this case, there was no need to apply Section 1641 to determine whether any violation was "apparent on the face" of the statement so as to warrant the remedy of rescission.

Lenders should take note of this recent decision to ensure compliance with the TILA's pre-consummation disclosure requirements, and when defending against rescission actions that are similarly based upon a failure to disclose information that falls outside the scope of the TILA's express requirements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.