Eleventh Circuit Clarifies Pre-Consummation Disclosure Requirements under TILA

by Ballard Spahr LLP

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.

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