The Truth-in-Lending Act (“Act”) was adopted in 1969. It has spawned dozens of lawsuits and hundreds of administrative rules and interpretations. Recently, the United States Supreme Court had an opportunity to address the meaning of Section 15 U.S.C. §1635(a) which grants borrowers the right to rescind a mortgage loan “until midnight of the third business day following the consummation of the transaction or the delivery of the disclosure’s required by the Act, whichever is later, by notifying the creditor in accordance with regulations of the Federal Reserve Board of its intention to do so.”

This statute grants borrowers an unconditional right to rescind for three days, after which they may rescind only if the lender failed to satisfy the Act’s disclosure requirements. But this conditional right to rescind does not last forever. Even if a lender never makes the required disclosures, the right of rescission expires three years after the date of consummation of the transaction or upon the sale of the property, whichever comes first.

The issue before the Supreme Court was whether a borrower may exercise this right by providing a written notice to the lender or whether he must also file a lawsuit before the three-year period elapses. Here the borrower gave the lender written notice exactly three years after the consummation of the home mortgage loan, but did not initiate legal proceedings until four years and one day after the transaction.

Both the trial court and the Eighth Circuit Court of Appeals held that the Act requires that a borrower seeking a rescission of a consumer loan secured by a principal residence to file a law suit within three years of the date of the transaction. The Supreme Court reversed these decisions, stating that a “borrower need only provide a written notice to the lender in order to exercise his right to rescind.”

The lapse of three years from the date of the consummation of a home mortgage loan subject to the Act is no longer a rescission comfort zone for a lender if the borrower has given written notice to the lender within the three-year period.