[author: Jennifer N. Toussaint]

In a recent decision, the Tenth Circuit upheld TILA §1635(f) as a statute of repose that acts to extinguish the right of a consumer to claim the affirmative defense of rescission three years after the consummation of a loan transaction. In Rosenfield v. HSBC Bank,[1] Ms. Rosenfield appealed a decision handed down by the United States District Court for the District of Colorado dismissing her claims for declaratory and injunctive relief for HSBC’s alleged violations of TILA.[2] Ms. Rosenfield claimed that by sending written notice to HSBC of her intent to rescind but doing nothing more, she had met the requirements of §1635(f).

In 2006, Ms. Rosenfield applied for and closed on a refinance loan on her home. The loan was subsequently sold or assigned to HSBC. Ms. Rosenfield believed that her original lender had violated TILA by omitting required disclosures regarding rescission rights, adjustable rates, and finance charges. A little less than two years after her loan closed, Ms. Rosenfield sent HSBC a “Notice of Rescission to the lender,” which purported to effectively rescind the loan transaction at issue. She received no response from HSBC regarding her notice. On July 9, 2009, HSBC instituted foreclosure proceedings pursuant to Rule 120 of the Colorado Rules of Civil Procedure (“Rule 120”) in the District Court for the City and County of Denver. In response to HSBC’s action, Ms. Rosenfield asserted the defense of rescission, which the state court held was unavailable to her in the “pared down” proceedings established under Rule 120. On December 21, 2009, Ms. Rosenfield commenced an action in state court, requesting declaratory and injunctive relief against HSBC.  HSBC successfully removed the suit to the U.S. District Court for the District of Colorado.

The Tenth Circuit was presented with two related questions – whether Ms. Rosenfield properly exercised her statutory right to rescind under §1635(f)’s three year statutory time bar either by (1) sending written notice to HSBC of her intent to rescind and thereafter receiving no response or (2) asserting a defense of rescission during a Colorado Rule 120 proceedings. The Tenth Circuit held that §1635(f) requires both a notice of intent to rescind and filing of suit to assert a rescission right within the three year statutory time bar. Accordingly, Ms. Rosenfield had not met the properly exercised her statutory right. In reaching its decision, the Tenth Circuit examined Beach v. Ocwen Federal Bank,[3] the Supreme Court’s most recent decision regarding a consumer’s right to rescission under TILA. In Beach, the Supreme Court held that §1635(f) governs the life of the underlying right of rescission, and is therefore not a statute of limitations, but one of repose in which a consumer’s right of rescission is extinguished three years after the consummation of the transaction at issue. The Tenth Circuit further noted that per Ms. Rosenfield’s argument, all that would be required of a consumer pursuant to §1635(f) is transmission of a notice that the consumer intended to rescind the underlying transaction. Such a result would lead to unnecessary confusion, in which a creditor would not have actually acted on a consumer’s notice of intent. Further, the result would lead to an indirect enlargement of the congressionally established three year time period and could in fact cloud the title of the property at issue for an indefinite period of time. 

The Tenth Circuit upheld the district court’s decision that allowing Ms. Rosenfield to amend her complaint to fully plead her Rule 120 argument would not cure the time bar defect that was fatal to her claim.

The Tenth Circuit’s decision follows the decisions of other circuits[4] and comports with a plain reading of §1635(f). The opinion continues the precedent of providing creditors protection and predictability related to a consumer’s assertion of their right of rescission pursuant to TILA.