TRUTH IN LENDING ACT

Chase Bank USA, N.A., v. McCoy

Issues

Under the pre-2009 version of Banking Regulation Z, are creditors required to give notice prior to implementing the right to increase interest rates upon cardholder default if that right was part of the initial disclosure of terms?

 

James McCoy alleges that Chase Bank (“Chase”) retroactively increased his credit card interest rate, without notice, in violation of the Truth in Lending Act’s Regulation Z. The Regulation has since been revised to require notice in this particular situation. McCoy argues that the plain language of Regulation Z mandated that he receive notice prior to an increase of his interest rate. Chase argues that the bank provided adequate notice. In support of its argument, Chase cites unofficial commentary promulgated by Federal Reserve Board, the agency which implements the Truth in Lending Act. The Supreme Court’s ruling will clarify the level of notice required prior to raising interest rates, and will provide advice on what sources may be used in interpreting complex statutes.

Questions as Framed for the Court by the Parties

When a creditor increases the periodic rate on a credit card account in response to a cardholder default, pursuant to a default rate term that was disclosed in the contract governing the account, does Regulation Z, 12 C.F.R. § 226.9(c), require the creditor to provide the cardholder with a change-in-terms notice even though the contractual terms governing the account have not changed?

Respondent James McCoy filed suit in California federal court, alleging that Petitioner Chase Bank USA, N.A. (“Chase”) violated the Truth in Lending Act. See McCoy v.

Written by

Edited by

Additional Resources

· Wex: Consumer Credit

· Office of the Comptroller of the Currency: Truth in Lending Act – Comptroller’s Handbook

· Banking Law Prof Blog, Ann Graham: Can a Credit Card Issuer Increase a Customer’s Rate without a Change-in-Terms Notice? (Nov. 22, 2011)

Submit for publication
0

Jesinoski v. Countrywide Home Loans

Issues

May a borrower simply provide written notice to a creditor to exercise a statutory right to rescind a home-secured loan under the Truth In Lending Act, or must the borrower file a lawsuit to exercise that right?

This case presents the Supreme Court with an opportunity to determine the procedural requirements for exercising the right to rescission under the Truth In Lending Act (“TILA”). The Jesinoskis argue that if a creditor fails to strictly comply with TILA’s terms, then borrowers only need to provide written notice in order to rescind a loan any time within a three-year period. Meanwhile, Countrywide maintains that any rescission occurring after the first three days of the loan requires a lawsuit if the rescission is contested by the creditor. This case ultimately will determine who bears the cost of litigation in rescinding home-secured loans, and also determines the scope of TILA’s protection for borrowers.

Questions as Framed for the Court by the Parties

The Truth in Lending Act provides that a borrower “shall have the right to rescind the transaction until midnight of the third business day following . . . the delivery of the information and rescission forms required under this section ... by notifying the creditor ... of his intention to do so.” 15 U.S.C. § 1635(a). The Act further creates a “[t]ime limit for [the] exercise of [this] right,” providing that the borrower’s “right of rescission shall expire three years after the date of consummation of the transaction” even if the “disclosures required ... have not been delivered.” Id. § 1635(f). 

The question presented is: 

Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

On February 23, 2007, Larry and Cheryle Jesinoski refinanced their home for a $611,000 loan from Countrywide Home Loans. See Jesinoski v. Countrywide Home Loans, Inc., No. 11-cv-0474-DWF-FLN, 2012 WL 1365751, at *1 (D. Minn. Apr. 19, 2012).

Written by

Edited by

Acknowledgments

The authors would like to thank Professor Cynthia Farina for her guidance.

Additional Resources

Submit for publication
0
Subscribe to TRUTH IN LENDING ACT