Rita and Barry Weintraub sought to rescind their loan agreement with Quicken Loans, Inc. under the Truth in Lending Act (TILA) and requested a full refund of their $500 deposit prior to closing. Quicken Loans refunded part of the deposit after deducting costs for a credit report and appraisal but did not return the entire amount. The Weintraubs filed a lawsuit for declaratory judgment, alleging TILA violations, and sought injunctive relief, compensatory damages, and attorney's fees. The district court granted summary judgment in favor of Quicken Loans, determining that the right to rescind under TILA applies only to consummated transactions. The court concluded the Weintraubs were not entitled to relief because they did not complete the loan process. The case details the application process, including a Good Faith Estimate and an Interest Rate Disclosure that outlined the non-refundable conditions of the deposit if the application was not completed or if the loan was not closed. Ultimately, the appeal was affirmed by the Fourth Circuit, agreeing with the district court's interpretation of TILA.
The appraisal for the Weintraubs' townhouse was $32,000 lower than the $340,000 estimate they provided to Quicken Loans, resulting in the loan amount of $220,000 exceeding 70% of the property's estimated value. Consequently, Quicken Loans imposed a half-point discount fee on the closing costs. On February 18, Quicken Loans sent the Weintraubs closing documents detailing this fee adjustment, which included a "Federal Truth-In-Lending Statement" and "Notices of Right to Cancel," scheduling the closing for February 26. The Notices informed the Weintraubs of their right to cancel the transaction within three business days, allowing them to cancel without cost if they provided notice to Quicken Loans.
On February 20, the Weintraubs exercised this right by submitting executed Notices of Right to Cancel and requested a return of their $500 deposit. Quicken Loans, citing the Deposit Agreement, refused to return the full amount, only refunding $129.41 after deducting appraisal and credit report costs. The Weintraubs subsequently filed a lawsuit against Quicken Loans, claiming the partial refund violated their rights under 15 U.S.C. § 1635(b) of the Truth in Lending Act (TILA), arguing they were entitled to a full refund because they canceled within the established timeframe. The district court granted summary judgment in favor of Quicken Loans, stating that since the Weintraubs withdrew their application before closing, no "consumer credit transaction" had occurred, negating the right to rescind. The Weintraubs appealed, questioning whether they could rescind the loan transaction prior to closing and reclaim their entire deposit. TILA § 1635(a) supports their argument by granting the right to rescind until the third business day following the consummation of the transaction or receipt of required disclosures.
If the lender fails to provide required disclosures, the debtor's right to rescind the transaction expires three years after the transaction's consummation or property sale, whichever comes first. Upon proper exercise of this right, the creditor must return any earnest money or down payments within 20 days. The case at hand examines whether a "consumer credit transaction" can exist prior to the transaction's closure to trigger the right to rescind under the Truth in Lending Act (TILA). The district court determined that no "consumer credit transaction" occurred, emphasizing that TILA defines "residential mortgage transaction" and "reverse mortgage transaction" in terms of consummation. It argued that rescission applies only to completed credit transactions and referenced legal precedents establishing that liability for disclosures under TILA arises only after consummation. The court also cited Regulation Z and its interpretations, concluding that all conditions (consummation, delivery of cancellation notices, and TILA disclosures) must be met for a right to rescind to exist. The Weintraubs contested this interpretation, arguing that TILA should be liberally construed in favor of consumers and that "transaction" could refer to any business dealings, not just consummated agreements. They claimed the definitions of "transaction" support their view that rescission rights could exist prior to finalization. They disputed the applicability of case law cited by the district court, asserting that it pertained to disclosure liability rather than rescission rights. Furthermore, they contended that requiring consummation for rescission could lead to unreasonable outcomes, incentivizing debtors to proceed with transactions they wish to cancel solely to reclaim their deposits.
Lenders may intentionally withhold disclosures to avoid triggering the right of rescission under 15 U.S.C. 1635(a), which requires all three conditions to be met for a rescission right to arise. The Weintraubs argue that this interpretation undermines the time limitation set in 15 U.S.C. 1635(f), which allows consumers three years to rescind if disclosures are not provided. They claim their right to rescind was valid since they received the Notices of Right to Cancel and TILA disclosures, satisfying two of the three conditions. The discussion references the cases of Baxter and Nigh, which established that TILA liability only attaches when a credit transaction is consummated. In Baxter, the court denied damages for disclosure violations because the consumer canceled before consummation. Nigh distinguished Baxter but upheld that TILA liability, like rescission rights, arises only once a credit transaction is consummated. The overarching principle derived from these cases asserts that a "credit transaction" must be consummated for the right to rescind under TILA to exist.
The right to rescind under 15 U.S.C. § 1635(a) arises only after a transaction is consummated, as indicated by the statutory language emphasizing the need for a completed transaction. Definitions from § 1602, particularly for "residential mortgage transaction" and "reverse mortgage transaction," reinforce that a transaction must be finalized for rescission rights to apply. The argument presented by the Weintraubs, which relies on a broad definition of "transaction" from Black’s Law Dictionary, neglects the narrower, business-focused interpretation that necessitates an actual exchange or performance. A commonsense reading of § 1635(a) suggests that rescission pertains to binding agreements rather than the entire course of negotiations, as a broader interpretation would render the right to rescind meaningless. Congress likely intended to provide consumers a limited opportunity to withdraw from binding agreements only after they are finalized. Furthermore, adopting the Weintraubs' interpretation would impose undue costs on lenders without any meaningful obligation from the borrower. Regulation Z, which interprets the Truth in Lending Act (TILA), supports this conclusion by indicating that rescission pertains to consummated transactions involving a security interest. Since the Weintraubs withdrew their application prior to consummation, they never had the right to rescind, and Quicken Loans was not required to return their deposit. The court affirms that rescission rights under § 1635(a) can only be exercised following the consummation of a consumer credit transaction.
