Thompson v. Irwin Home Equity Corp., et al.

The 1st Circuit Court of Appeals has handed down a decision in a case where the lender allegedly violated the Truth in Lending Act by failing to notify the plaintiffs of their right to rescind. The lender had simply delivered blank generic notice forms without the pertinent dates filled in, accompanied by "Instructions for Completing the Notice of Right to Cancel." The plaintiffs contend that this "do-it-yourself disclosure scheme" is not adequate under the statute and they therefore have a right to invoke the longer, three-year time limit on the exercise of their right of rescission. Their loan agreement provided that "[a]ny controversy or claim . . . arising out of or relating to this Agreement . . . shall be determined by binding arbitration." Lender sought to compel arbitration. The borrowers balked, arguing that if they rescind, the agreement, including its mandatory arbitration clause would, in effect, no longer exist. The 1st Circuit disagreed and said that "[N]either the statute nor the regulation establishes that a borrower's mere assertion of the right of rescission has the automatic effect of voiding the contract. . . . If a lender disputes a borrower's right to rescind, [which Irwin is doing] the designated decision maker -- here an arbitrator -- must decide whether the conditions for rescission have been met. Until such decision is made, the [borrower has] only advanced a claim seeking rescission."