United States District Court, N.D. Illinois, Eastern Division
January 4, 2005.
COREANER BROWN, Plaintiff,
NATIONSCREDIT FINANCIAL SERVICES CORPORATION, doing business as EQUICREDIT CORPORATION OF ILLINOIS; EQUICREDIT CORPORATION OF AMERICA; FAIRBANKS CAPITAL CORPORATION; and BANK OF NEW YORK, Defendants.
The opinion of the court was delivered by: MATTHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
Coreaner Brown has sued her mortgage lender, its assignee, and
the loan servicer to rescind her loan and obtain statutory
damages for defendants' alleged violations of the Truth in
Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., as amended by
the Home Ownership and Equity Protection Act of 1994 ("HOEPA"),
15 U.S.C. §§ 1602(aa) & 1639; its implementing Federal Reserve
Board Regulation Z, 12 C.F.R. § 226; and the Illinois Consumer
Fraud Act. Brown contends that she is entitled to statutory
damages for defendants' failure to rescind the loan and for
underlying disclosure violations.
The case is before the Court on defendants' motion for partial
summary judgment. Defendants argue that Brown's underlying
statutory claims are time-barred by TILA's one-year statute of limitations for damage claims set out in § 1640(e).
For the reasons stated below, the Court grants defendants'
On November 18, 1999, Brown obtained a $51,000 mortgage loan
from Equicredit Corporation of Illinois ("Equicredit") that was
primarily used for a home repair project. Defendant Nationscredit
Financial Services Corporation is Equicredit's successor by
merger. Defendant Bank of New York now holds title to Brown's
loan, and defendant Fairbanks Capital Corporation services the
Brown filed her original complaint on July 16, 2002. She
attempted to rescind the loan on July 9, 2002 by sending a
rescission notice to Equicredit. Pl's 56.1 Stmt., Ex. V. In a
July 25, 2002 letter, Equicredit rejected her request for
rescission. Brown seeks a judgment for rescission of the loan and
statutory damages for defendants' alleged violations of TILA, as
amended by HOEPA, and for defendants' failure to honor her timely
notice of rescission. Brown brings similar claims under the
Illinois Consumer Fraud Act.
Brown contends that she is entitled to rescind the loan
pursuant to TILA § 1635 based on defendants' failure to provide
clear and conspicuous disclosure of her three-day right to
rescind, or alternatively, because defendants failed to provide
the requisite advance disclosures required under HOEPA. In
addition to rescission, Brown argues she is entitled to statutory
damages for five separate violations of TILA and HOEPA. First,
she alleges that at her loan closing, Equicredit's agent required
her to sign a form "confirming" that she was not rescinding the
transaction, which Brown contends violated TILA's requirement of
clear and conspicuous disclosure with respect to her rescission
rights. 12 C.F.R. § 226.23(a)(3). Second, she claims that defendants understated the finance charge on her TILA
disclosure statement by an amount in excess of TILA's applicable
tolerance of .5% of the loan principal. Next, Brown charges that
although the points and fees under the loan actually came to
11.84%, well above the 8% HOEPA trigger, defendants failed to
provide the necessary advanced HOEPA warning disclosure
concerning the high cost of the loan. 15 U.S.C. § 1602(aa). Brown
also claims that she is entitled to enhanced damages in an amount
equal to the sum of all finance charges and fees paid, as
provided by HOEPA. 15 U.S.C. § 1640(a)(4). Finally, she contends
that she is entitled to statutory damages for defendants' failure
to honor her timely exercise of her right to rescind.
In their motion for partial summary judgment, defendants assert
that Brown's damage claims for the underlying violations of TILA
and HOEPA are barred by TILA's one-year statute of limitations
for damage claims pursuant to 15 U.S.C. § 1640. Brown maintains
that if the Court finds she is entitled to an extended,
three-year right to rescind the loan because of violations under
15 U.S.C. § 1635, she would also be allowed, in seeking
rescission, to preserve her claims for damages even though they
would be time-barred if they stood alone.
Summary judgment is appropriate where "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law." Fed.R.Civ.P.
56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In
determining whether a genuine issue of material fact exists, the
Court must construe all facts and draw all reasonable and
justifiable inferences in favor of Brown, the non-moving party on
this motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). Defendants contend that even if Brown is entitled to rescind
the loan, she should be barred from seeking statutory damages for
the alleged underlying violations of TILA and HOEPA. They assert
that Brown's damages claims cannot ride piggyback on her
rescission claim to obtain the benefit of the three-year statute
of limitations that applies to the rescission claims. Instead
they argue that her TILA damage claims are governed by § 1640(e),
which provides that "[a]ny action under this section may be
brought . . . within one year from the date of the occurrence of
the violation." 15 U.S.C. § 1640(e). Because a TILA credit
transaction is consummated when the plaintiff becomes
contractually obligated on a credit transaction,
12 C.F.R. § 226.2(a)(13), defendants claim that Brown had only one year from
the date of her loan closing to bring her claims for damages,
which she did not do.
TILA § 1635 addresses a borrower's right of rescission. Under
this provision, a debtor who secures a loan on primary
residential property has "the right to rescind the transaction
until midnight of the third business day following the
consummation of the transaction or the delivery of the
information and rescission forms . . . whichever is later."
15 U.S.C. § 1635(a). If the lender neglects to make a material
disclosure as defined in the implementing regulations, the
borrower's right to rescind may be extended for up to three
years. 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). The
required material disclosures include the annual percentage rate,
the finance charge, the amount financed, the total payments, the
payment schedule, and the disclosures referred to in § 226.32(c)
and (d). Id. at n. 48. Similarly, HOEPA provides that
violations of its special protection provisions entitle consumers
to the remedies provided under § 1635. 15 U.S.C. § 1639(j) ("Any
mortgage that contains a provision prohibited by this section
shall be deemed a failure to deliver the material disclosures
required under this subchapter, for the purpose of section 1635 of this title."); see also Newton v.
United Companies Fin. Corp., 24 F. Supp. 2d 444 (E.D. Pa. 1998).
Thus, Brown would be entitled to rescind her loan for up to three
years from the date of consummation of the transaction if
Equicredit failed to make the required disclosures as she
The central dispute in this case concerns the interpretation of
§ 1635(g), titled "Additional relief," which provides that "[i]n
any action in which it is determined that a creditor has violated
this section, in addition to rescission the court may award
relief under section 1640 of this title for violations of this
subchapter not relating to the right to rescind."
15 U.S.C. § 1635(g). Brown contends that this provision extends the longer
three-year statute of limitations to damage claims when the right
to rescind is lengthened under § 1635(f). The Court does not
believe that in adopting § 1635(g), Congress intended to alter
the one-year statute of limitations applicable to damage claims.
Notably, § 1635(g) contains no language to suggest that
Congress intended to override the statute of limitations set out
in § 1640(e). The more appropriate reading, consistent with its
language, is that Congress was simply clarifying that a plaintiff
bringing a claim for rescission could also sue for statutory
damages. The relatively scant legislative history of § 1635(g) is
consistent with this reading. In discussing its 1980 amendments
to TILA, which included the addition of § 1635(g), the Senate
report on the proposed legislation stated that, "the bill
explicitly provides that a consumer who exercises his right to
rescind may also bring suit under the Act for other violations
not relating to rescission. The Act is currently ambiguous on
this issue, and this section codifies the majority position of
the courts." S. REP. No. 96-368, at 29 (1979), reprinted in
1980 U.S.C.C.A.N. 236, 265. Prior to the amendment, some courts
did not allow plaintiffs to concurrently sue for rescission under § 1635 and damages under §
1640, but instead required borrowers to elect one of the two
remedies. See Wachtel v. West, 476 F.2d 1062, 1065 (6th Cir.
In sum, both the language of § 1635(g) and its legislative
history support the notion that this subsection was not intended
to alter the statute of limitations applicable to TILA damage
claims. The majority of courts addressing this issue have reached
the same conclusion. Rudisell v. Fifth Third Bank, 622 F.2d 243
(6th Cir. 1980); Bell v. Ameriquest Mortgage Co., No. 04 C
5987, 2004 WL 2973819 (N.D. Ill. Nov. 30, 2004); Pulphus v.
Sullivan, No. 02 C 5794, 2003 WL 1964333 (N.D. Ill. Apr. 28,
2003); Jenkins v. Mercantile Mortgage Co., 231 F. Supp. 2d 737,
745 (N.D. Ill. 2002); Dowdy v. First Metro. Mortgage Co., No.
01 C 7211, 2002 WL 745851, at *1-2 (N.D. Ill. 2002); Elliott v.
ITT Corp., 764 F. Supp. 102 (N.D. Ill. 1991). But see McIntosh
v. Irwin Union Bank & Trust Co., 215 F.R.D. 26, 30 (D. Mass.
2003); Reynolds v. D&N Bank, 792 F. Supp. 1035, 1036-39
(finding, without discussion of the statute of limitations, that
plaintiff is entitled to rescission and statutory damages despite
claim being brought fourteen months after entering the contract).
The Court, therefore, grants defendants' motion for partial
summary judgment. Brown is barred from bringing damages claims
for the violations of TILA and HOEPA that she claims occurred at
the time she obtained the loan, as she did not bring those claims
within the year after the loan was made. Her damage claim arising
from defendants' failure to honor her notice of rescission is not
time-barred because it was made within one year from the date of
that particular violation. Conclusion
For the reasons stated above, the Court grants defendants'
motion for partial summary judgment [docket no. 52]. The case is
set for a status hearing on January 5, 2005 at 9:30 a.m.
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