Book Opener

UNITBeach v. Ocwen Federal BankU.S. Supreme Court523 U.S. 410 (1998)Landmark CaseIssue If the lender in a consumer credit transaction did not deliver requiredforms to the borrower or failed to accurately disclose important terms of thecontract, can a borrower rescind a loan agreement that is secured by his orher home more than three years after the date of the loan?Factsacts The Truth in Lending Act, an act passed toprotect borrowers, seeks to ensure that consumerswill not be victimized by unfair or opportunisticlending practices. The act provides that when a loanin a consumer credit transaction is guaranteed bythe borrower’s principal residence, the borrower hasthe right to rescind, or cancel, the loan if the lenderdoes not deliver certain forms or render the terms ofthe loan accurately. However, the act also providesthat the borrower’s right to rescind expires after threeyears or after the sale of the property in question,whichever event occurs first.David and Linda Beach obtained a constructionloan for $85,000 from Fidelity FederalSavings Bank, secured by a mortgage on the housebuilt with the loan. A few months later, theBeaches refinanced their loan by using OcwenFederal Bank. Five years later, the Beaches ceasedmaking their mortgage payments. The bank beganforeclosure proceedings against the Beaches. TheBeaches admit the default in the payment of theirloan, but they allege, as an affirmative defense,that the bank failed to disclose informationrequired by the Truth in Lending Act. They claimthat, as authorized by the act, such failure givesthem the right to rescind the mortgage and toreduce their indebtedness to the bank. TheBeaches also hold that they are justified in makinga claim against their lender, despite the expirationof the three-year period stipulated by the Truth inLending Act, because they are making their claimas an affirmative defense.The Circuit Court of the 15th Judicial Circuitof Florida, the state’s intermediate appellate court,and the Supreme Court of Florida all found thatthe Beaches right to rescind the mortgage hadexpired when the three-year time limit passed.Opinion Congress passed the Truth in LendingAct “to assure meaningful disclosure of creditterms so that the consumer will be able to comparemore readily the various credit terms available tohim and to avoid the uninformed use of credit, andto protect the consumer against inaccurate andunfair credit billing and credit card practices.” Theact requires lenders in consumer credit transactionsto accurately inform borrowers of the terms of thecontract, such as finance charges, annual percentagerates, and borrower’s rights.578 Unit 5: Using Your Purchasing Power