Sixth Circuit Holds that TILA Recission Claims are Not Maintainable as Class Actions

Per McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. Jan. 29, 2007):

[T]he principal issue before us is whether TILA [Truth in Lending Act] claims focused on rescission are maintainable in a class-action format. This issue is one of first impression here. The Fifth Circuit has addressed it, however, holding squarely that rescission class actions are not maintainable under the TILA. See James v. Home Constr. Co. of Mobile, Inc., 621 F.2d 727, 731 (5th Cir.1980).

The James court based its holding primarily on a conclusion that Congress intended rescission to be a “purely personal remedy”--a status inconsistent with the class--action mechanism. Id. A number of district courts have echoed this refrain. These courts have emphasized that rescission claims, unlike damages claims, are not subject to any aggregate statutory cap and, therefore, rescission class actions, if permitted, could easily render a creditor insolvent. See, e.g., Gibbons v. Interbank Funding Group, 208 F.R.D. 278, 285-86 (N.D.Cal.2002). They also have noted the absence of any necessity for deployment of the class-action vehicle in this context due to the availability of substantial monetary recoveries and attorneys' fees in individual rescission cases. See, e.g., Jefferson v. Sec. Pac. Fin. Servs., Inc., 161 F.R.D. 63, 68-70 (N.D.Ill.1995).

This case law notwithstanding, the question is not free from doubt. Some district courts, like the court below, have certified TILA rescission classes on the theory that nothing in the language of the TILA expressly prohibits the maintenance of rescission class actions. See, e.g., Rodrigues v. Members Mortg. Co., 226 F.R.D. 147, 153 (D.Mass.2005); McIntosh v. Irwin Union Bank & Trust, Co., 215 F.R.D. 26, 32-33 (D.Mass.2003); Williams v. Empire Funding Corp., 183 F.R.D. 428, 435-36 (E.D.Pa.1998).

We follow James and hold today that, as a matter of law, class certification is not available for rescission claims, direct or declaratory, under the TILA. . . .We ground this conclusion primiarily on our conclusion that Congress did not intend rescission suits to receive class-action treatment.