On September 24, the Illinois Supreme Court reversed trial and appellate courts’ decisions and held that land trusts are considered “consumers” for purposes of exercising a right to rescind the loan transaction under the federal Truth in Lending Act (TILA).
At issue in this case was a reverse mortgage transaction in which the borrower was identified as “Standard Bank & Trust as Trustee under [a certain] trust agreement.” After the beneficiary of the trust died, the plaintiff lender filed a foreclosure lawsuit against Standard Bank as Trustee. In response, Standard Bank sent a notice to the lender exercising the right to rescind the transaction. The lender did not respond, and Standard Bank filed a counterclaim against the lender for violations of TILA, statutory damages, attorney’s fees, and termination of security interest. Both the trial court and the Illinois Court of Appeals decided that Standard Bank had no right of rescission because it was not an “obligor” within the meaning of TILA.
The Illinois Supreme Court began its analysis by noting that, while TILA vests the right to rescind in “obligors,” the corresponding provision of TILA-implementing Regulation Z states that the “consumer” has the right to rescind. Emphasizing a great degree of deference to which the Federal Reserve Board’s interpretations of TILA are entitled, the Court concluded that consumers are entitled to rescind loan transactions under TILA even if they do not fall within the definition of an “obligor.” Relevant to the case was the fact that the transaction at issue was a reverse mortgage for which a borrower has no personal liability, and the lender’s sole recourse is against the property. Further examining the Official Commentary to Regulation Z, the Court pointed out that land trusts are considered natural persons for purposes of the definition of “consumer.” Accordingly, the Court concluded that Standard Bank had the right to rescind the loan and remanded the case back to the trial court.
We will continue monitoring this and other cases that examine the issue of whether borrowers other than natural persons may constitute a “consumer” within the meaning of federal and state consumer protection statutes.