Question: Is a separate agreement whereby a borrower pays a fee for a locked-in interest rate itself subject to the three-day cancellation right under the Truth In Lending Act?
Answer: Yes, according to the Ninth Circuit in Jones v. e*Trade Mortgage Corporation, 05 C.D.O.S. 1283.
Here, the bank sent the borrowers a separate agreement under which they paid $400 for a locked-in interest rate. The bank approved the loan and then sent the borrowers the required three-day cancellation notice under TILA. The borrowers backed out and demanded the return of the $400 fee. The bank refused, and the district court dismissed the borrowers’ complaint for failure to state a TILA claim.
The Ninth Circuit reversed, holding that the rate lock-in agreement was not a “separate transaction to be distinguished from the loan itself.” In other words, it declined to separate the loan into “several transactions [that permit] the lender to extract money from the borrower who exercises his statutory right of decision.”