Rita and Barry Weintraub applied to Quicken Loans for a
$220,000 loan to refinance their home. The application required a $500 deposit
for out-of-pocket expenses, such as property appraisal costs and credit reports.
The Deposit Agreement provided the following:
If your application is approved: At the closing, Lender will
credit the amount of your deposit on your closing statement toward your closing
costs.
If your application is denied: Lender will refund the
deposit less the actual amount of out-of-pocket costs incurred on your behalf
for, among other items, the costs of an appraisal and/or credit report.
A conditional approval or request for additional information
is not a denial. The deposit will not be refunded if you don't fully cooperate
in or complete the application process (including submitting all required
documentation in a timely manner), choose to withdraw your application, or
choose not to close the transaction for any reason (including changing interest
rates).
(emphasis added). The Weintraubs signed this agreement and
paid $500. Quicken Loans provided the Weintraubs with closing documents that
included a "Federal Truth-In-Lending Statement" and "Notices of Right to
Cancel." The Notices of Right to Cancel provided:
You are entering into a transaction that will result in a
mortgage/lien/security interest on/in your home. You have a legal right under
federal law to cancel this transaction, without cost, within THREE BUSINESS DAYS
from whichever of the following occurs last:
(1) The date of the transaction, which is February 26, 2008;
or
(2) The date you received your Truth in Lending disclosures;
or
(3) The date you received this notice of your right to cancel.
If you cancel this transaction, the mortgage/lien/security
interest is also cancelled . . . and we must return to you any money or property
you have given to us or to anyone else in connection with this transaction.
The Weintraubs cancelled the arrangement two days after
receiving the Notice of Right to Cancel and requested the return of the $500
deposit. Quicken Loans refused to return the full $500 citing the Deposit
Agreement that stated "the deposit will not be refunded . . . if you . . .
choose to withdraw your application, or choose not to close the transaction."
Quicken Loans refunded only $129.41, after deducting $350 for the cost of the
appraisal and $20.59 for the cost of obtaining a credit report.
The Weintraubs filed this action alleging that Quicken
Loans' failure to provide them with a full refund of their deposit violated the
Truth In Lending Act ("TILA"), specifically 15 U.S.C. § 1635. This section
provides in pertinent part:
(a) In the case of any consumer credit transaction . . . in
which a security interest . . . is or will be retained or acquired in any
property which is used as the principal dwelling of the person to whom credit is
extended, the obligor shall have 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 required under this
section together with a statement containing the material disclosures required
under this subchapter, whichever is later, by notifying the creditor . . . of
his intention to do so.
(b) . . . Within 20 days after receipt of a notice of
rescission, the creditor shall return to the obligor any money or property given
as earnest money, down payment, or otherwise . . .
Quicken Loans argued that the right to rescind only applies
to cases of consumer credit transactions, where the transaction was consummated.
Because the Wientraubs cancelled their application before it was approved or
denied, Quicken Loans argued that there was no consumer credit "transaction" to
give rise to the right to return of the $500.
The Weintraubs, on the other hand, argued that "transaction"
should be accorded the broadest definition, taken from BLACK'S LAW DICTIONARY,
to mean "any activity involving two or more persons." They argued that a
consumer credit transaction occurs when any two parties or more begin
negotiations for the potential extension of credit.
The Fourth Circuit looked to the construction of
"transaction" found in other provisions of TILA and determined that
"transaction" contemplates a consummated event. For example, a "residential
mortgage transaction" is defined by § 1602 as "a transaction in which a
mortgage, deed of trust, purchase money security interest arising under an
installment sales contract, or equivalent consensual security interest is
created or retained against the consumer's dwelling."
In addition, the "commonsense" reading of § 1635(a)
suggested transaction meant a consummated agreement. "The right to rescind a
transaction defined as the whole course of interactions [and negotiations]
between the parties would essentially be meaningless—there would often be
nothing to rescind." Instead, Congress intended to give parties an opportunity
back out of binding loan obligations.
Accordingly, the Fourth Circuit held that the definition of
credit transaction refers to consummated transactions. As such, the Weintraubs
were not entitled to the return of their full $500.
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