Federal Appeals Court Permits Lawsuit to Proceed Against Lender for Alleged Violation of Truth in Lending Act

In Balderas v. Countrywide Bank (— F.3d —-, C.A.9 (Cal.), December 29, 2011), the United States Court of Appeals held that borrowers may sue a lending institution for a violation of the Truth in Lending Act (“TILA”) if the lender fails to properly notify them of their right to cancel the loan.


Victor and Belen Balderas were immigrants not fluent in English who claimed that agents for Countrywide Bank (“Countrywide”) pressured them into signing loan documents that Countrywide knew they could not afford and on terms they did not agree to. They alleged that Countrywide agents cold-called them, visited their home unannounced, and refused to leave until they signed the loan documents. The forms were in English which the Balderases could not read. After hours of pressure the Balderases said they signed the documents.

The Balderases claim they repeatedly called Countrywide beginning the following day asking to rescind the loans but their requests were refused. The Balderases filed suit alleging Countrywide violated TILA by failing to provide them with a Notice of Right to Cancel containing all of the required information, in particular the date of closing and the date on which the right to rescind expired. They alleged Countrywide also falsely told them their right to rescind had expired when, in fact, they had a three-day window to rescind.

Countrywide filed a 12(b)(6) motion to dismiss which the district court granted. The Balderases appealed.


The Court ruled that the district court erred when it granted the dismissal motion on the grounds that Countrywide had presented a properly completed Notice of Right to Cancel bearing the Balderases’ signatures and thereby demonstrating that the Balderases had been properly notified.

The Court determined that if the Balderases could prove that they were not allowed to keep complete and accurate copies of the Notice of Right to Cancel, as they allege, then they could make a believable case that their rights under TILA were violated. The district court was wrong to presume the contrary, the Court said, because “evidentiary presumptions are inappropriate for evaluation at the pleadings stage.”

Further, the Court commented that handing someone a document just long enough to sign it and then taking it back does not constitute “delivery” of the document, as required by TILA, because the word “deliver” is defined as “to give or transfer” and “to yield possession or control of.” If Countrywide ended up with the only copies of the properly completed documents then they failed to “deliver” them and did not comply with TILA.

The Court ruled that the Balderases should have had the opportunity to make their case. “As we have said before, so long as the plaintiff alleges facts to support a theory that is not facially implausible, the Court’s skepticism is best reserved for later states of the proceedings when the plaintiff case can be rejected on evidentiary grounds.” The Court ruled, “A complaint containing allegations that, if proven, present a winning case is not subject to dismissal under 12(b)(6), no matter how unlikely such winning outcome may appear to the district court.”

The district court’s ruling granting the dismissal was reversed and remanded.


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