ec,

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C.F.R. § 226.23. In a paragraph titled “Effects of Rescission,”
the Official Staff Interpretation of Regulation Z also indicates
that upon rescission, “[t]he consumer cannot be required to pay any
amount in the formin of money or property either to the creditor or
to a third party as part of the credit transaction” and that “[a]ny
amounts of this nature already paid by the consumer must be
refunded.” 12 C.F.R. pt. 226, Supp. I, I 23(d) (2) (1) .?

Plaintiffs complain that E*Trade’s Lock-In Agreement (which
provided that if plaintiffs’ loans failed to close for any reason
other than E*Trade declining to make the loan, the $400 lock-in fee
would be forfeited) is contrary to the right of rescission afforded
by TILA and contradicts Regulation Z’s required disclosures.
E*Trade argues that plaintiffs fail to state a claim because its
Notice of Right to Cancel used the Federal Reserve’s model Right to
Cancel form. E*Trade also contends that the Lock-In Agreement
applies only to the situation of a loan failing to close.
According to E*Trade, if a loan has failed to close, there is no
transaction to “rescind”; thus, the right to rescind could not be
affected.

It is true that, under TILA, “[a] creditor or lessor shall be
deemed to be in compliance with the disclosure provisions of this

subchapter with respect to other than numerical disclosures if the

a =6The Supreme Court has held that the pronouncements of the Federal
Reserve Board or its staff interpreting TILA and/or Regulation 2% are
“dispositive” unless “demonstrably irrational." Milhollin, 444 U.S. at 565.



«

-3-

The complaint alleges that E*Trade’s lLock-In Agreement
violated the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et
seg., and implementing Federal Reserve Board Regulation 2, 12
C.F.R. pt. 226. Plaintiffs seek to represent a class in relation
to their claim,?

Defendants now move to dismiss the complaint.

DISCUSSION

Plaintiffs allege that E*Trade violated the Truth in Lending
Act (“TILA”). Congress enacted TILA “to assure a meaningful
disclosure of credit terms so that the consumer will be able to
compare more readily the various credit terms available to him and
avoid the uninformed use of credit.” 15 U.S.C. § 1601(a). In
keeping with this purpose, TILA requires creditors to make clear
right of rescission disclosures for certain consumer credit
transactions. See 15 U.S.C. § 1635.

The Federal Reserve Board implemented a set of governing
regulations relating to TILA, commonly known as Regulation Z. See
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-60 (1980); 12
C.F.R. pt. 226. These regulations mandate the particular
disclosures that a creditor must make regarding the right to
rescind a transaction “in which a security interest is or will be

retained or acquired in a consumer’s principal dwelling.” See 12

4 The parties agreed to stay briefing on the pending motion for class
certification pending our ruling on the instant motion to dismiss.



-5-

creditor or lessor . . . uses any appropriate model form or clause
as published by the Board.” 15 U.S.C. § 1604(b). But that does
not end our inquiry because this safe harbor protection does not
extend to another loan document that is alleged to be inconsistent
with the disclosure form (here, the Lock-In Agreement). See Leon
v. Washington Mut. Bank, F.A,, 164 F. Supp. 2d 1034, 1040 (N.D.
Ill. 2001). We must ask whether plaintiff has sufficiently alleged
an inconsistency between the Lock-In Agreement and the right of the
consumer to rescind without payment of money or property as part of
the credit transaction.

The issue is more complicated than E*Trade has suggested.
Whether plaintiffs have stated a claim based on a violation of
their right to rescind depends upon the language of TILA and
Regulation Z2--specifically, how those provisions define
“transaction” and “rescission.” The parties have not identified,
nor can we find, a statutory or regulatory definition of either
term. TILA and Regulation Z do not clearly indicate that the
concept of rescission, or the language requiring a refund upon
rescission, applies to a situation where a loan has not yet closed.
Therefore, a holding that the rescission and refund provisions
apply to such a situation would constitute an impermissible
expansion of the statute and the regulations. We are not persuaded

that the statute gives plaintiffs a right of action, given the



x

Minute Order Form (06/97)

V8 ( United States District Court, Northern District of Illinois

Neacteceiage | John. Grady | Sr

CASE NUMBER 02 C 3513 DATE 10/31/2002
CASE Danie] Sampanetti et al vs. E*Trade Mortgage Corporation
TITLE

[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party ptaintiff, and (b) state briefly the nature

MOTION: of the motion being presented,]

DOCKET ENTRY:

qd) oO Filed motion of [ use listing in “Motion” box above.]

(2) Qo Brief in support of motion due

(3) Qo Answer brief to motion due___. Reply to answer briefdue__.

(4) Q Ruling/Hearingon___set for__at

(5) Oo Status hearing[held/continued to] [set for/re-set forlon___—set for at

(6) Q Pretrial conference[held/continued to] [set for/re-set for]on__——ssetfor__—sat_—

(7) o Trial[set for/re-set for}on__at

(8) i] [Bench/Jury trial] [Hearing] held/continuedto__—_at

(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) OLocal Rute 41.1 OFRCP41(a\(1) OO FRCP4I(2)(2).

is dismissed for failure to state a claim.

(il) [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required. mumber of notices

ao [Other docket entry) ENTER MEMORANDUM OPINION: It is ordered that defendants’ motion
to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) is granted, the complaint

7 | Notices mailed by judge's staff.

NOV 05 2002

Notified counsel by telephone.

Docketing to mail notices.

| Mail AO 450 form,

Copy to judge/magistrate judge.

. Muh eg date mailed notice
courtroom fea Gd
AMM deputy's

Y, initials L .
Date/time received in’
central Clerk's Office mailing deputy inikiats



~6-
facts alleged in the complaint. Accordingly, the complaint is
dismissed for failure to state a claim.
CONCLUSION
For the foregoing reasons, defendant’s motion to dismiss the

complaint is granted.

DATE: October 31, 2002
ENTER: Le, _
Jo. F.] Grady, United States Dist, Judge



02-3513.021-JCD October 31, 2002

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DANIEL SAMPANETTI, SANDRA
SAMPANETTI, and DAVID A. BUNTE,

DOCKETED

Plaintiffs, NOV 0 9 2002

ve. No. 02 C 3513

E*TRADE MORTGAGE CORPORATION,

Defendant.

MEMORANDUM OPINION

Before the court is defendants’ motion to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b) (6).
For the reasons explained below, the motion is granted.

BACKGROUND

Plaintiffs, Daniel Sampanetti and Sandra Sampanetti (who are
husband and wife), and David A. Bunte, bring this Truth-in-Lending
action against defendant E*Trade Mortgage Corporation (“E*Trade”),
alleging that E*Trade made a disclosure in an interest rate lock-in
agreement that contradicts a consumer’s statutory right to rescind
a mortgage loan transaction.

The complaint alleges the following facts, which we take as
true for purposes of this motion. On September 25, 2001,
plaintiffs Daniel and Sandra Sampanetti (“the Sampanettis”) applied

for a mortgage loan from E*Trade for refinancing existing debt



7

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incurred for personal, family or household purposes. On October 3,
2002, plaintiff David Bunte applied for a mortgage loan from
E*Trade for the same purpose. When plaintiffs applied for their
loans, they signed a “40-Day Lock-In Disclosure and Agreement” (the
“Lock-In Agreement”) and paid a $400.00 interest rate lock-in fee.
The Lock-In Agreement stated in pertinent part:

If you provide [E*Trade] with all documentation requested

of you (within 3 calendar days) to complete the

underwriting review of your loan application .. . and,

following such review, [E*Trade] does not approve your

loan for closing, based on income qualifying or credit,

the lock-in fee will be refunded to you. If your loan

fails to close for any other reason ([sic] including your

decision to cancel the application, then the lock-in fee
will not be refunded to you.

(Complaint, Exs. F & G, Lock-In Agreements) (emphasis added).
Plaintiffs complain that the last sentence (in bold) violates a
consumer’s statutory right to rescind a mortgage loan transaction
with a full refund of all amounts paid in connection with the loan.

The Sampanettis obtained their $275,000.00 loan on October 11,
2001, and Bunte obtained his $195,000.00 loan on November 1, 2001.
In connection with the transactions, plaintiffs received a Note, a
Mortgage, a Truth-in-Lending disclosure statement, a Notice of
Right to Cancel, and a Settlement Statement. Plaintiffs’ claim is
not based on any of these documents. (In fact, as discussed infra
the Notice of Right to Cancel tracks the Federal Reserve's

“Rescission Model Form.”)