Divittorio v. Hsbc Bank Usa, Na

United States Court of Appeals
For the First Circuit

No. 11-1188

IN RE: ANGELO DIVITTORIO,

Debtor.

ANGELO DIVITTORIO,

Appellant,

v.

HSBC BANK USA, NA as Trustee on behalf of ACE Securities Corp.
Home Equity Loan Trust and for registered holders of ACE
Securities Corp. Home Equity Loan Trust, Series 2006-SD1,
Asset-Backed-Pass Through Certificates,

Appellee,

OCWEN LOAN SERVICING, LLC; INDYMAC FEDERAL BANK,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]

Before

Lipez, Ripple,* and Howard,
Circuit Judges.

Harvey S. Shapiro was on brief for appellant.
David E. Fialkow, with whom Jeffrey S. Patterson and Nelson,
Mullin, Riley & Scarborough LLP were on brief, for appellee.

*
Of the Seventh Circuit, sitting by designation.
January 6, 2012

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 RIPPLE, Circuit Judge. Angelo DiVittorio filed this

adversary proceeding in which he asserted a right to rescind a loan

agreement on the ground that the disclosures made at closing did

not comply with the Massachusetts Consumer Credit Cost Disclosure

Act (“MCCCDA”), Mass. Gen. Laws ch. 140D, § 10, the Commonwealth’s

equivalent of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601

et seq. The bankruptcy court held that Mr. DiVittorio had failed

to state a claim for relief and, alternatively, had waived his

right to rescind the transaction. The district court affirmed the

bankruptcy court’s judgment for failure to state a claim, but did

not reach the issue of waiver. We conclude that Mr. DiVittorio’s

complaint in the adversary proceeding failed to state a claim and,

alternatively, that Mr. DiVittorio knowingly and voluntarily waived

any rights to rescission. We therefore affirm the judgment of the

district court.

I

A. Loan Origination

Mr. DiVittorio and his brother, Joseph DiVittorio

(“Joseph”), have resided at 39-41 Bonner Avenue, in Medford,

Massachusetts, since 1970. On March 13, 2003, Mr. DiVittorio

entered into a loan agreement in the amount of $330,000 by

executing a note and granting a first mortgage to IndyMac Bank, FSB

(“IndyMac”). Joseph also signed the mortgage, but is not an

obligor on the note.

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 At the closing on March 13, 2003, Mr. DiVittorio received

multiple disclosures regarding the note and mortgage, including:

(1) the “Truth in Lending Disclosure Statement” (the “TIL

Disclosure”), App. 37; (2) a three-page document titled “Adjustable

Rate Mortgage Loan Program Disclosure Non–Convertible 2/6 LIBOR

Performance ARM” (the “ARM Disclosure”), id. at 38-40; (3) an

“Addendum to Fixed/Adjustable Rate Note” (the “Addendum”), id. at

60; and (4) the “Rider to Security Instrument and Fixed/Adjustable

Rate Rider” (the “Adjustable Rate Rider”), id. at 78.

The TIL Disclosure recited an annual percentage rate

(“APR”) of 7.365%, noted that the loan contained a “variable rate

feature” and referred the borrower to a separate disclosure

regarding the variable rate. Id. at 37. The ARM Disclosure

revealed that the loan was subject to a performance-based rate

reduction according to which Mr. DiVittorio would qualify for a

reduced margin if he made the first two years of payments in a

timely manner. Specifically, the ARM Disclosure explained that the

interest rate on the note would be determined as follows:

Your Interest Rate will be based on an index
rate plus a margin, rounded to the nearest
.125% (the “Interest Rate”), unless your Caps
limit the amount of change in the Interest
Rate. The “Margin” is the amount which will
be added to the index to determine your
Interest Rate. The Margin may be reduced by
.50%, for credit levels I+, I, and II as shown
in the examples below; and, by 1.00% for
credit levels III and IV after the second year
of the loan if all payments for the first two
years of the loan are paid on time. If the

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 Margin is reduced after the second year of the
loan, the Margin will not change throughout
the remaining term of the loan. Please ask us
for our current Interest Rates and Margins.

Id. at 38. The ARM Disclosure did not indicate Mr. DiVittorio’s

“credit level” or the potential margin reduction he would receive

pursuant to the reduction feature; however, both the Addendum and

the Adjustable Rate Rider clarified that he was entitled to a .500%

margin reduction if he timely made the first twenty-two payments.

Although, for purposes of calculating the APR, IndyMac employed the

reduced rate for which Mr. DiVittorio would become eligible after

two years of timely payments, the TIL Disclosure itself did not

state that the APR accounted for this performance-based reduction

in interest rate.

B. Bankruptcy Proceedings

Mr. DiVittorio filed his Chapter 13 petition on October

11, 2005. Ocwen Loan Servicing, LLC (“Ocwen”), the entity which

serviced Mr. DiVittorio’s mortgage, first moved for relief from the

automatic stay in order to foreclose on the property on August 10,

2006; Mr. DiVittorio opposed the motion. After two months of

negotiations, the parties filed a stipulation on October 25, 2006,

according to which Mr. DiVittorio agreed to cure the post-petition

arrearage.

On March 22, 2007, Ocwen filed an affidavit of

non-compliance, asserting that Mr. DiVittorio again had defaulted.

After months of negotiations, Mr. DiVittorio filed an “Assented

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Motion of Debtor for Authority to Modify Loan with Ocwen Loan

Servicing, LLC” on November 30, 2007. Id. at 99. In his motion,

Mr. DiVittorio represented to the bankruptcy court that he and

Ocwen had “engaged in extensive negotiations regarding the subject

original loan documentation including the original note and

mortgage.” Id. Mr. DiVittorio further stated that he “believe[d]

that this Modification Agreement [wa]s beneficial for the Debtor

and all creditors in this case and [wa]s in the best interest of

this estate.” Id. at 100.

The modification agreement attached to the motion (the

“Modification”) reduced the interest rate on the loan from in

excess of eleven percent to a fixed rate of seven percent and

amortized the arrearage over the remaining life of the loan. The

Modification also contained the following release (the “Release”)

by Mr. DiVittorio:

YOUR RELEASE OF OCWEN:[1] IN THE EVENT THAT YOU
HAVE ANY CLAIMS, ACTIONS OR CAUSES OF ACTION,
STATUTE OF LIMITATIONS OR OTHER DEFENSES,
COUNTERCLAIMS OR SETOFFS OF ANY KIND WHICH
EXIST AS OF THE DATE OF THIS MODIFICATION,
WHETHER KNOWN OR UNKNOWN TO YOU, WHICH YOU NOW
OR HEREAFTER MAY ASSERT AGAINST OCWEN IN
CONNECTION WITH THE MAKING, CLOSING,
ADMINISTRATION, COLLECTION OR THE ENFORCEMENT
BY OCWEN OF THE LOAN DOCUMENTS, THIS
MODIFICATION OR ANY OTHER RELATED AGREEMENTS,
THEN BY EXECUTING THIS MODIFICATION YOU
FOREVER IRREVOCABLY WAIVE AND RELINQUISH THEM.

1
The Modification expressly defined Ocwen to include HSBC
Bank, USA, N.A. (“HSBC”), the assignee-holder of the mortgage.
App. 103.

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 FOR PURPOSES OF THIS SECTION, OCWEN SHALL
SPECIFICALLY, [sic] INCLUDE BUT SHALL NOT BE
LIMITED TO, PRESENT AND FORMER OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, SERVICING
AGENTS, ATTORNEYS AND ALL PRIOR AND SUBSEQUENT
PARTIES OR PREDECESSOR(S) IN INTEREST, TO BOTH
OCWEN AND INVESTOR.

Id. at 106. In the Modification itself, Mr. DiVittorio warranted

that he “ha[d] obtained, or ha[d] had the opportunity to obtain,

independent legal counsel concerning the meaning and importance of

this Modification,” id.; indeed, Mr. DiVittorio’s former counsel

signed the Modification. The Modification also contained a

statement that Mr. DiVittorio had entered the Modification

“voluntarily and with full understanding of its contents and

meaning.” Id. The bankruptcy court approved the Modification on

December 11, 2007.

Mr. DiVittorio again fell behind on his mortgage

payments, and Ocwen moved for relief from the stay. After several

extensions, Mr. DiVittorio filed an opposition on February 3, 2009.

On February 5, 2009, the bankruptcy court granted Ocwen’s motion

for relief effective March 27, 2009.

C. Adversary Proceeding

Shortly thereafter, by a letter dated February 11, 2009,

and addressed to HSBC, Ocwen and IndyMac, Mr. DiVittorio purported

to rescind the loan and requested an accounting. Two days later,

Mr. DiVittorio, through new counsel, filed a motion seeking to

vacate the order granting relief from stay on the basis that he had

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rescinded the loan. Ocwen filed an opposition, and, on March 10,

2009, Mr. DiVittorio filed the present adversary proceeding

asserting his claim of rescission under the MCCCDA.2

1.

In his complaint, Mr. DiVittorio alleged that IndyMac

violated the MCCCDA because the APR set forth on the TIL Disclosure

was not calculated in conformity with applicable regulations.

Mr. DiVittorio also alleged that the TIL Disclosure significantly

underestimated the finance charge for the loan and also failed to

specify the timing of the installment payments. The failure to

make these material disclosures, Mr. DiVittorio averred, entitled

him to rescission, damages and attorneys’ fees.

On March 12, 2009, the bankruptcy court held a hearing on

Mr. DiVittorio’s motion. The judge declined to vacate his order

but stayed the foreclosure for ninety days to determine the

validity of Mr. DiVittorio’s purported rescission.

HSBC later moved to dismiss the complaint on the ground

that it was time-barred and that Mr. DiVittorio had not stated a

claim for relief under the TILA or the MCCCDA. Mr. DiVittorio

filed an opposition asserting that the APR stated on the TIL

2
Mr. DiVittorio named the following defendants in the
complaint: HSBC; IndyMac Federal Bank, as successor to IndyMac;
and Ocwen. The Federal Deposit Insurance Corporation, as receiver
for IndyMac, successfully moved to be substituted for IndyMac
Federal Bank and to be dismissed from the action. Similarly, the
district court granted Ocwen’s motion to dismiss. Mr. DiVittorio
does not contest these rulings.

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Disclosure was numerically inaccurate because it took into account

the performance-based rate reduction. Alternatively, he argued

that this method of calculation was not clearly and conspicuously

disclosed. He further maintained that the APR must be calculated

using conditions as they existed at the time the loan was

consummated. In his view, because the performance-based rate

reduction was not in effect at the time of consummation, IndyMac

should not have used that rate reduction in calculating the APR.

Finally, Mr. DiVittorio claimed that, based on the statistical data

within IndyMac’s possession, IndyMac was not justified in assuming

that his first twenty-two payments would be timely.

2.

In its initial memorandum of decision, the bankruptcy

court granted the motion to dismiss. It first determined that

Mr. DiVittorio’s rescission claim was not time-barred:

The primary difference between TILA and
the CCCDA is the time within which actions for
either damages or rescission must be
commenced. Under TILA, actions for damages
must be brought within one year of the
occurrence of the violation, while actions for
rescission must be brought within three years.
In contrast, actions under the CCCDA generally
must be brought within four years. In In re
Fidler, however, I held that an action under
the CCCDA, including one seeking rescission,
may be asserted defensively by way of
recoupment outside the four year statutory
period. “To demonstrate that a claim is being
asserted in recoupment, the following elements
must be satisfied: ‘(1) the [CCCDA] violation
and the creditor’s debt arose from the same
transaction, (2) [the claimant] is asserting

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 her claim as a defense, and (3) the ‘main
action’ is timely.’”
In the present case, I find that all
elements of recoupment are met. Clearly, both
the Defendant’s secured claim and the Debtor’s
CCCDA claim arise from the March 13, 2003 loan
transaction. Moreover, the Debtor is
asserting his CCCDA claims defensively in
response to the Defendant’s impending
foreclosure of the Property. While the
Defendant disputes that this adversary
proceeding is defensive in nature because the
Debtor did not plead recoupment, it correctly
acknowledges this argument places form over
substance. Although mention of recoupment is
conspicuously absent from the Complaint, it
was not filed in a vacuum and the Defendant’s
collection attempts cannot be ignored.
Finally, the “main action” in this litigation,
namely, Ocwen’s proof of claim and motion for
relief from stay, is timely. Therefore, I
find that the Debtor’s CCCDA claims are
timely.

In re DiVittorio (“DiVittorio I”), No. 05-20854, 2009 WL 2246138,

at *9 (Bankr. D. Mass. July 23, 2009) (alteration in original)

(footnotes omitted).

On the merits, however, the bankruptcy court found that

the TIL Disclosure conformed with the requirements of the statute

and regulations. Specifically, IndyMac’s calculation of the APR

was proper and, therefore, not misleading. Additionally, IndyMac’s

omission of the word “monthly” from the payment schedule would not

have caused the average consumer to be confused with respect to his

payment obligations and, therefore, was not a basis for rescinding

the transaction.

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 3.

Mr. DiVittorio appealed to the district court, which

remanded on grounds that do not bear directly on the matters

presently before us. When the case returned to the bankruptcy

court, Mr. DiVittorio suggested that, in lieu of further briefing

on the motion to dismiss, the parties simply submit the briefs that

they had filed in the district court. HSBC also requested an

opportunity to file a motion for summary judgment focused on its

claim that, even if Mr. DiVittorio had stated a claim for relief

under the TILA and the MCCCDA, he nevertheless had waived any

rights under those statutes. The bankruptcy court granted both

requests.

HSBC subsequently filed its motion for summary judgment

in which it argued that Mr. DiVittorio had released all his claims

against HSBC, including any claim to rescission, when he entered

into the Modification.3 In his opposition, Mr. DiVittorio asserted

that the waiver should not be enforced on statutory and policy

grounds and that his brother Joseph, as co-owner of the property,

had exercised his own right to rescind the transaction, which the

court was required to recognize.

The bankruptcy court affirmed its initial decision with

respect to the motion to dismiss. The bankruptcy court observed

3
HSBC also argued that Mr. DiVittorio was judicially
estopped from seeking rescission. The bankruptcy court rejected
this argument, and HSBC does not press it in this court.

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that the commentary to the TILA is “silent as to the question posed

here: namely, whether a lender, at the time of consummation, can

factor an assumption of timely payments into the APR calculation?”

In re DiVittorio (“DiVittorio II”), 430 B.R. 26, 43 (Bankr. D.

Mass. 2010). The bankruptcy court continued:

The parties each rely on different
considerations to fill in the gap left by the
Commentary. Generally, the CCCDA requires
disclosures to “reflect the terms of the legal
obligation between the parties” and, in the
absence of exact information, be “based on the
best information reasonably available at the
time the disclosure is provided.” The
Defendant asserts that the terms of the Note
and Mortgage required timely payments, while
the Debtor argues that an assumption of timely
payments was contrary to the best information
available.

Id. (footnote omitted) (quoting 209 Mass. Code Regs.

§ 32.17(3)(a),(b)). The bankruptcy court observed that, in its

prior decision, it had “accepted the Defendant’s argument, finding

that an assumption of timely payments is reasonable because ‘[t]hat

is no more than what the borrower agrees to do when he signs the

note and mortgage.’” Id. (quoting DiVittorio I, 2009 WL 2246138,

at *10). Moreover, the bankruptcy court did not believe that

Mr. DiVittorio’s “statistical data showing that sub-prime borrowers

were likely to be delinquent in their mortgage payments” should

alter its conclusion:

First and foremost, all disclosures are
premised on what the parties obligate
themselves to do. This is what the regulation
requires and the reason is obvious-- to assume

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 otherwise would render every disclosure an
estimate and preclude any meaningful
disclosure. For this reason, I question
whether a borrower’s strict compliance with
the terms of his legal obligation can ever be
deemed “unknown” for the purposes of this
regulation. Therefore, because the lender had
the exact information, resort to the “best
information reasonably available,” whatever
that may have been, was unnecessary.

Id. at 44 (footnotes omitted). The bankruptcy court then turned to

the remaining of Mr. DiVittorio’s contentions:

While the Debtor attempts to distance
himself from this obligation by acknowledging
only its “technical” accuracy and emphasizing
the contingent nature of the Defendant’s
obligation to adjust the interest rate based
upon the Reduction Feature, these
characterizations miss the mark. The Debtor
was obligated to make timely payments and,
upon making twenty-two timely payments, the
Defendant was obligated to adjust the interest
rate based upon a reduced margin to determine
the interest rate for the remaining term of
the loan. Indeed, if at the time of
consummation one assumes the borrower will
strictly comply with his obligations, which I
find the regulation requires, then logically
the lender must similarly factor in any
obligation based on that strict compliance.

Id. The bankruptcy court believed that Mr. DiVittorio’s “attack on

the design of the product” was an “attempt to revive a time-barred

predatory lending claim.” Id. The bankruptcy court observed that

the central premise of the Debtor’s Complaint,
that the assumption of timely payments was not
justified, sounds in negligence and speaks to
the lender’s business practices. Although
dressed up in terms of numerical inaccuracy,
the Debtor’s argument is that the Defendant,
by use of a complex adjustable interest rate

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 feature premised on the Debtor’s obligation to
make timely payments, was able to disclose a
better APR than he would likely receive. That
simply is not a CCCDA claim because the
disclosure was based upon what the regulations
required.

Id. at 45. The bankruptcy court concluded that, “[a]s neither TILA

nor the CCCDA substantively regulate credit terms, I cannot say the

present calculation violates either statute absent a clearer

directive from either Congress or the Federal Reserve Board,” and

“it is not the Court’s role to read new requirements and

prohibitions into the statute.” Id. Consequently, the bankruptcy

court again dismissed Mr. DiVittorio’s adversary complaint for

failure to state a claim.

In the interests of judicial economy, the bankruptcy

court also considered the issue of waiver raised by way of HSBC’s

motion for summary judgment. The bankruptcy court first determined

that, contrary to Mr. DiVittorio’s assertions, it did not have to

consider the effect of Joseph’s attempted rescission because he was

not a plaintiff in the adversary proceeding or in any other action.

Addressing the substance of the motion, the bankruptcy court turned

to whether Mr. DiVittorio had waived his right to rescission by

entering the modification. The bankruptcy court observed that

neither the regulation nor the commentary “entirely address[ed] the

issue implicitly raised by the Debtor, namely, whether it is

possible to waive the right of rescission after the expiration of

the initial rescission period but before the underlying claim is

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raised.” Id. at 49. After reviewing the case law from other

bankruptcy courts and circuits, the court concluded:

I find that as a matter of Massachusetts law,
the Debtor’s possession of the loan documents
put him on inquiry notice of his purported
CCCDA claims and his right to rescind.
Moreover, by specifically referencing claims
arising “in connection with the making,
closing, administration, collection, or the
enforcement . . . of the loan documents,” the
Release should have compelled him to
investigate the possibility of such claims.
It is also significant that the Debtor
executed this Release as part of the
Modification after eight months of
negotiations with the Defendant, during which
he was represented by counsel. As a necessary
part of that representation, prior counsel
would have reviewed the loan documents,
analyzed any possible claims arising
therefrom, negotiated the terms of the
Modification, explained them to the Debtor,
and made a recommendation with respect to a
course of action. Consequently, I find the
Debtor’s execution of the Release contained
within the Modification was knowing and
voluntary.

Id. at 54 (alteration in original) (footnotes omitted).

The district court affirmed the bankruptcy court’s

dismissal of Mr. DiVittorio’s complaint and adopted the reasoning

of the bankruptcy court with respect to that issue. It did not

reach, however, HSBC’s motion for summary judgment and, therefore,

did not consider the validity of the waiver.

II

A. Statutory Framework

Mr. DiVittorio’s claim is brought under Massachusetts’s

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analog to the TILA, the MCCCDA.4 As we have observed in a previous

case:

The law to be applied in this case
involves an unusual interplay of federal and
state law. The overall statutory framework is
provided by the federal Truth in Lending Act
(TILA), 15 U.S.C. § 1601 et seq. Pursuant to
§ 1633 of that title, however, the Federal
Reserve Board has determined that [the MCCCDA]
establishes requirements “substantially
similar” to TILA’s and thus serves to exempt
transactions within Massachusetts from the
federal disclosure requirements.

Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 2 (1st Cir. 1981).5

4
We do not believe that the Supreme Court’s recent decision
in Stern v. Marshall, 131 S. Ct. 2594 (2011), affects the
jurisdiction of the bankruptcy court to render a decision in this
matter. Stern held:

Article III of the Constitution provides that the
judicial power of the United States may be vested only in
courts whose judges enjoy the protections set forth in
that Article. We conclude today that Congress, in one
isolated respect, exceeded that limitation in the
Bankruptcy Act of 1984. The Bankruptcy Court below
lacked the constitutional authority to enter a final
judgment on a state law counterclaim that is not resolved
in the process of ruling on a creditor’s proof of claim.

131 S. Ct. at 2620. Here, however, it first was necessary to
resolve the validity of Mr. DiVittorio’s claim under the MCCCDA to
determine whether HSBC was entitled to relief from the automatic
stay.
5
For this reason, although Mr. DiVittorio’s adversary
complaint sets forth a single cause of action citing both the TILA
and the MCCCDA, it is clear that the MCCCDA is the operative
statute. See App. 35 (“Based upon the foregoing, the Plaintiff is
entitled to a declaration confirming his right to a rescission of
the IndyMac loan . . . under G.L. c. 140D, § 10.”). It is for this
reason that the parties in their briefing and their argument focus
on the MCCCDA. See Appellant’s Br. 17 (“Because the Federal
(continued...)

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Specifically, the Federal Reserve Board (the “FRB” or the “Board”)

has exempted credit transactions within Massachusetts from chapters

two and four of the TILA; contained in those chapters is the

statute of limitations for actions for damages and rescission.

Therefore, Mr. DiVittorio’s claim technically is brought under the

MCCCDA. Nevertheless, the MCCCDA was “closely modeled” after the

TILA and, in most respects, “mirrors its federal counterpart.”

McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 422 (1st

Cir. 2007). Thus, “the MCCCDA should be construed in accordance

with the TILA.” Id.6 Our consideration of Mr. DiVittorio’s claim,

therefore, is informed by the TILA.

The TILA designates the Board as the agency charged with

the task of “prescrib[ing] regulations to carry out the purposes of

this subchapter.” 15 U.S.C. § 1604(a). “[I]n accordance with ‘the

broad powers that Congress delegated to the Board to fill gaps in

the statute,’” Roberts v. Fleet Bank (R.I.), 342 F.3d 260, 265 (3d

Cir. 2003) (quoting Ortiz v. Rental Mgmt., Inc., 65 F.3d 335, 339

(3d Cir. 1995)), the Board has issued an interpretive regulation

governing disclosure provisions, Regulation Z, see 12 C.F.R. pt.

5
(...continued)
Reserve Board . . . has agreed to exempt Massachusetts from certain
portions of TILA-- . . . it is the state’s law and regulations that
technically provide the rules to apply to DiVittorio’s rescission
claim.”).
6
Indeed, most of Mr. DiVittorio’s arguments reference only
the applicable federal authorities.

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226. Because Congress has set forth explicitly that the Board and

its staff are “the primary source for interpretation and

application of truth-in-lending law,” Ford Motor Credit Co. v.

Milhollin, 444 U.S. 555, 566 (1980), “absent some obvious

repugnance to the statute, the Board’s regulation implementing this

legislation should be accepted by the courts,” Anderson Bros. Ford

v. Valencia, 452 U.S. 205, 219 (1981).

The Board also has published an official commentary for

Regulation Z. See generally 12 C.F.R. pt. 226, Supp. I

(“Commentary”). Generally speaking, “[a]n agency’s construction of

its own regulations has been regarded as especially due . . .

respect.” Ford Motor Credit Co., 444 U.S. at 566. “This

traditional acquiescence in administrative expertise is

particularly apt under TILA, because the Federal Reserve Board has

played a pivotal role in ‘setting [the statutory] machinery in

motion. . . .’” Id. (alteration in original) (quoting Norwegian

Nitrogen Prods. Co. v. United States, 288 U.S. 294, 315 (1933));

see also Bonte v. U.S. Bank, N.A., 624 F.3d 461, 463 (7th Cir.

2010) (stating that courts “[o]rdinarily[] . . . defer to the

Commentary when interpreting TILA and its disclosure

requirements”).

Moreover, although “[i]t is commonplace that courts will

further legislative goals by filling the interstitial silences

within a statute or a regulation,” there also are times when

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“caution must temper judicial creativity in the face of legislative

or regulatory silence.” Ford Motor Credit Co., 444 U.S. at 565.

The Supreme Court explained in Ford Motor Credit Co. that

“[m]eaningful disclosure does not mean more disclosure. Rather, it

describes a balance between ‘competing considerations of complete

disclosure . . . and the need to avoid . . . [informational

overload.]’” Id. at 568 (alterations in original) (quoting S. Rep.

No. 96-73, at 3 (1979), reprinted in 1980 U.S.C.C.A.N. 280, 281).

“[S]triking the appropriate balance is an empirical process that

entails investigation into consumer psychology and that presupposes

broad experience with credit practices.” Id. at 568-69. When

courts attempt to plug perceived loopholes, their “reparative

efforts [could] create confusion and disrupt the regulatory

scheme.” Benion v. Bank One, Dayton, N.A., 144 F.3d 1056, 1059

(7th Cir. 1998). In this context, “while not abdicating their

ultimate judicial responsibility to determine the law, judges ought

to refrain from substituting their own . . . lawmaking for that of

the Federal Reserve . . . .” Ford Motor Credit Co., 444 U.S. at

568 (internal citation omitted). With this understanding of the

statutory and regulatory framework, we turn to the parties’

contentions.

B. Discussion

On appeal, Mr. DiVittorio first argues that the district

court erred in dismissing his complaint. He renews his arguments

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that the APR was calculated improperly, that the failure to achieve

the performance-based decrease in interest rate resulted in a

higher finance charge than that set forth on the TIL Disclosure and

that IndyMac failed to disclose explicitly the schedule for

payments, i.e., that they were to be made on a monthly basis. For

its part, HSBC maintains that the APR calculation complied with all

statutory and regulatory requirements; specifically, it reflects

the parties’ legal obligations as reflected in the loan documents.

With respect to the summary judgment determination,

Mr. DiVittorio submits that the bankruptcy court erred in holding

that, by way of the Modification, he waived his rights to

rescission. Alternatively, Mr. DiVittorio contends that, even if

he waived his right to rescission, this court still must recognize

the rescission of his brother and co-mortgagor. HSBC disagrees.

It argues that Mr. DiVittorio executed a valid waiver of any rights

to rescission that he may have had and, furthermore, that the

actions of Mr. DiVittorio’s brother are irrelevant to the issues

before the court. For ease of reading and analysis, we begin our

discussion by considering the parties’ waiver arguments.

1. Waiver

Mr. DiVittorio contends that, by signing the

Modification, he did not waive his rights to rescind the

transaction. First, he claims that, because the TILA and the

MCCCDA are consumer protection statutes, the rights to rescission

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provided in those laws only can be waived under very limited

circumstances, which are not satisfied in the present case.

Alternatively, he submits that the policies of the TILA and the

MCCCDA would be thwarted by allowing waiver of rescission in these

circumstances, especially where, as here, the waiver was not

entered knowingly or voluntarily. Finally, Mr. DiVittorio argues

that, even if he waived his right to rescission, we still must

recognize the rescission of his brother and co-mortgagor.

Turning to Mr. DiVittorio’s first contention, he

maintains that the TILA and the MCCCDA allow for waiver of the

right to rescission only under very limited circumstances.

Mr. DiVittorio further argues that, because he did not waive his

right under the circumstances provided for in the statute, and in

the manner described in Regulation Z, the waiver incorporated into

the Modification did not constitute a valid waiver of his

rescission rights.

The TILA includes a provision setting forth when a debtor

may waive his right to rescission: “The Board may, if it finds

that such action is necessary in order to permit homeowners to meet

bona fide personal financial emergencies, prescribe regulations

authorizing the modification or waiver of any rights created under

this section to the extent and under the circumstances set forth in

-21-
those regulations.” 15 U.S.C. § 1635(d).7 The Board has

promulgated such regulations, which state in relevant part:

(e) Consumer’s waiver of right to rescind.
(1) The consumer may modify or waive the right
to rescind if the consumer determines that the
extension of credit is needed to meet a bona
fide personal financial emergency. To modify
or waive the right, the consumer shall give
the creditor a dated written statement that
describes the emergency, specifically modifies
or waives the right to rescind, and bears the
signature of all the consumers entitled to
rescind. Printed forms for this purpose are
prohibited, except as provided in paragraph
(e)(2) of this section.

12 C.F.R. § 226.23(e)(1).8

Mr. DiVittorio maintains that, because he did not

establish a bona fide financial emergency in the manner provided in

the regulations, he did not waive effectively his right to rescind

the transaction. We cannot accept Mr. DiVittorio’s argument.

In attempting to rescind the transaction, Mr. DiVittorio

7
See also Mass. Gen. Laws ch. 140D, § 10(d) (“The
commissioner may, if he finds that such action is necessary in
order to permit homeowners to meet bona fide personal financial
emergencies, prescribe regulations authorizing the modification or
waiver of any rights created under this section to the extent and
under the circumstances set forth in those regulations.”).
8
See also 209 Mass. Code Regs. § 32.15(5)(a) (“The consumer
may modify or waive the right to rescind if the consumer determines
that the extension of credit is needed to meet a bona fide personal
financial emergency. To modify or waive the right, the consumer
shall give the creditor a dated written statement that describes
the emergency, that specifically modifies or waives the right to
rescind, and that bears the signatures of the consumers entitled to
rescind. Printed forms for this purpose are prohibited, except as
provided in 209 [Mass. Code Regs. §] 32.15(5)(b).”).

-22-
was not invoking a “right[] created under” § 1635 of the TILA or

under section 10 of chapter 140D. As set forth above, § 1635(d)

authorizes the Board to “prescribe regulations authorizing the

modification or waiver of any rights created under this section.”

15 U.S.C. § 1635(d) (emphasis added). The same is true with the

Massachusetts analogue: “The commissioner may . . . prescribe

regulations authorizing the modification or waiver of any rights

created under this section.” Mass. Gen. Laws ch. 140D, § 10(d)

(emphasis added). The right created “under this section,” 15

U.S.C. § 1635(d), is an unconditional right to rescind “until

midnight of the third business day following the consummation of

the transaction or the delivery of the information and rescission

forms,” id. § 1635(a); accord Mass. Gen. Laws ch. 140D, § 10(a).

However, the right to rescind created by § 1635(a) expires after

three years. 15 U.S.C. § 1635(f) (“An obligor’s right of

rescission shall expire three years after the date of consummation

. . . .”); see also Beach v. Ocwen Fed. Bank, 523 U.S. 410, 419

(1998) (“We respect Congress’s manifest intent by concluding that

the Act permits no federal right to rescind, defensively or

otherwise, after the 3-year period of § 1635(f) has run.”). The

MCCCDA, which employs the same operative language as the federal

statute, see Mass. Gen. Laws ch. 140D § 10(f), and “should be

construed in accordance with the TILA,” McKenna, 475 F.3d at 422,

extends the time for exercising one’s rescission rights to four

-23-
years. Mr. DiVittorio, however, attempted to rescind the

transaction more than six years after the consummation of the

transaction. At that juncture, the automatic rescission right

under both the TILA and the MCCCDA had long expired.

Mr. DiVittorio, therefore, in attempting to rescind the

transaction, was not seeking to exercise a “right created under”

§ 1635 or section 10 of chapter 140D, and, concomitantly, his

ability to waive any rescission right was not cabined by the

requirements of 15 U.S.C. § 1635(d) or of chapter 140D, section

10(d) of the General Laws of Massachusetts.

Indeed, both in submissions to this court and at oral

argument, Mr. DiVittorio’s counsel characterized the right that

Mr. DiVittorio was seeking to assert as “rescission in recoupment.”

Rescission in recoupment is mentioned explicitly only in the TILA,

which provides: “Nothing in this subsection affects a consumer’s

right of rescission in recoupment under State law.” 15 U.S.C.

§ 1635(i)(3). The MCCCDA does not mention “rescission in

recoupment,” but only “recoupment” generally: “Nothing in this

section shall be construed so as to affect a consumer’s right of

recoupment under the laws of the commonwealth.” Mass. Gen. Laws

ch. 140D, § 10(i)(3). The TILA and the MCCCDA therefore preserve

a consumer’s right to rescission in recoupment under State law and

the laws of the Commonwealth, respectively; however, they do not

“create” this right. Consequently, because Mr. DiVittorio’s

-24-
“right” to rescission by recoupment was not created by the TILA or

the MCCCDA, the requirements for waiver of unconditional rescission

right under those statutes simply do not apply to Mr. DiVittorio’s

attempted waiver.9

Mr. DiVittorio next argues that recognizing his waiver

would thwart the policies undergirding the TILA and the MCCCDA.

Mr. DiVittorio correctly notes that, although the TILA and the

MCCCDA are enforced by individuals, the statutes have broader

public policy goals. This is evident from the opening section of

the TILA:

The Congress finds that economic
stabilization would be enhanced and the

9
For the same reasons, Mills v. Home Equity Group, Inc., 871
F. Supp. 1482 (D.D.C. 1994), is unhelpful to Mr. DiVittorio. In
Mills, the plaintiff had entered a loan agreement on December 20,
1991. Neither at that time, nor at any time thereafter, did she
receive several material disclosures under the TILA. Shortly
thereafter, the plaintiff fell behind in her payments and entered
into a settlement agreement; the settlement agreement included a
release of claims under the TILA. The plaintiff later defaulted on
the restructured loan. After the defendants instituted foreclosure
proceedings, the plaintiff sent the defendants a notice of
rescission on June 9, 1994, which was within the three-year
statutory time-frame for rescinding the transaction. The district
court held that the waiver was ineffectual: “In this case, there
was clearly a violation of TILA. Because TILA was violated,
Plaintiff had the right to rescind which right cannot be released
or waived absent the narrowly drawn circumstances found in TILA for
such waiver.” Id. at 1486. The Court went on to explain that
“Plaintiff was not told she had the unequivocal right to rescind.
. . . For there to be any basis to argue that Plaintiff waived her
statutorily conferred rights, she would have had to at the least
been given the right to rescind and declined to assert it.” Id.
Thus, in Mills, the plaintiff was invoking her TILA right to
rescission within the three-year statute of limitations. This is
not the same “right” which Mr. DiVittorio seeks to assert.

-25-
 competition among the various financial
institutions and other firms engaged in the
extension of consumer credit would be
strengthened by the informed use of credit.
The informed use of credit results from an
awareness of the cost thereof by consumers.
It is the purpose of this subchapter to assure
a meaningful disclosure of credit terms so
that the consumer will be able to compare more
readily the various terms available to him and
avoid the uninformed use of credit . . . .

15 U.S.C. § 1601(a).

Given this public interest, Mr. DiVittorio claims that

the principle set forth in Brooklyn Savings Bank v. O’Neil, 324

U.S. 697, 704 (1945), should guide our waiver analysis. In

Brooklyn Savings Bank, the Court said that

a statutory right conferred on a private
party, but affecting the public interest, may
not be waived or released if such waiver or
release contravenes the statutory policy.
Where a private right is granted in the public
interest to effectuate a legislative policy,
waiver of a right so charged or colored with
the public interest will not be allowed where
it would thwart the legislative policy which
it was designed to effectuate.

Id. (internal citations omitted). Indeed, the few courts that have

considered the issue have looked to the policies underlying the

TILA to determine if waivers of TILA rights should be recognized.

See Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178, 1181-82

(11th Cir. 1982) (looking to the rationale of Brooklyn Savings Bank

and the policies of the TILA in striking down a general waiver

given by a consumer to an automobile dealer); Tucker v. Beneficial

Mortg. Co., 437 F. Supp. 2d 584, 587 (E.D. Va. 2006) (stating that

-26-
“[t]he Court looks to Congress’ manifested intent in the statute

when determining whether a statutory right may be waived” and

upholding a waiver incorporated in a settlement agreement

negotiated by a state Attorney General on behalf of a class of

consumers that the plaintiffs had joined); Johnson v. Steven Sims

Subaru, Inc., No. 92 C 6355, 1993 WL 761231, at *5 (N.D. Ill. June

9, 1993) (holding that, in the context of an auto lease agreement,

a TILA claim is not barred by a general release procured by a

lender from the borrower and explaining that “[t]he underlying

policy concerns of TILA preclude defendants from challenging

Ms. Johnson’s TILA claim with a defense predicated upon a general

release of liability”).

At oral argument, counsel for HSBC agreed that this

principle was applicable to the present case. However, according

to counsel for HSBC, it was unclear how the policies underlying the

TILA and the MCCCDA could be thwarted by honoring Mr. DiVittorio’s

waiver. Specifically, counsel observed that Mr. DiVittorio’s

statutory rights already had expired when he signed the

Modification, the Modification had been negotiated with the

assistance of counsel and the bankruptcy court approved the

Modification; consequently, the policies underlying the TILA--

ensuring informed decisionmaking for unsophisticated consumers--

simply were not at issue.

The waiver of rights under the circumstances presented

-27-
here does not “thwart the legislative policy which [the TILA] was

designed to effectuate.” Brooklyn Savings Bank, 324 U.S. at 704.

The TILA was designed to promote a uniform system of disclosures to

allow consumers to make informed credit decisions. See generally

15 U.S.C. § 1601(a). Here, the Modification, which included the

waiver provision, was the product of lengthy negotiations. In his

“Assented Motion of Debtor for Authority to Modify Loan with Ocwen

Loan Servicing, LLC” before the bankruptcy court, Mr. DiVittorio

characterized these negotiations as “extensive” and noted that they

specifically had addressed “the subject original loan documentation

including the original note and mortgage.” App. 99; cf. Parker,

673 F.2d at 1182 (refusing to recognize waiver where court was

“convinced that [plaintiff] was unaware that the release

encompassed her TILA rights”); Johnson, 1993 WL 761231, at *5

(noting that “enforcement scheme would be greatly hampered if

lenders or lessors were permitted to procure general releases of

liability from TILA claims”). Moreover, Mr. DiVittorio was

represented by counsel throughout the negotiations leading to the

Modification. Furthermore, in exchange for his release,

Mr. DiVittorio received a significant reduction in the interest

rate over the term of the loan and avoided foreclosure of his

property. Finally, the bankruptcy court approved the waiver. Cf.

Tucker, 437 F. Supp. 2d at 588 (recognizing waiver when negotiated

“by a third party acting in the interests of the borrowers”). We

-28-
believe that, given the guidance of counsel, the time for

reflection, the reduction in interest rate obtained and the

specific approval of the court, the policy concerns of TILA were

not frustrated by the waiver provision in the Modification.

Based on the totality of circumstances, we also agree

with the bankruptcy court that, as a matter of law,

Mr. DiVittorio’s waiver was knowing and voluntary. Cf. Smart v.

Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 181 (1st Cir.

1995) (“Generally, no single fact or circumstance is entitled to

talismanic significance on the question of waiver. Only an inquiry

into the totality of the circumstances can determine whether there

has been a knowing and voluntary relinquishment of an

ERISA-protected benefit.”). Looking to the factors that inform our

waiver inquiry, see id. at 181 n.3, we first note that

Mr. DiVittorio was not an unsophisticated credit consumer; the

present transaction was the thirteenth time that he had refinanced

the subject property. Second, the Modification and waiver were the

product of eight months of negotiations, during which

Mr. DiVittorio was represented by counsel. Third, both the motion

to modify filed in the bankruptcy court and the Modification itself

explicitly addressed issues related to loan documentation and

origination. In the motion to modify, Mr. DiVittorio represented

that he had “engaged in extensive negotiations regarding the

subject original loan documentation including the original note and

-29-
mortgage.” App. 99. Moreover, in the Modification, Mr. DiVittorio

explicitly waived any claims “in connection with the making,

closing, administration, collection or the enforcement by Ocwen of

the loan documents, this modification or any other related

agreements.” Id. at 106. Finally, he received valuable

consideration in the exchange: His variable interest rate of over

eleven percent was converted to a fixed rate of seven percent.

Given these facts, we believe that Mr. DiVittorio was well apprised

of any rights he may have had based on the underlying loan

documents--including claims he may have had under the TILA and the

MCCCDA--and voluntarily waived those rights in exchange for the

significant reduction in interest rate.10

Finally, Mr. DiVittorio argues that, even if he waived

his right to rescission in the Modification, the bankruptcy court

was required to take notice of his brother’s rescission. The

bankruptcy court concluded that, because Joseph was not a plaintiff

in the adversary proceeding, it need not consider the effect of his

separate claim of rescission.

Mr. DiVittorio does not directly attack the bankruptcy

court’s conclusion. Instead, Mr. DiVittorio’s argument with

respect to the effect of his brother’s attempted rescission

10
Mr. DiVittorio argues that, even if he waived his rights
as to Ocwen, HSBC was not a party to the Modification, and,
therefore, he has not waived any rights vis-à-vis HSBC. This
argument is without merit. The Modification expressly defined
Ocwen to include HSBC Bank.

-30-
includes little explanation and no citation to authority. We

regularly have considered such perfunctory arguments to be waived.

See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). “It

is not enough merely to mention a possible argument in the most

skeletal way, leaving the court to do counsel’s work, create the

ossature for the argument, and put flesh on its bones.” Id.

Nevertheless, this is precisely Mr. DiVittorio’s approach.11

Even if we were to consider Mr. DiVittorio’s claim, it is

meritless. As noted previously, the automatic rescission right

under the MCCCDA expires after four years. After the expiration of

four years, rescission may be obtained only by way of recoupment

under the laws of the Commonwealth. See Mass. Gen. Laws ch. 140D,

§ 10(i). However, Joseph’s attempted rescission cannot be

11
The sum of Mr. DiVittorio’s argument with respect to his
brother’s attempted rescission is set forth in three sentences:

Under appropriate circumstances, a non-party may
affect the on-going legal rights or status of a
party-litigant by what the non-party does or does not do.
This would certainly be the case where either of two
individuals had a right to take some action to alter the
terms of a relationship which both may have had with a
third party. The Debtor submits that Joseph DiVittorio’s
Notice of Rescission, if otherwise well-founded, resulted
in a rescinded transaction as fully, and with the same
consequence to the Debtor, as if he had been able to
give, and had given, an effective notice himself.

Appellant’s Br. 57. Mr. DiVittorio, however, does not offer
examples of what might constitute “appropriate circumstances,” he
does not establish that this is a situation “where either of two
individuals” have the right to take some action and he fails to
show how Joseph’s rescission is “otherwise well-founded.”

-31-
considered an action in recoupment.

A right in recoupment is akin to a defense, which arises

[“]from some feature of the transaction upon
which the plaintiff’s action is grounded.”
Bull v. United States, 295 U.S. 247 (1935).
“As developed at common law, the doctrine of
recoupment permits the crediting of reciprocal
rights against each other where those rights
arose under the same transaction, typically
the same contract.” Mohawk Industries, Inc.
v. United States of America (In re Mohawk
Industries, Inc.), 82 B.R. 174, 176 (Bankr. D.
Mass. 1987).

In re Fidler, 210 B.R. 411, 420 (Bankr. D. Mass. 1997) (parallel

citation omitted), vacated in part on other grounds, 226 B.R. 734

(Bankr. D. Mass. 1998). To establish a TILA claim in recoupment,

the claimant must show: “(1) the TILA violation and the creditor’s

debt claim arose from the same transaction, (2) [the claimant] is

asserting her claim as a defense, and (3) the ‘main action’ is

timely.” Smith v. American Fin. Sys., Inc. (In re Smith), 737 F.2d

1549, 1553 (11th Cir. 1984). In In re Fidler, the bankruptcy court

held that, although the debtors in bankruptcy were attempting to

assert rescission in an adversary proceeding, the claim

nevertheless was “raised . . . defensively in response to [the

creditor’s] assertion of a secured claim and filing of a motion for

relief from stay to foreclose on the Property in the Chapter 13

case.” In re Fidler, 210 B.R. at 420. Following this rationale,

the bankruptcy court determined that Mr. DiVittorio had raised his

claim of rescission as a defense to Ocwen’s motion for relief from

-32-
stay.

The same cannot be said of Joseph’s attempted rescission.

Joseph is not a party to the bankruptcy proceedings, and

Mr. DiVittorio has not pointed to, or asked this court to take

judicial notice of, any proceedings in which his brother is a party

such that Joseph’s action could be considered defensive.12

Mr. DiVittorio has not presented to us any facts that would lead us

to conclude that his brother’s attempted rescission was a

rescission in recoupment. Consequently, because Joseph’s attempted

rescission is not an action in recoupment, and because the

four-year statute of limitations for rescission as of right has

expired, Joseph’s attempted rescission is time-barred.

2. Disclosures

Even if Mr. DiVittorio had not waived his rescission

rights when he agreed to the Modification, however, we would

12
Mr. DiVittorio has not argued that a non-judicial
foreclosure, without more, constitutes an action to which an
individual may raise a TILA rescission claim in recoupment.
Indeed, it would appear that such an argument would be unavailing.
See Kelly v. Deutsche Bank Nat’l Trust Co., 789 F. Supp. 2d 262,
266-67 & n.6 (D. Mass. 2011) (distinguishing cases raised in the
bankruptcy context and holding that a plaintiff’s action for
rescission in response to non-judicial foreclosure proceedings did
“not assert[] recoupment as a defense,” but rather was an
“attempt[] to use [recoupment] to obtain affirmative relief
(cancellation of his debt)”); see also Ortiz v. Accredited Home
Lenders, Inc., 639 F. Supp. 2d 1159, 1164-65 (S.D. Cal. 2009)
(distinguishing bankruptcy cases from this circuit and holding that
“non-judicial foreclosures are not ‘actions’ as contemplated by
TILA,” and, therefore, rescission may not be asserted defensively
in response to non-judicial foreclosures).

-33-
conclude that Mr. DiVittorio has failed to state a claim for relief

under the TILA or the MCCCDA. Regulation Z requires that “[t]he

creditor shall make the disclosures required by this subpart

clearly and conspicuously in writing, in a form that the consumer

may keep.” 12 C.F.R. § 226.17(a)(1). Among the disclosures that

must be made are the APR, see 12 C.F.R. § 226.18(e), the finance

charge, see id. § 226.18(d), and the payment period, see 15 U.S.C.

§ 1638(a)(6); 12 C.F.R. § 226.18(g). Mr. DiVittorio believes that

IndyMac’s disclosures were deficient with respect to each of these

requirements.

a. Calculation of the APR

Mr. DiVittorio’s primary contention on appeal is that,

when HSBC incorporated the performance-based reduction in interest

rate into the calculation of the APR, it violated the TILA. The

parties agree that the TILA, Regulation Z and the Commentary do not

speak directly to this issue. Nevertheless, both HSBC and

Mr. DiVittorio point to provisions of Regulation Z and the

Commentary in support of their respective positions.

HSBC invites our attention to 12 C.F.R. § 226.17(c)(1).

Section 226.17(c)(1) requires that “[t]he disclosures,” including

the APR, “shall reflect the terms of the legal obligation between

the parties.” 12 C.F.R. § 226.17(c)(1).13 According to HSBC, under

13
See also 209 Mass. Code Regs. § 32.05(3) (“Disclosures
shall reflect the terms of the legal obligation between the
(continued...)

-34-
the terms of the note, Mr. DiVittorio was legally obligated to “pay

principal and interest by making a payment every month.” App. 56.

Furthermore, Mr. DiVittorio promised to “make my monthly payments

on the first day of each month.” Id. If Mr. DiVittorio fulfilled

his obligation and made his first twenty-two payments in a timely

manner, IndyMac was required to reduce the interest rate by .500

percent. See App. 60 (stating that “the percentage points . . .

shall be reduced by .500%”). Consequently, because the APR

calculation reflected the legal obligations of the parties--on

Mr. DiVittorio’s part, to make timely payments, and, on IndyMac’s

part, to reduce the APR to reflect those timely payments--the

disclosure complied with the requirements of Regulation Z.

Mr. DiVittorio acknowledges his “technical[],” “legal

obligation to make every mortgage payment on time.” Appellant’s

Br. 37. He maintains, however, that “the lender did not have a

legal obligation at that time to utilize the more favorable rate.”

Id. (emphasis added).

There is nothing in the TILA, Regulation Z, or the

Commentary that explicitly addresses whether the APR calculation

must reflect performance-based reductions in interest rate. There

is no question, however, that, at the time the parties signed the

note, IndyMac was legally obligated to reduce the interest rate

13
(...continued)
parties.”).

-35-
following the twenty-second timely payment. The fact that

IndyMac’s performance--the reduction of the interest rate--was not

yet due does not negate the present nature of its legal obligation.

“It is our custom, both juristic and popular, to say that a

contract creates rights and duties, even though the performance is

not yet due and even though some event must still occur before it

becomes due.” 8 Catherine M.A. McCauliff, Corbin on Contracts

§ 30.4 (1999). Because the performance-based reduction in interest

rate was a “legal obligation,” IndyMac properly accounted for that

obligation in the calculation of the APR as required by 12 C.F.R.

§ 226.17(c)(1).

Mr. DiVittorio, however, believes that there are other

provisions of Regulation Z and the Commentary that, in comparison

to 12 C.F.R. § 226.17(c)(1), speak more directly to the issue of

whether the performance-based reduction in interest rate should

have been incorporated into the APR. He relies first on the

language of the Commentary subsection directed at “Discounted and

premium variable-rate transactions,” which provides in relevant

part:

When creditors use an initial interest rate
that is not calculated using the index or
formula for later rate adjustments, the
disclosures should reflect a composite annual
percentage rate based on the initial rate for
as long as it is charged and, for the
remainder of the term, the rate that would
have been applied using the index or formula
at the time of consummation.

-36-
Commentary, § 226.17(c)(1)-(10)(i). Mr. DiVittorio correctly

points out that this section required IndyMac to state the APR in

terms of a blended rate by combining two rates: (1) the initial

rate and (2) the “index or formula [rate] at the time of

consummation.” Id. (emphasis added). Mr. DiVittorio maintains,

however, that IndyMac “undermined the formula by introducing

another feature”--the performance-based rate reduction--“whose

application would turn on circumstances subsequent to the

consummation of the loan, not as they existed at consummation.”

Appellant’s Br. 33.

We believe Mr. DiVittorio’s arguments fail for several

reasons. The phrase on which Mr. DiVittorio seizes--“at the time

of consummation”--modifies the terms “the rate that would have been

applied using the index or formula.” Because a rate based on an

index or formula may fluctuate over the course of the loan, it is

necessary to tie the calculation to a specific moment in time.

Obviously, too, the index or formula rate could not be based on a

future date because neither IndyMac nor Mr. DiVittorio could

predict accurately whether, when and to what degree the index or

formula rate would rise or fall. See App. 38 (ARM Disclosure)

(disclosing that “movement of the Index is usually related to

market conditions that cannot be predicted”). The FRB, therefore,

designated “the time of consummation” as the time for determining

the index or formula rate to be incorporated into the blended rate

-37-
calculation for the APR disclosure.

Even if the phrase “time of consummation” does not simply

dictate when the index or formula rate is to be determined, but

applies instead to the entire calculation of the APR,

Mr. DiVittorio’s argument still fails. As previously discussed, at

the time of consummation, IndyMac had a present obligation to

reduce Mr. DiVittorio’s interest rate following the twenty-second

timely payment. Consequently, because this obligation was in

effect at the “time of consummation,” it was consistent with the

blended rate calculation to include the performance-based rate

reduction.

However, the most compelling reason to reject

Mr. DiVittorio’s argument is that the approach taken by IndyMac in

calculating the APR--incorporating the performance-based reduction

in interest rate--is compatible with the approach set forth in

section 226.17(c)(1)-10(i) of the Commentary. This section of the

Commentary suggests that the APR should account for changes in the

interest rate over the life of the loan. In this case, the

variable rate did not take effect until the second year of the

loan, see App. 38 (ARM Disclosure) (“Your interest rate will adjust

24 months after the first payment date and every 6 months

thereafter to the index value plus the margin . . . .”);

nevertheless, the Commentary requires that the change be reflected

in the calculation of the APR. Morever, the Commentary requires

-38-
that the APR reflect the later change to the variable interest rate

even though the index rate in effect during the twenty-fourth month

of the loan cannot be known with certainty. In sum, the Commentary

attempts to give the debtor a complete picture of the interest rate

over the life of the loan based on the terms of the loan documents

and the market conditions at the time of the loan.

Incorporating the performance-based reduction into the

APR calculation accomplishes this same goal. The performance-based

rate reduction is set forth in the loan documents and affects the

rate charged for interest after the second year. Its effect, like

the index rate, could not be known with absolute certainty.

Nevertheless, given the parties’ respective promises in the loan

document, IndyMac was bound contractually to reduce the interest

rate in accordance with those terms. Incorporating that reduction,

therefore, gave the debtor a more complete picture of the long-term

interest rate and was consistent with the intent of the

Commentary.14

Mr. DiVittorio next maintains that, because some

information on which the APR was based was unknown to the parties,

IndyMac was required to calculate the APR “based on the best

information reasonably available at the time the disclosure is

14
Mr. DiVittorio does not argue that IndyMac violated section
226.17(c)(1)-(10)(i) of the Commentary in any other way, such as by
failing to use the correct initial rate or by failing to use the
index-determined rate at the time of consummation.

-39-
provided to the consumer.” 12 C.F.R. § 226.17(c)(2)(i). According

to Mr. DiVittorio, the best information reasonably available at the

time of the loan was that he, as a sub-prime borrower, would not

timely make his first twenty-two payments in a timely manner.15 He

concludes, therefore, that IndyMac violated the TILA and the MCCCDA

because its calculation of the APR was not based on the best

information available.

We believe that the language on which Mr. DiVittorio

relies, when read in context, does not apply to the present

situation. Section 226.17(c)(2)(i) of Title 12 of the Code of

Federal Regulations provides: “If any information necessary for an

accurate disclosure is unknown to the creditor, the creditor shall

make the disclosure based on the best information reasonably

available at the time the disclosure is provided to the consumer,

and shall state clearly that the disclosure is an estimate.”16 The

15
The parties spill a good deal of ink on whether
Mr. DiVittorio’s allegation--that IndyMac “knew or should have
known” that subprime borrowers would not make their first
twenty-two payments--should be characterized as a factual one,
which the district court was required to credit, or a legal one,
which the district court was entitled to ignore. See Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949-50 (2009). This issue only becomes
relevant, however, if we conclude that IndyMac was required to
resort to the “best information reasonably available.” Because we
conclude that this language applies only to “estimates,” and the
calculation of the APR under these circumstances was not an
“estimate,” see infra at 40-41, we need not address whether this
language constitutes a factual or legal allegation.
16
See also 209 Mass. Code Regs. § 32.05(3) (“Disclosures
shall reflect the terms of the legal obligation between the
(continued...)

-40-
Commentary further sets forth when estimates may be made:

“Disclosures may be estimated when the exact information is unknown

at the time disclosures are made. Information is unknown if it is

not reasonably available to the creditor at the time the

disclosures are made.” Commentary, § 226.17(c)(2)(i)-1.

The determination of the APR based on the incentive

provision, however, required no further information than what was

contained in the terms of the loan. Mr. DiVittorio does not argue

that IndyMac could not calculate accurately the impact of the

incentive provision on the APR. Indeed, he acknowledges that “the

lender knew the precise impact . . . on the interest charged that

would have ensued in the event the borrower failed to meet the

performance standard.” Appellant’s Br. 34. Because all of the

“information necessary for an accurate disclosure” of the APR based

on the performance-based rate reduction in interest rate was

available to both parties at the time of the consummation of the

loan, resort to “the best information reasonably available” was

unnecessary.

Finally, Mr. DiVittorio maintains that, even if the APR

were numerically accurate, IndyMac’s failure to disclose that the

APR was based on the presumption of timely payments “served to mask

16
(...continued)
parties. If any information necessary for accurate disclosure is
unknown to the creditor, it shall make the disclosure based on the
best information reasonably available and shall state clearly that
the disclosure is an estimate.”).

-41-
the understated APR.” Id. at 44. “[A]s so calculated,”

Mr. DiVittorio continues, the APR was “misleading, and not clearly

and conspicuously disclosed.” Id. At bottom, Mr. DiVittorio’s

argument is that, even if the APR is calculated in accordance with

Regulation Z and the correct APR is set forth on the TIL

Disclosure, the disclosure may nonetheless violate the TILA or the

MCCCDA.

Here, Mr. DiVittorio invites us to impose on lenders the

requirement that, if they include a reduction-based feature in the

calculation of the APR, they must disclose that feature on the TIL

disclosure form. This may be a salutary suggestion because it may

enhance consumers’ understanding of their loan instruments;

however, it also may confuse consumers or detract from other

disclosures that consumers historically have considered more

important than the calculation of the APR. Furthermore, disclosing

that the APR incorporates a performance-based reduction may be

helpful or important only to certain categories of consumers. In

short, determining whether further explanation of the APR

calculation should be mandated is an inquiry “that entails

investigation into consumer psychology and that presupposes broad

experience with credit practices.” Ford Motor Credit Co., 444 U.S.

at 568-69. Consequently, it is one best left to the FRB “as the

primary source for interpretation and application of

truth-in-lending law.” Id. at 566.

-42-
 b. Failure to disclose finance charge

Apart from the calculation of the APR, Mr. DiVittorio

believes that the TIL Disclosure here failed to disclose accurately

the finance charge. According to Mr. DiVittorio, the increase in

interest rate that resulted from the debtor’s failure to make the

first twenty-two payments in a timely manner constituted an

additional finance charge that the lender was required to include

on the TIL Disclosure. Mr. DiVittorio acknowledges that “finance

charges” do not include “[c]harges for actual unanticipated late

payment.” 12 C.F.R. § 226.4(c)(2).17 Nevertheless, he argues that,

because IndyMac reasonably should have anticipated that he would

make at least one late payment within the first twenty-two months,

the increase in interest rate was not “unanticipated,” and,

therefore, it should not be excluded from the definition of

“finance charges.”

The Commentary makes clear that any increase in interest

rate resulting from Mr. DiVittorio’s failure to make timely

payments was “unanticipated” and, therefore, properly excluded from

the definition of “finance charge.” The relevant portion of the

Commentary states:

1. Late payment charges.
i. Late payment charges can be excluded
from the finance charge under §226.4(c)(2)

17
See also 209 Mass. Code Regs. § 32.04(3)(b) (excluding from
the definition of finance charge “[c]harges for actual
unanticipated late payment”).

-43-
 whether or not the person imposing the charge
continues to extend credit on the account or
continues to provide property or services to
the consumer. In determining whether a charge
is for actual unanticipated late payment on a
30–day account, for example, factors to be
considered include:
A. The terms of the account. For
example, is the consumer required by the
account terms to pay the account balance in
full each month? If not, the charge may be a
finance charge.
B. The practices of the creditor in
handling the accounts. For example,
regardless of the terms of the account, does
the creditor allow consumers to pay the
accounts over a period of time without
demanding payment in full or taking other
action to collect? If no effort is made to
collect the full amount due, the charge may be
a finance charge.
ii. Section 226.4(c)(2) applies to late
payment charges imposed for failure to make
payments as agreed, as well as failure to pay
an account in full when due.

Commentary, 12 C.F.R. § 226.4(c)(2)-1.

The Commentary gives only two examples of when charges

for late payment might qualify as a finance charge: (1) when the

terms of the agreement do not require full payment by a certain

date and (2) when the lender has a practice of allowing delayed

payments. That is, when the agreement of the parties or the

practice of the lender suggests an understanding to deviate from a

regular payment schedule, any fees attendant to the debtor’s

failure to make regular payments “may be a finance charge.”

Here, the legal obligations and expectations for timely

payment were clearly set forth in the loan document.

-44-
Mr. DiVittorio does not point to any practice of IndyMac to suggest

that late payments were acceptable or that there would not be

consequences for late payment. Any additional interest charged,

therefore, was “unanticipated” and falls outside the definition of

“finance charge.”

c. Failure to specify the payment period

Mr. DiVittorio also argues that IndyMac violated the TILA

and the MCCCDA by failing to specify the payment period for the

loan on the TIL Disclosure. Mr. DiVittorio notes that, “[w]hile

the TILA Statement specified that there would be three hundred and

sixty (360) payments over the life of this thirty (30) year loan,

it failed to state that there was a monthly payment period, even

though there is an explicit requirement in 15 U.S.C. § 1638 (a)(6)

that the due dates or payment period be stated.” Appellant’s Br.

44-45.18 In support of his claim that this is a violation,

Mr. DiVittorio relies on Hamm v. Ameriquest Mortgage Co., 506 F.3d

525 (7th Cir. 2007).

In Hamm, the lender made disclosures with respect to the

payment period that are almost indistinguishable from those made

here. Specifically, the lender indicated there were to be 359

payments of $541.92 beginning on 03/01/2002, and one payment of

$536.01 on 02/01/2032. The form did not specifically state that

18
15 U.S.C. § 1638(a)(6) requires lenders to disclose “[t]he
number, amount, and due dates or period of payments scheduled to
repay the total of payments.”

-45-
the payments were to be made monthly, nor was there an explicit

reference to 360 months. The Seventh Circuit concluded that,

because the TILA requires the lender to disclose the “due dates or

period of payments scheduled to repay the total of payments,” 15

U.S.C. § 1638(a)(6), the lender had committed a “technical”

violation of TILA. Hamm, 506 F.3d at 529. It observed “that many

(or most) borrowers would understand that a mortgage with 360

payments due over approximately 30 years contemplates a payment by

the borrower each month during those 30 years.” Id. at 530.

Nevertheless, the court’s approach required that, “when it comes to

TILA, ‘hyper-technicality reigns.’” Id. at 529.

However, as Mr. DiVittorio acknowledges,

“hypertechnicality” is not the rule in the First Circuit. See

Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12, 17 n.6 (1st

Cir. 2007). Instead, this court asks, “whether any reasonable

person, in reading the form provided in this case, would so

understand it.” Melfi v. WMC Mortg. Corp., 568 F.3d 309, 312 (1st

Cir. 2009). Here, the TIL Disclosure, like the disclosures in

Hamm, indicated that there were to be 360 payments spanning thirty

years. Like the Seventh Circuit, we believe that a reasonable

person reading the TIL Disclosure would have understood that his

payments were to be made on a monthly basis. See Hamm, 506 F.3d at

530 (observing “that many (or most) borrowers would understand that

a mortgage with 360 payments due over approximately 30 years

-46-
contemplates a payment by the borrower each month during those 30

years”); cf. Melfi, 568 F.3d at 312 (holding that lender’s failure

to fill in the date of the transaction on the notice of rescission

rights provided to the borrower did not confuse the borrower

because borrower was present at closing and knew the date of the

transaction from the date-stamp on the top of the form).

Consequently, the form’s failure to use the term “monthly” or to

refer to the life of the loan over “360 months” does not result in

a TILA violation in this circuit.19

Conclusion

For the foregoing reasons, we conclude that

Mr. DiVittorio waived any rights he had under the MCCCDA when he

signed the Modification. Alternatively, we believe that

Mr. DiVittorio has failed to state a claim for relief under the

MCCDA. The judgment is therefore affirmed.

AFFIRMED.

19
Mr. DiVittorio does not argue that the reasonable person
standard used by the First Circuit in interpreting the TILA should
not also be used to interpret the requirements of the MCCCDA.

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