CFPB Issues Notice of Proposed Rulemaking to Clarify “Know Before You Owe”; Some Welcome Guidance on TRID but Cure and Liability Issues Not Addressed
By Jennifer J. Nagle and Hollee M. Watson
On July 29, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a much anticipated Notice of Proposed Rulemaking (“NPRM”) on the TILA-RESPA Integrated Disclosure rule (“TRID” or “Know Before You Owe”), which went into effect on October 3, 2015, and has posed significant implementation challenges. The CFPB previously announced that it would issue proposed rulemaking in an April 28, 2016 letter to mortgage industry trade groups, in which it acknowledged the “many operational challenges” presented by TRID and noted that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”
CFPB Director Richard Cordray expects that the “proposed updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process.” See Consumer Financial Protection Bureau Proposes Updates to “Know Before You Owe” Mortgage Disclosure Rule. While the NPRM does contain some helpful guidance, there are also some notable omissions that may disappoint industry participants.
Some of the NPRM’s most notable proposed changes include:
Clarification on Loan Estimate Tolerance Levels. TRID currently provides for a zero tolerance policy, such that a Loan Estimate is not made in good faith if the “charges paid by or imposed on the consumer” in the Closing Disclosure exceed the amount in the Loan Estimate “regardless of whether the creditor later discovers a technical error, miscalculation, or underestimate of a charge.” See Small Entity Compliance Guide, § 7.1. TRID, however, contains various exceptions to the zero tolerance policy, which has raised recurring questions regarding specific tolerance levels and when they do or do not apply. The NPRM confirms the CFPB’s general zero tolerance policy, but also proposes certain changes to address the confusion, including:
- clarifying that creditors are in compliance with tolerance levels if the consumer is permitted to shop for settlement service providers consistent with other TRID provisions, and the aggregate increase does not exceed 10%; and
- clarifying that estimates for particular categories of “bona fide” charges are considered to have been made in good faith if they were made “consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed in the Loan Estimate.”
Extension of TRID to All Co-Ops. TRID currently applies only to credit transactions secured by real property, which has raised questions regarding the applicability of TRID to loans secured by cooperative housing units, which are treated by some states as personal property and other states as real property. The proposed changes would make TRID applicable to all “closed-end consumer credit transactions secured by cooperative units, regardless of whether State or other applicable law considers cooperative units to be real or personal property.” This would allow creditors to simplify implementation by uniformly applying TRID to all credit transactions secured by co-ops.
Privacy/Sharing of Disclosures. Amid industry concerns regarding the ability to share Closing Disclosures with third parties such as sellers and brokers, the NPRM proposes to add commentary to TRID to clarify how and when creditors may modify disclosures to provide separate versions to consumers and third parties.
Other changes proposed in the NPRM include clarifications regarding a partial exemption for loans originated by housing finance agencies and nonprofits, the circumstances under which corrected disclosures are required to reflect post-consummation events, and the required content of Loan Estimates under TRID.
While the foregoing proposed changes will assist in simplifying and clarifying certain TRID implementation efforts, other expected and requested clarifications are absent from the NPRM. Most notably, the CFPB states unambiguously that “[t]he Bureau is  not proposing additional cure provisions,” noting that “[t]he Bureau is concerned that further definition of cure provisions would not be practicable without substantially undermining incentives for compliance with the rule.” In other words, the CFPB is concerned that clarifying cure options for industry participants will encourage lackluster compliance in the first place.
The CFPB’s decision to leave TRID’s cure options untouched leaves industry participants with continued risk and concern regarding what can be done to correct disclosure errors and limit liability exposure. Only the CFPB’s previous guidance remains, namely that “statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate …” and that TILA’s curative provisions, codified in 15 U.S.C. § 1640, apply equally under TRID. See December 29, 2015 Letter from CFPB Director Richard Cordray to the Mortgage Bankers Association; see also Small Entity Compliance Guide, § 12 (discussing revisions and corrections to Closing Disclosures). This provides little comfort given the massive overhaul of practices required by TRID and the significant challenges that the industry has faced in implementing the required changes.
The CFPB similarly declined to provide any further guidance on the potential for assignee liability, an issue born out of concerns that TRID implementation challenges will chill investor interest in the purchase of loans. The CFPB has previously advised that “there is no general TILA assignee liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary.” See December 29, 2015 Letter from CFPB Director Richard Cordray to the Mortgage Bankers Association. The NPRM offers nothing further (other than to note that it believes the proposed changes regarding tolerance levels, discussed above, will alleviate investor concerns).
The CFPB is accepting comments on the NPRM until October 18, 2016. The CFPB currently proposes that the final rule become effective 120 days after its publication in the Federal Register, but has requested comments on the timing and feasibility of such an implementation deadline.
We will continue to monitor the NPRM and TRID for any new developments.