While not agreeing to the grace period from enforcement sought by lawmakers and industry, Director Cordray stated in a letter sent yesterday to members of Congress that the CFPB “will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the [TILA/RESPA Integrated Disclosure (TRID)] Rule on time.”  The TRID Rule becomes effective on August 1, 2015.

In his letter, Director Cordray indicated that his statement was “consistent with the approach we took to implementation of the Title XIV mortgage rules in the early months after the effective dates in January 2014, which has worked out well.”  Indeed, Director Cordray’s statement regarding the CFPB’s “sensitive” approach to compliance with the TRID rule tracks nearly word for word statements he made in 2013 when the January 2014 effective date of the Title XIV mortgage rules was approaching.

Director Cordray’s letter also touts the CFPB’s efforts to provide guidance, and indicates that, to “clarify misunderstandings,” the CFPB has released a fact sheet regarding the limited circumstances in which the TRID rule requires a revised Closing Disclosure with a new waiting period.  The letter includes certain guidance from the fact sheet.  Unfortunately, this guidance is not legally accurate, suggesting that the CFPB does not understand the intricate nature of the TRID rule and corresponding Regulation Z provisions.  (The fact sheet is part of a new CFPB blog post that repeats Director Cordray’s statement about the CFPB’s “sensitive” approach to compliance with the TRID rule.)

The fact sheet’s guidance correctly notes that only certain annual percentage rate (APR) changes trigger the need for a new waiting period.  The guidance describes the APR changes that require a new waiting period as follows: “The APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans.  A decrease in APR will not require a new 3-day review if it is based on changes to interest rate or other fees.” (Footnote and emphasis omitted.)

The guidance attempts to summarize the APR tolerances set forth in Regulation Z section 1026.22.  That section incorporates the statutory APR tolerances of 1/8 of 1 percent for regular transactions and ¼ of 1 percent for irregular transactions.  Under the statutory tolerances, the disclosed APR is deemed to be accurate if it is above or below the actual APR by no more than the applicable percentage.  Section 1026.22 also includes a regulatory APR overstatement tolerance.  Under that tolerance, if the finance charge is overstated and the APR is also overstated, but by no more than the equivalent finance charge overstatement, the APR is deemed to be accurate.

The guidance indicates that the 1/8 of 1 percent tolerance for regular transactions applies to fixed rate loans, and that the ¼ of 1 percent tolerance for irregular transactions applies to adjustable rate loans.  While often that will be the case, it many situations it will not.  One of the factors that classifies a transaction as an irregular transaction is if there are irregular payment amounts, other than an irregular first or final payment.  A fixed rate loan that has an interest only feature for a period of time or a graduated payment feature would have multiple payment levels and, thus, would be an irregular transaction and qualify for the ¼ of 1 percent tolerance.  An adjustable rate loan with an initial rate that equals the fully indexed rate would be disclosed as having a single payment level (ignoring the first and final payments) and, thus, would be a regular transaction and qualify for the 1/8 of 1 percent tolerance.

Also, while the guidance indicates that any decrease in the APR based on a decrease in the interest rate or fees does not trigger a new waiting period, that is not the case.  The tolerance for a disclosed APR that is higher than the actual APR applies only if the finance charge is also overstated and the APR is overstated by no more than the percentage equivalent of the finance charge overstatement.  While the industry has asked for a straightforward tolerance under which the disclosure of an APR that is higher than the actual APR is not a violation without regard to the disclosed finance charge, no such simple tolerance has been adopted.

Are the distinctions between the CFPB guidance and the actual Regulation Z provisions technical?  Yes.  But the TRID rule and Regulation Z are inherently technical, and the CFPB guidance is not legally accurate.  If the CFPB is not capable of providing legally accurate guidance on the TRID rule, this suggests that an actual delay of the rule is warranted.  While the CFPB may initially take a more “sensitive” approach to enforcement, without an actual delay of the rule, lenders will still face the risk of private actions.