Reacting to reports of investors refusing to purchase loans based on various, often technical, violations of the TILA/RESPA Integrated Disclosure (TRID) rule, the Mortgage Bankers Association (MBA) sent a letter to the CFPB on December 21, 2015 seeking guidance to allay investor concerns. (The version of the letter released by the MBA does not include the attachment referenced in the letter.)
In a letter dated December 29, 2015, Director Cordray responded to the MBA. While the letter does not provide for any type of safe harbor or protection from liability during the TRID rule implementation period, it does provide some helpful guidance on TRID rule liability.
Director Cordray notes the TRID rule provisions that permit the correction of certain errors post-closing, and states that the provisions can be used to correct non-numerical clerical errors, or as part of the cure for violations of the monetary tolerance limits. The Director then makes an important statement that “consistent with existing Truth in Lending Act (TILA) principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.” This statement likely is directed at the MBA concern that investors were rejecting loans based on technical errors in the Loan Estimate. The TRID rule does not expressly provide that accurate information in the Closing Disclosure will correct a technical error in the Loan Estimate.
The Director also states that the pre-existing TILA statutory cure provisions apply to the disclosures under the TRID rule. The Director confirms that the statutory cure provisions permit a creditor to cure violations in the TRID rule disclosures, as long as the creditor notifies the borrower of the error and makes appropriate adjustments to the consumer’s account before the creditor receives notice of the violation from the consumer.
The Director also confirms that the TRID rule did not change the fundamental principles of liability under TILA or the Real Estate Settlement Procedures Act (RESPA) and that, as a result, for non-high cost mortgage loans:
- There is no general TILA assignee liability unless the violation is apparent of the face of the disclosure documents and the assignment is voluntary.
- TILA limits statutory damages for mortgage disclosures, in both individual and class actions, to failures to provide a closed-set of disclosures.
- Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages.
- The disclosures listed in TILA section 130(a) (15 U.S.C. § 1640(a)) that give rise to statutory and class action damages do not include either RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.
This guidance confirms important limitations on the extent of TILA statutory damages that have created concerns among many industry members.
At the end of the letter the Director makes two very important statements regarding TILA private liability: (1) in light of the points made in the letter about the existing TILA cure provisions, the specific TRID rule cure provisions, and the limits of private liability under TILA, “we believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” and (2) “the Bureau believes that that if investors were to reject loans on the basis of formatting and other minor errors . . . they would be rejecting loans for reasons unrelated to potential liability associated with” the TRID rule.
With regard to administrative liability, the Director confirms that the CFPB and other regulators initially will focus on good faith efforts to come into compliance with the TRID rule.