The Consumer Financial Protection Bureau recently issued an updated version of the TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing Disclosure forms. The revised Guide incorporates the changes to the TRID rule that were issued in July 2017 and published in the August 11, 2017 Federal Register.
Congress is back in session and this Thursday, September 7, the House Subcommittee on Financial Institutions and Consumer Credit will hold a one-panel hearing entitled “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime.” The hearing will take place at 10:00 a.m. in room 2128 of the Rayburn House Office Building, and will involve the following witnesses:
- Anne Fortney, Partner Emerita, Hudson Cook LLP
- Charles Tuggle, Executive Vice President and General Counsel, First Horizon National Corporation
- Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
- Chi Chi Wu, Staff Attorney, National Consumer Law Center
The witnesses will testify on the following six bills:
H.R. 1849 (Rep. Trott), the “Practice of Law Technical Clarification Act of 2017”
This bill seeks to protect attorney debt collectors by amending the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act of 2010. A “debt collector” is currently defined under the FDCPA as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Courts have interpreted this definition to cover attorneys who collect debts as a matter of course for their clients, or who collect debts as a principal part of their law practice. Moreover, some courts have held that representations made by an attorney in court filings during the course of debt-collection litigation are actionable under the FDCPA, even when they are addressed to a consumer’s attorney and not the consumer himself. Under the proposal, the FDCPA’s definition of “debt collector” would exclude law firms and licensed attorneys who (1) serve, file, or convey formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or who (2) communicate in, or at the direction of, a court of law or in depositions or settlement conferences, in connection with a pending legal action to collect a debt on behalf of a client.
The bill would also provide that the Consumer Financial Protections Bureau (CFPB) cannot exercise supervisory or enforcement authority over attorneys engaged in the practice of law who do not offer or provide consumer financial products or services. The CFPB has brought a number of enforcement actions against attorneys and law firms engaged in allegedly illegal debt collection practices.
H.R. 2359 (Rep. Loudermilk), the “FCRA Liability Harmonization Act”
This bill would amend the Fair Credit Reporting Act (FCRA) to limit statutory damages in FCRA class actions to the lesser of $500,000 or one percent of the net worth of the defendant. This proposal would also eliminate punitive damages that can be awarded under the FCRA. The FCRA currently permits an award of punitive damages, and has no cap on statutory damages for individual or class actions.
H.R. 3312 (Rep. Luetkemeyer), the “Systemic Risk Designation Improvement Act of 2017”
This bill seeks to amend the definition of “systemically important financial institutions” that are subject to enhanced regulatory standards under Title I of The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Currently, Dodd-Frank requires each bank holding company deemed “too big to fail” by virtue of total consolidated assets of $50 billion or more to, among other things, prepare and provide to the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve a resolution plan, or “living will,” for its rapid and orderly resolution under the U.S. bankruptcy code. The bill would remove the $50 billion asset threshold from Dodd-Frank and instead add a measurement approach based on “systemic indicator scores.” Under this approach, only bank holding companies that are identified as global systemically important banks (G-SIB) would be subject to the Federal Reserve Board’s enhanced supervision and prudential standards.
H.R. ____ (Rep. Royce), the “Facilitating Access to Credit Act”
This proposal seeks to exempt an Authorized Credit Services Provider (ACSP) from the Credit Repair Organizations Act (CROA) to the extent it provides credit and identity protection or credit education services, as defined in the bill. The CROA currently covers a “credit repair organization,” which is defined to include anyone who provides a service, “in return for the payment of money or other valuable consideration, for the express or implied purpose of— (i) improving any consumer’s credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).” While originally aimed at credit repair scams, this broad definition has been read to cover credit monitoring products offered by consumer reporting agencies.
The bill seeks to narrow this definition by setting forth a process to apply to become an ACSP with the Federal Trade Commission (FTC), which if approved by the FTC, would allow the ACSP to provide the defined services without being subject to the CROA and without being subject to state laws and regulations concerning a credit repair organization. State laws and regulations related to unfair or deceptive acts or practices in marketing products or services would still apply. ACSPs that violate any of the eligibility criteria provided in the bill would be subject to retroactive revocation of status to the time of the conduct, thereby allowing the FTC to then enforce violations of the CROA.
H.R. ____ (Rep. Tenney), the “Community Institution Mortgage Relief Act of 2017”
This bill would amend the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) and would direct the CFPB to reduce loan servicing and escrow account administration requirements imposed on certain loan servicers. First, the proposal would require the CFPB to exempt from certain escrow or impound requirements a loan that is secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less. The statute does not currently provide an exemption for “smaller creditors” based on asset size. Second, the CFPB would need to provide either exemptions to, or adjustments from, certain RESPA requirements for servicers of 30,000 or fewer mortgage loans. The current statute provides no such threshold or exemption for “small servicers of mortgage loans.”
H.R. ____ (Rep. Hill), the “TRID Improvement Act of 2017”
This bill would expand the period under RESPA and TILA in which a creditor is allowed to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days after consummation. The proposal would also amend RESPA to allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums. Presently under RESPA, a lender may disclose a simultaneous issue discount by disclosing the full premium rate and by taking the full owner’s title insurance premium, adding the simultaneous issuance premium for the lender’s coverage, and then deducting the full premium for lender’s coverage. This calculation method renders inaccurate disclosures of the lender’s and owner’s individual title insurance premiums even though the sum will equal the amount actually charged to the consumer when paying for both policies.
Congress is also currently considering government funding legislation, raising the debt ceiling, and tax reform so these bills may not receive close attention. We will report back on the hearing and provide updates.
As we reported previously, on July 7, 2017 the Consumer Financial Protection Bureau (CFPB) posted on its website long awaited amendments to the TILA/RESPA Integrated Disclosure (TRID) rule, and a proposal to address the so-called “black hole” issue (regarding limits on the ability of a credit to reset tolerances with a Closing Disclosure).
Both the amendments and the proposal were published in Federal Register on August 11, 2017. As a result, the amendments become effective on October 10, 2017, with a mandatory compliance date of October 1, 2018, and the comment deadline for the proposal is also October 10, 2017.
On Tuesday, January 20, the CFPB promulgated its first final rule of 2015, a series of minor amendments to the TILA/RESPA integrated disclosures (TRID) rule. The substantive changes to the TRID rule are (1) an extension of the time period to issue a revised Loan Estimate when an interest rate moves from floating to locked, and (2) a provision for disclosing that a creditor has reserved its right to issue a revised Loan Estimate for loans funding new construction.
As originally adopted, the TRID rule required creditors to provide a revised Loan Estimate the very same day that a consumer locked a floating rate. This differed from the general requirement under the TRID rule, which required creditors to issue a revised Loan Estimate no later than three business days after learning of a change that necessitated a revision.
The industry advised the CFPB that the requirement to issue a revised Loan Estimate on the date of the rate lock would not only present significant operational burdens, but also would result in changes to lock-in policies that would be adverse to consumers. In short, creditors would have to set deadlines to lock rates very early in the day if a revised Loan Estimate had to be issued on the date of the lock.
When the CFPB proposed in October 2014 to revise the time frame, it proposed to require creditors to issue a revised Loan Estimate no later than the business day after the consumer locked the rate. The industry advised the CFPB the time frame still would present operational burdens and result in unfavorable changes to lock-in policies. In the end, the CFPB amended the TRID rule to allow three business days for creditors to prepare and provide a revised Loan Estimate when the rate moves from floating to locked.
The second of two substantive amendments to the TRID rule applies only in the context of loans for new home construction where consummation is expected to occur at least 60 days after the creditor issues the initial Loan Estimate. With respect to these loans, the TRID rule permits a creditor to reserve the right to issue a revised Loan Estimate any time prior to 60 days before consummation, as long as the creditor includes a statement to this effect in the Loan Estimate. For most loans, however, the Loan Estimate will be a standard form that cannot be revised except as expressly permitted by the TRID rule; the original TRID rule did not provide for where in the Loan Estimate such a statement could be included. As indicated in the preamble to the October 2014 proposed rule, the Bureau’s failure to provide a space for this statement in the original TRID rule was an oversight. The amendment allows for the statement to be included in the “Other Considerations” section on page 3 of the Loan Estimate.
The final rule also includes a conforming change to the loan originator provisions in Regulation Z section 1026.36. Among various requirements, the loan originator provisions require certain loan originator identification information (name and NMLSR ID) to be included in specified loan documents. When the CFPB originally adopted the requirement, it decided not to require that the information be included in the existing TILA and RESPA disclosures. The CFPB knew that the existing disclosures would soon be replaced by the disclosures under the TRID rule, and it decided not to require that the existing disclosures be modified to provide for the disclosure of this information. The conforming change revises the disclosure requirement to provide for the loan originator identification information to be included in the disclosures under the TRID rule.
The balance of the final rule is comprised of non-substantive corrections to the TRID rule. The amendments, including the single addition to the loan originator rule, will become effective on the same date as the TRID rule—August 1, 2015.
In a report released on January 13, 2015, the CFPB announced that nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan. Even fewer—about one of every four—submit multiple applications to gauge the best deal, the Bureau says.
The report is the first to harness data gathered by the National Survey of Mortgage Borrowers, an ongoing research effort funded jointly by the Bureau and the Federal Housing Finance Agency (FHFA). Its findings rely on responses gathered from roughly 1,900 consumers who took out home-purchase mortgages in 2013.
Among its salient points, the report concludes that the vast majority of consumers—about 70 percent—gather information about mortgage loans primarily from lenders and brokers. Not surprisingly, the report expresses concern that these parties may not offer the most objective information, given their interest in closing the transaction. In conjunction with the report’s publication, the CFPB announced steps that aim to provide another avenue for consumers to gather information about available mortgage products. These steps are discussed below.
The report also concludes that consumers who identify as “unfamiliar” with the basic features of mortgage loans are less likely to shop around for the best deal, and that factors not related to cost, like a lender’s reputation and proximity of a branch office, are important to a significant minority of mortgage borrowers.
Though likely no surprise to the industry, the data and their attendant conclusions suggest that the new TILA/RESPA integrated disclosures, set to be implemented in August 2015, may not, by themselves, sufficiently address consumers’ failure to shop the mortgage market. Federal regulatory efforts traditionally have focused on encouraging consumers to shop for mortgage loans through an easier, more streamlined loan application process. The reality emphasized by the report, however, is that to the extent a consumer shops around for a mortgage, the shopping typically ends when the consumer submits a loan application. Thus, prior efforts have targeted the wrong point in the process. The report demonstrates that the CFPB is attempting to address this issue.
Alongside the report, the CFPB has rolled out a new landing page called the “Owning a Home Toolkit” within its existing website. The toolkit includes factsheets to get potential homebuyers started shopping for a mortgage loan and checklists to prepare borrowers for a closing. The toolkit’s brass ring, though, is its “Rate Checker” tool, which the Bureau disclaims is still in beta testing. The Rate Checker allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value. Pairing this information with daily-updated data from financial institutions (via a private research firm), the Rate Checker displays the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to consumers with the consumer’s profile. Though wildly simplified and, at this point, a little clunky, this tool could provide potential borrowers with useful information about typical products in the mortgage market, and, toward the Bureau’s goal, it could help consumers better assess terms offered once they apply for a loan. The concern, of course, is that consumers may unduly rely on information produced by the tool, which does not account for the full scope of consumers’ risk profiles.
At the end of the report, the CFPB notes that the current analysis did not evaluate the extent to which more shopping by consumers improves mortgage outcomes, such as better loan terms and fewer delinquencies and foreclosures. The CFPB advises that the National Mortgage Database project (which is part of the CFPB’s joint endeavor with the FHFA) hopes to develop a much better understanding of consumer shopping behavior and how it affects mortgage outcomes.
On November 18, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar focused on the Closing Disclosure and addressed specific questions regarding the content of the Closing Disclosure.
The webinar is the fourth in a series to address implementation of the new rule. Topics covered in the past include an overview of the final rule, frequently asked questions, and the loan estimate form. Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information in order to facilitate the development of compliance and quality control procedures and software.
During the webinar the CFPB staff provided a high-level walk through of the Closing Disclosure Form and addressed several issues, including the following:
• For transactions with a seller, the staff advised that the sales price should be disclosed at the top of page 1, and that for transactions without a seller, such as a refinance, a creditor should disclose the appraised value and label it “appraised prop value” (assuming there is an appraisal). In addition, the CFPB staff referred to comment § 1026.38(a)(3)(vii)-1 and said that in cases where the creditor has not yet obtained an appraisal, the rule provides some degree of flexibility and allows creditors to disclose an estimated value as long as it is labeled “estimated prop value.”
• The staff also said that although the categories identified on page two of the Closing Disclosure are the same as those on the Loan Estimate, the Closing Disclosure allows greater flexibility for revisions to the spacing. For example, the number of rows can be reduced or added by the creditor for each category based on need. According to the CFPB staff, if the rows provided are not sufficient to disclose all the items, page two may be broken into two pages – page 2(a) and page 2(b), with loan costs listed on 2(a) and other costs on 2(b). The CFPB staff noted that Form H-25(h) in Appendix H is an example of how to divide page two into separate pages. The staff referred to the CFPB’s TILA/RESPA Integrated Disclosure—Guide to the Loan Estimate and Closing Disclosure form that is available on its regulatory implementation website, along with sample forms, for additional guidance.
• The staff advised that charges disclosed in one category of the Loan Costs section in the Loan Estimate may need to be disclosed in a different category of the section in the Closing Disclosure. For example, if title charges were disclosed in the Services You Can Shop For category of the Loan Costs section in the Loan Estimate and the borrower selected the title company identified by the creditor on the written list of providers, the title charges would have to be disclosed in the Services Borrower Did Not Shop For category of the Loan Costs section the Closing Disclosure (because the borrower would not have actually shopped for a provider under the rule).
• The staff said that under “Other Costs” on page two of the Closing Disclosure, general lender credits not associated with any particular item must be listed at the bottom of the page as a negative number. The lender credit must be listed along with a narrative description if any refund is being provided by the creditor pursuant to the good faith analysis of charges. Notably, the CFPB staff said that lender credits associated with specific closing costs must be disclosed as paid by others and have an “L” for lender designation.
• The CFPB staff pointed out that the Loan Estimate contains less detail with regard to transfer taxes than the Closing Disclosure. The main difference between the two forms in this respect is that transfer taxes are itemized on the Closing Disclosure as opposed to aggregated into a single sum on the Loan Estimate. The itemization is for each tax and for each government entity because multiple taxes may be assessed by each government entity.
In addition to giving a detailed walkthrough of the Closing Disclosure Form, the CFPB staff used the webinar as an opportunity answer a variety of questions posed by the industry. We have prepared below an unofficial summary of the questions addressed by the CFPB staff. Continue Reading CFPB gives guidance and answers FAQ on the new Closing Disclosure