The CFPB’s TILA-RESPA Integrated Disclosures Rule

From the January 2016 issue of The Review of Banking and Financial Services, with permission.

On October 3, 2015, the Consumer Financial Protection Bureau’s (“CFPB”) final rule integrating certain mortgage disclosures under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) went into effect. While potentially simplifying the mortgage disclosure obligations of creditors by bringing together two separate disclosure regimes, the text of the regulation, along with its Preamble and Official Interpretations (the “Commentary”), impose significant changes on the disclosures required in the residential mortgage loan origination process. Creditors have been grappling with these requirements since the regulations were finalized in November 2013, and have devoted substantial resources to updating technology, working through legal and compliance issues, testing the production of the disclosures, and training employees on the requirements of the TILA-RESPA Integrated Disclosures (“TRID”). But challenges remain, and many questions are still unanswered about how certain disclosures should be made on the forms in specific loan-level scenarios. Inevitably, themes have emerged as to the issues that continue to cause concern. After providing a brief introduction to TRID, this article highlights several of these “hot” topics that are keeping compliance officers awake at night.

Since the article’s publication in January 2016, the CFPB made a noteworthy correction with respect to the tolerance treatment of prepaid property taxes. As explained in the article, the text of the regulations does not expressly include prepaid property taxes in the 10% tolerance or no-tolerance categories, which suggests that prepaid property were subject to 0% tolerance. The Preamble to the final regulation appeared to confirm this by stating that property taxes “are subject to tolerances.” See 78 Fed. Reg. 79,730, 79,829 (Dec. 31, 2013). However, this Preamble language appeared to contain a typographical error and arguably should have stated that property taxes “are not subject to tolerances.” While the CFPB had informally confirmed this typo and provided guidance that prepaid property taxes fell into the no-tolerance category, this guidance had remained nonpublic and informal. Fortunately, on February 10, 2016, the CFPB formally acknowledged the typo and confirmed the Preamble should read that property taxes “are not subject to tolerances.” See 81 Fed. Reg. 7,032 (Feb. 10, 2016). According to the CFPB, the Preamble is revised as follows: “On page 79829, in the first column, in the 48th, 49th, and 50th lines, revise ‘are subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account’ to read ‘are not subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account.’” Id. Although the CFPB did not revise the text of the regulations to include prepaid property taxes in the list of fees subject to no tolerance, with this correction, the CFPB has provided a formal written statement of its intent to exclude prepaid property taxes from tolerance restrictions.

To read the article, click here.