By: Timothy A. Raty
While a lot of attention has been paid recently to the latest and greatest attempts to reform the CFPB (e.g. either legislatively through the proposed “Financial CHOICE Act” or judicially through appeals to PHH Corp. v. Consumer Fin. Prot. Bureau), receiving less fanfare is a bill introduced into the U.S. Senate on May 2, 2017 which would (inter alia) modify Federal statutory law to fix a couple of TRID issues.
TRID v. the States
Under Section 6 of the tentatively titled “Community Lending Enhancement and Regulatory Relief Act of 2017” or “CLEAR Relief Act of 2017” (S. 1002 ; https://www.congress.gov/bill/115th-congress/senate-bill/1002/text) would amend the Consumer Financial Protection Act of 2010 (aka the “Dodd-Frank Act”) by amending 12 USCA § 5532(f) to state the following (new text is underlined; repealed text is crossed-out):
“Not later than (1) IN GENERAL – Not later than 1 year after the designated transfer date, the Bureau shall propose for public comment rules and model disclosures that combine the disclosures required under the Truth in Lending Act and sections 2603 and 2604 of this title, into a single, integrated disclosure for mortgage loan transactions covered by those laws, unless the Bureau determines that any proposal issued by the Board of Governors and the Secretary of Housing and Urban Development carries out the same purpose.
(2) SAFE HARBOR FOR GOOD FAITH COMPLIANCE –
(A) SAFE HARBOR. – Notwithstanding any other provision of law, during the period described in subparagraph (B), an entity that provides the disclosures required under the Truth in Lending Act (15 U.S.C. 1601 et seq.) and sections 4 and 5 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2603 and 2604), as in effect on July 31, 2017, shall not be subject to any civil, criminal, or administrative action or penalty for failure to fully comply with any requirement under this subsection.
(B) APPLICABLE PERIOD.-Subparagraph (A) shall apply to an entity during the period beginning on the date of enactment of this paragraph and ending on the date that is 30 days after the date on which a certification by the Director that the model disclosures required under paragraph (1) are accurate and in compliance with all State laws is published in the Federal Register.”
Simplified, this means that any creditor who provides TILA and RESPA disclosures (include the Loan Estimate and Closing Disclosure), is not subject to any liability (civil, criminal, or administrative) until 30 days after the Director of the CFPB certifies that such disclosures comply with all State laws.
Since TRID was proposed in 2012 (see 77 FR 51116 ), many comments have been made in objection to its requirements concerning the disclosure of premiums for title insurance policies – particularly in regards to simultaneous lender’s and owner’s title insurance policies under 12 CFR Pt. 1026, Supp. I, Paragraphs 37(f)(2) -4, 37[f] – 3, 37(g)(4) – 1 & 2, 38(f)(2) – 1, and 38(g)(4) – 2. As noted by the CFPB:
“Commenters’ concerns related to the calculation of the owner’s title insurance and lender’s title insurance premiums under the proposed rule generally were that the calculation would not accord with State law or custom, leading to confusion for consumers, settlement agents, internal auditors, and State auditors. State laws may prohibit a title agent from quoting the costs in a manner different than ones prescribed by State law. However, the manners prescribed by State law vary based on differing State regulatory models as well as differing pricing systems employed by title insurance underwriters, sometimes in the same State. These differences can prevent the disclosure of those prices in a manner that can be readily understood by consumers, especially when the consumer obtains more than one Loan Estimate from different creditors to shop for mortgage loans in States where the pricing systems differ between title insurance underwriters.” (78 FR 79963 )
While the CFPB provided details concerning the rationale for finalizing the TRID rules the way they did (see Ibid.), critics have continued to cite their concerns about State law ever since (e.g. see 80 FR 43914 , Footnote 20). If this Act is passed as Introduced, the CFPB would seemingly have the following options:
- Make no changes and leave the Integrated Disclosures “non-certified.” This would mean that creditors can provide TILA/RESPA disclosures with “safe harbor” protections, shielding them from any liability, particularly under State law for “inaccurately” disclosing title insurance premiums.
- Revise the requirements for the Integrated Disclosures (and other model forms, if necessary), make them conform with State requirements concerning the disclosure of title insurance premiums (among other requirements), and certify them. This would cause the “safe harbor” provisions to expire 30 days after such certification is published in the Federal Register, allowing liability to be imposed as it is now.
The Bureau may have other options, but it is clear that the purpose of the Act is to force the CFPB’s hand to ensure that the Integrated Disclosures either conform with State law, or else prevent anyone – including the CFPB – from filing libel or enforcement actions against creditors in connection with these Disclosures.
APR Changes v. Waiting Period
Currently, under 12 CFR § 1026.19(f)(1)(ii), a Closing Disclosure must be provided at least 3 business days prior to consummation. In addition, under Ibid. § 1026.19(f)(2)(ii)(A), if the APR disclosed on the Closing Disclosure becomes “inaccurate” before consummation, a creditor must impose a new “3-day waiting period” between the time a revised Closing Disclosure is provided (disclosing the right APR) and consummation. An APR can be considered to be inaccurate if it is less than the amount originally disclosed by certain percentage amounts (see Ibid. § 1026.22 for details).
If the “CLEAR Relief Act of 2017” is passed as introduced, the Truth-in-Lending Act by amending 15 USCA § 1639(b) to state the following (in relevant part):
“(1) In general
The disclosures required by this section shall be given not less than 3 business days prior to consummation of the transaction.
(3) NO WAIT FOR LOWER RATE. – If a creditor extends to a consumer a second offer of credit with a lower annual percentage rate, the transaction may be consummated without regard to the period specified in paragraph (1).”
This change would allow a revised Closing Disclosure to be provided without imposing a new waiting period, if another offer of credit is extended and has a lower APR than the original credit. Note that this caveat only applies if new credit is offered; if the APR is inaccurate for the loan disclosed on the original Closing Disclosure – even if the APR is lower – a new waiting period is required. However, this Act “bridges the gap” between cases where the APR is inaccurately disclosed (and the creditor needs to inform the consumer of this fact, as well as give the consumer additional time to weigh options) and cases where the creditor is ready to offer a loan with more favorable terms to the consumer (who, presumably, does not need extra time to close on a better deal).
Chances of Success
How likely is the “CLEAR Relief Act of 2017” to become a law? Very few of the thousands of bills which are introduced in Congress each Session are actually passed. An early sign, however, that this bill has some “traction” is the fact that it has four co-sponsors: 3 Republicans and 1 Democrat. In a highly partisan chamber split between 52 Republicans, 46 Democrats, and 2 Independents (who caucus with the Democrats), having a bill introduced in a bipartisan manner is a good sign that it may be palatable between the two/three parties comprising the Senate.
The main opposition to this bill could simply be the priorities and agendas of Congressional leadership, who may or may not consider this bill to be important enough to bring to their respective House’s floor for a vote.