By: Timothy A. Raty, Sr. Regulatory Compliance Specialist
“TWICE, adv. Once too often.” (Ambrose Bierce, Devil’s Dictionary)
On June 9, 2020 the CFPB published the following Q&A on their “TILA-RESPA Integrated Disclosure FAQs” webpage:
“Can a creditor require a consumer to sign and return the Loan Estimate or Closing Disclosure?
It depends. While the TRID Rule does not require consumers to sign the Loan Estimate or Closing Disclosure, it provides creditors the option to include a line for consumer signatures to acknowledge receipt. 12 CFR §§ 1026.37(n), 38(s). A creditor may include the signature line and require the consumer to sign the disclosure, but only if the consumer receives the disclosure in a form that they may keep. 12 CFR §§ 1026.37(o)(1)(i), 38(t)(1)(i). The consumer must have the ability to retain a copy of the disclosure after returning the signed disclosure to the creditor.
For example, a creditor may require a consumer to return a signed copy of the Closing Disclosure; however, the creditor must ensure that the consumer receives at least one copy of the Closing Disclosure, in a form that the consumer may retain, no later than three business days before consummation. 12 CFR §§ 1026.38(s)(1), 19(f)(1)(ii)(A), and 38(t)(1)(i). If the consumer receives only one copy of the Closing Disclosure and the creditor requires the consumer to sign and return that copy, then the consumer has not received the Closing Disclosure in a form that the consumer may keep and the requirements of § 1026.38(t)(1)(i) have not been met.” (Optional Signature Line # 1)
This is an interesting interpretation of 12 C.F.R. §§ 1026.37(o)(1)(i) & 1026.38(t)(1)(i), the key clauses of which are that the LE and CD must be made “in a form that the consumer may keep” – but is this interpretation new?
As with all administrative laws, the provisions of 12 C.F.R. §§ 1026.37(o)(1)(i) & 1026.38(t)(1)(i) stem from statutory provisions and, in these two subsections cases, specifically from TILA:
“Information required by this subchapter shall be disclosed clearly and conspicuously, in accordance with regulations of the Bureau. . . .” (15 U.S.C.A. § 1632[a]; see 77 FR 51232 )
Prior to TRID, Regulation Z did require the disclosures provided pursuant to Subpart C (12 C.F.R. §§ 1026.17 et seq.) – which are ones required to be given in connection with closed-end credit – to be made “in a form that the consumer may keep” (Ibid. § 1026.17[a]) and it is from these provisions (which still exist today) that the aforementioned TRID provisions were spawned (see 77 FR 51232 ). However, outside of a passing reference (if any) to this clause, no further guidance was given by the CFPB in the proposed and final TRID 1.0 rules as to how, exactly, they expected these clauses to be complied with (see Ibid. 51232 – 5123 & 51261 – 51262  and 78 FR 79992 – 79993 & 80052 – 80053 ).
While some guidance has now been provided, there is a seeming contrast between it and with the guidance previously provided for 12 C.F.R. § 1026.17(a)(1), particularly regarding cases where TILA disclosures are incorporated into credit contracts used for transactions other than mortgage transactions. For example:
“Disclosures provided on credit contracts. Creditors must give the required disclosures to the consumer in writing, in a form that the consumer may keep, before consummation of the transaction. See § 1026.17(a)(1) and (b). Sometimes the disclosures are placed on the same document with the credit contract. Creditors are not required to give the consumer two separate copies of the document before consummation, one for the consumer to keep and a second copy for the consumer to execute. The disclosure requirement is satisfied if the creditor gives a copy of the document containing the unexecuted credit contract and the disclosures to the consumer to read and sign; and the consumer receives a copy to keep at the time the consumer becomes obligated. It is not sufficient for the creditor merely to show the consumer the document containing the disclosures before the consumer signs and becomes obligated. The consumer must be free to take possession of and review the document in its entirety before signing.
- Example. To illustrate, a creditor gives a consumer a multiple-copy form containing a credit agreement and TILA disclosures. The consumer reviews and signs the form and returns it to the creditor, who separates the copies and gives one copy to the consumer to keep. The creditor has satisfied the disclosure requirement.” (12 C.F.R. Pt. 1026, Supp. I, Paragraph 17[b] – 3; emphasis added)
This Comment was first proposed for inclusion in Regulation Z in 2001 by the Federal Reserve Board, for the following reasons:
“Questions have been raised about whether the creditors must provide consumers with a separate copy of the document to keep before providing a second copy that the consumer may execute to become obligated on the credit contract. The proposed comment would clarify that creditors are not required to provide two separate copies to the consumer. A creditor satisfies the timing requirements by giving the consumer one copy of the unexecuted credit contract containing the disclosures to read and sign. The proposed comment would also clarify that it is not sufficient, however, if the document containing the TILA disclosures is merely shown to the consumer (and not given to the consumer) before the consumer signs and becomes obligated.” (66 FR 64382 )
When the Federal Reserve Board finalized 12 C.F.R. Pt. 1026, Supp. I, Paragraph 17(b) – 3, they noted the following:
“The practice of putting TILA disclosures on the same document with the credit contract is common in connection with motor vehicle installment sales. Several recent court decisions have addressed whether creditors that use a single document must provide consumers with a separate copy of the disclosures to keep before providing a second copy that the consumer may execute to become obligated on the credit contract. The court decisions have not been uniform in their result.”
The FRB could not have been more correct. In Lozada v. Dale Baker Oldsmobile, Inc., 197 F.R.D. 321 (W.D. Mich. 2000), the U.S. District Court for the Western District of Michigan had to apply the “in a form that the consumer may keep” clause in a situation where the consumers, though first presented with the TILA disclosures at the consummation of an automobile loan, were not provided copies of their TILA disclosures “until some days or weeks after they sign[ed] their agreements [which also contained the TILA disclosures]” (Ibid. 325). The creditor contended that they complied with Regulation Z’s requirement, “because it made the required disclosures to [the consumers] in writing before [the consumers] signed their contracts of sale by showing them the written disclosures” (Ibid. 337).
The Court ruled that this clause had not been complied with, for several reasons:
“. .. Were the court to accept the position of [the creditor] that the regulation required only that consumers be shown the disclosures before becoming contractually obligated, the phrase ‘in a form that the consumer may keep’ would be rendered meaningless. In other words, if the regulation means no more than that disclosures be made to consumers in writing, no additional meaning would be conveyed by requiring the form be one the consumer could keep. . . .
. . . Requiring disclosures be made before consummation in a ‘form that the consumer may keep’ requires that the actual consumer involved in the transaction receive disclosures and be able to keep those disclosures before consummation. . . .
Finally, this interpretation of the regulation is most fully consistent with the purpose of the statute. The stated purpose of TILA was ‘to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed used of credit.’ 15 U.S.C. § 1601(a). The purpose is to provide the borrower ‘an opportunity to do some comparative shopping for credit terms.’ [citation omitted] Without being able to take a copy of the terms of the disclosures to another credit source, the consumer is far less able to compare the reasonableness of the terms. . . .” (Ibid. 337 – 388; emphasis in the original)
However, other courts have held differently (see Spearman v. Tom Wood Pontiac-GMC, Inc., No. IP 00-1340-C-T/G, 2001 WL 1712506, at *1 [S.D. Ind. Dec. 3, 2001], aff’d sub nom. Spearman v. Tom Wood Pontiac-GMC, Inc., 312 F.3d 848 [7th Cir. 2002]; Nigh v. Koons Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535, 548 [E.D. Va. 2001]). As explained by the U.S. District Court for the Southern District of Indiana:
“. . . neither . . . TILA or Regulation Z requires a creditor to separate the consumer’s copy of the credit contract [which typically contains TILA disclosures in retail installment transactions] to the consumer before he or she signs it. That is . . . neither . . . TILA or Regulation Z requires a creditor to separate the consumer’s copy of the credit contract from the other copies of the contract and give the copy-to the consumer before the consumer signs the contract. . . .
This court agrees that Regulation Z requires a creditor to give the consumer the TILA disclosures in a form he or she can keep before consummation of the transaction. However . . . the [consumers] have not shown that [the creditor] failed to comply with this requirement. [The creditor] provided [the consumers] the Contract containing the TILA disclosures for their review before signing. The Contract, indisputably, was in writing, and was in quadruplicate form, with one copy designated as the buyer’s copy. Thus, the TILA disclosure were in writing and, unlike [the consumers’] counsel’s example at oral argument of a poster on the wall, were in a form capable of being kept or taken away. Furthermore, the [consumers] have not come forward with any evidence tending to show that the TILA disclosures were not made in a form that they could keep. To state it differently, there is no evidence that they could not have kept or taken away with them a copy of the Contract containing the TILA disclosures before they signed it. In fact, the undisputed evidence is that if they had asked for a copy to take with them or simply attempted to leave with a copy before signing, they could have done so. Because the court agrees that there is no ‘meaningful distinction’ between separation of a consumer’s copy from the other copies of credit contract containing the TILA disclosures before or after signature, [the consumers’] contention that [the creditor] was required to provide them with a written copy of the disclosures separate from the copy of the Contract they were to sign prior to their signing is rejected. Moreover, TILA’s purpose was fulfilled in this case as the [consumers] were informed about available credit elsewhere and able to negotiate an interest rate lower than that initially offered them.” (Collins v. Ray Skillman Olds-GMC Truck Inc., No. IP 00-1281-C-T/K, 2001 WL 1711466, at *8 [S.D. Ind. Dec. 3, 2001])
New Or Not?
Altogether, the history of the “in a form that the consumer may keep” clause has been controversial. No formal guidance was given when this clause was added to Regulation Z in 1981 and courts were split on whether the copy the borrower signed and returned to the creditor was sufficient or whether a separate copy should be given. The FRB did not provide any formal guidance on this matter until 2001 and, when such clause was adopted with TRID in 2015, the CFPB provided no formal guidance (until now).
However, this “new” guidance from the CFPB is not really new, since it appears to be based on past case law and Official Staff Comments the FRB adopted in 2001 (12 C.F.R. Pt. 1026, Supp. I, Paragraph 17[b] – 3). Despite a seeming contradiction to Ibid., which does not require a creditor to provide two copies of the TILA disclosures prior to execution of a credit contract, the guides provided by the FRB and CFPB actually arrive at the same conclusion, albeit with different timing requirements.
Under Ibid., a creditor does not need to provide two separate copies of the TILA disclosures, unless the creditor requires a signed copy to be returned to them, which instance occurs when the consumer executes the contract. Under such circumstances, two copies do not need to be provided prior to consummation, but a copy does need to be provided to the consumer “at the time the consumer becomes obligated.” Under the CFPB’s guidance, two separate copies also do not need to be provided unless the creditor requires a signed copy to be returned. In such case, the creditor must supply two copies prior to the time of signing. In both cases, however, the consumer ends up with a copy other than the original one that they signed.
The timing distinction between these two guides is reasonable, considering the distinct nature of the documents in question. Under Ibid., the document in question is an executed contract, which the consumer will not sign until consummation – thus the consumer will retain a copy of these disclosures until the end of the loan process, which the consumer can use for “comparative shopping” – an explicit purpose under TILA for the disclosures.
Under the CFPB’s guidance, the LE and the CD are disclosure forms which are not executed by the consumer, but rather disclosures which the consumer may acknowledge receipt of. Such acknowledgment would occur earlier in the loan process than consummation and, if the consumer returned such signed copy promptly after receipt, they would be without a copy to use both for “comparative shopping” and for comparing against subsequent, revised versions of the LE and CD (even for a short period of time, if the creditor were to send a separate copy after receiving the signed copy, in like manner as under Ibid.). Thus, in order to fulfill one of the stated purposes of TILA, it is necessary for the creditor to provide two copies prior to consummation, if the creditor requires a signed copy to be returned to them.
The CFPB has not promulgated the reasons for their “new” guidance and it’s quite possible that it was given for reasons other than those outlined above. Nevertheless, it is reasonable to assume that this “new” guidance is meant to apply past guidance for other TILA disclosures to the LE and CD – if anything, to avoid the conflicts under case law which were caused by a lack of clarity on the matter.