In response to pleas from industry and Congress, the Consumer Financial Protection Bureau (CFPB) announced that it will allow a "grace period" for enforcement of the TILA-RESPA Integrated Disclosures (TRID) rule that takes effect on August 1, 2015. In a letter to Senators Joe Donnelly and Tim Scott, CFPB Director Richard Cordray stated that the Bureau, along with other federal regulators, will "be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time." Director Cordray also tried to calm fears that the transition to the new requirements during the peak home-buying season could negatively affect access to credit and, in turn, the still-recovering real estate market: "My statement here of this approach is intended to ease some of the concerns we have heard about this transition to new processes in the coming months and is consistent with the approach we took to implementation of the Title XIV mortgage rules in the early months after the effective dates in January 2014, which has worked out well."
The Bureau released a blog post on its website echoing Director Cordray's comments and providing additional guidance on TRID's potential effects on mortgage closings.
What does a "grace period" mean for actually implementing the rule?
The CFPB's announcement is a win for industry and a sign that the Bureau appreciates the magnitude of TRID implementation. The enforcement grace period concept also is consistent with the approach the Bureau took with Ability-to-Repay/Qualified Mortgages and other mortgage origination rules that took effect in January of 2014—so how it will work should be familiar.
However, it is unclear just how lenient the Bureau and other regulators really will be—a commitment to "sensitivity" toward creditors making a good-faith effort to comply is hardly a safe harbor. And, more importantly, the announcement should not be confused with a delay of the rule's effective date: TRID's sweeping new requirements still take effect on August 1 as scheduled, and, despite any assurances from the Bureau, creditors and other industry stakeholders will still need to be ready to comply on that date.
But doesn't the Bureau's announcement mean that everyone gets a free pass if they are making an honest effort to comply with the rule?
Not exactly. While the Bureau and other regulators may be lenient in enforcements and examinations (and again, just how lenient remains to be seen), the new disclosure rules immediately will give rise to private liability under the Truth in Lending Act (TILA), which may include class action lawsuits. The CFPB's grace period does not protect creditors and assignees against private litigation. You should be aware that:
- Private litigants will be free to pursue TRID-related claims as soon as the rules take effect on August 1.
- Secondary market purchasers will be subject to potential assignee liability.
The scope of liability for TRID violations remains uncertain, with courts yet to interpret the rules and determine which provisions give rise to private liability. Moreover, unanswered questions remain about the rule's applicability to certain types of transactions (such as loans secured by cooperative shares) or to certain situations (like closings delayed after the Closing Disclosure has been provided to the consumer).
Needless to say, while the Bureau's announcement of a grace period is a step in the right direction, it remains to be seen how much it will do to facilitate implementation and calm anxiety about August 1. For creditors and their service providers who are still likely to be held accountable for strict compliance by investors and private litigants, it may in fact do very little.
The CFPB also provided reassurances that the Rule's three-day waiting period should not delay most closings.
The CFPB also released a blog post titled You'll get 3 days to review your mortgage closing documents, further explaining the implications of the three-business-day waiting period after the consumer receives the Closing Disclosure mandated by the Rule. The Bureau acknowledged that TRID requires creditors to provide an updated Closing Disclosure correcting any inaccuracies or changes prior to consummation, but the Bureau emphasized that it imposes an additional three-business-day waiting period only in three specific circumstances, each of which signifies a major change to the terms of the loan:
- Where the APR given in the Closing Disclosure is deemed "inaccurate," pursuant to a technical regulatory test.
- Where the product description appearing in the Closing Disclosure changes.
- Where a prepayment penalty is added after the Closing Disclosure was provided.
The Bureau reiterated that other, more common changes do not impose an additional three-business-day waiting period, meaning that most loans can still close on time even if last-minute changes occur. The Bureau cited as examples "typos on the forms, problems discovered on a walk-through, and most changes to payments made at closing that require seller credits." However, the Bureau did not mention complications that may arise if closing is delayed after the Closing Disclosure has been provided—an open issue that creditors and service providers are still working through.