Why it matters

An “administrative error” on the part of the Consumer Financial Protection Bureau (CFPB) may have been the best news lenders received in a long time. On August 1, the new TRID (TILA-RESPA Integrated Disclosures) rule was set to take effect, combining the disclosure forms required pursuant to the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) into a single disclosure. The change in forms requires substantial reprogramming and training. The industry, supported by federal lawmakers, had already asked for an extension as well as a “hold harmless period” as to enforcement and liability for those lenders that were unable to achieve timely compliance despite good faith efforts. The Bureau previously rejected both requests, stating that it would “be sensitive to the progress made by those entities that have been squarely focused on making good-faith efforts to come into compliance with the rule on time.” However, just a few weeks later, an “administrative error” caused the CFPB to file its own paperwork with Congress late—and provided lenders with an additional two-month period in which to prepare for the coming changes. The TRID rule will now take effect on Saturday, October 3, 2015.

Detailed discussion

After 30 years of using disclosure forms mandated by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Bureau (CFPB) released new “Know Before You Owe” disclosures in 2013.

The new rule—which applies to most closed-end consumer mortgages—was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required the CFPB to integrate and combine the existing RESPA and TILA disclosures.

Two documents were created by the new rule.

The three-page Loan Estimate combines requirements of several statutes, featuring disclosures from the current TILA statement and the RESPA Good Faith Estimate, as well as additional disclosures required by Dodd-Frank and the appraisal notice mandated by the Equal Credit Opportunity Act (ECOA). This form must be provided to the consumer within three business days after a loan application is submitted. Lenders may not charge any fees until after the Loan Estimate form has been provided and after the consumer goes forward with the loan.

At least three business days before the loan closes, the borrower must receive the second document, the five-page Closing Disclosure. If a “significant change” to the loan terms occurs after the borrower receives the Closing Disclosure, a new Closing Disclosure form must be provided and another three business days must elapse before the closing can occur.

Given the radical changes required—creating entirely new forms featuring new information and disclosure items, modifying systems to perform newly required calculations, and working with title agents, appraisal companies, and realtors to gather all of the necessary data to meet the new deadlines—the industry pushed for more time. While the CFPB agreed to a 20-month implementation period between the release of the final rule in November 2013 and the effective date of August 1, 2015, the Bureau refused to provide any extensions.

As the clock ticked down, the industry called upon the CFPB to institute a “hold harmless period” as to enforcement and liability for those lenders that made good faith efforts to achieve timely compliance but were unable to do so. Led by the American Bankers Association (ABA), trade groups requested the passage of a federal bill that would establish this type of a hold harmless period for TRID.

Although the CFPB stated that its oversight “will be sensitive to the progress made by those entities that have been squarely focused on making good-faith efforts to come into compliance with the rule on time,” the industry said the statement was not enough to protect lenders from potential litigation. The ABA said that a recent survey showed more than 20 percent of banks would not meet the deadline and warned of “a measurable reduction in credit availability during a transition period.”

Ultimately, though, the CFPB capitulated, due in part to an “administrative error” on its part. In a statement released on June 17, CFPB Director Richard Cordray said the new effective date for TRID would be October 1, 2015 (later changed to October 3, as noted below).

“We made a decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks,” Cordray said. “We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

The “administrative error” was the CFPB’s failure to file a notice with Congress under the Congressional Review Act of the forthcoming rule at least 60 days prior to the required effective date.

Both lawmakers and industry representatives approved of the extension.

The delay “will provide the industry and homebuyers with the breathing room they needed,” Rep. Carolyn B. Maloney (D-N.Y.) said, with ABA president and CEO Frank Keating in agreement. “This extension will help protect consumers from disruptions during a traditionally busy period for home purchases,” he stated. “It will also help to assure new loan origination systems and compliance software under development by lenders and the vendors on whom they rely will be adequately installed and debugged, and staff training completed, before the effective date.”

One week after the Bureau’s announcement, it issued a formal proposal to delay the effective date until Saturday, October 3. The additional time “may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems,” the CFPB said in a press release.

To read the CFPB’s statement on the two-month extension of the TRID rule, click here.

To read the Bureau’s proposed rule delaying the effective date until October 3, 2015, click here.