Saturday, July 21, 2012

FYI: CFPB's Integrated RESPA and TILA Disclosure Proposed Rule - Highlights

As widely reported, the CFPB recently issued a 1099-page proposed rule and request for comment to: 
(1) implement the Dodd-Frank Act's requirement that the CFPB combine and integrate certain disclosures that consumers must receive for most closed-end consumer credit transactions secured by real property under TILA and RESPA; and 
(2) adjust what is to be included and excluded from the finance charge and APR.
The full text of the proposed rule is available at:
Additional information, including graphical enhancements, is available at:
The proposed rule essentially provides for two new disclosure forms, to combine and replace those currently required under TILA and RESPA. 
The first new form ("Loan Estimate") would combine and replace the Good Faith Estimate (or "GFE") under RESPA, and the "early" or "initial" Truth in Lending disclosure under TILA.  The CFPB included various samples of completed Loan Estimate Forms for different types of loans (H-24(B)-(F)). 
The content of the proposed Loan Estimate is prescribed in section 1026.37 of the proposed rules.  Among other things, the lender must identify the services for which the consumer is permitted to shop, by providing a written list of available providers, and stating that the consumer may choose a different provider for the service.
The lender or mortgage broker would have to provide the Loan Estimate within 3 business days of "application"  Removing the "catch-all" provision from HUD's 2008 definition of "application," the proposed rule's new definition of "application" would provide for only 6 items of underwriting information, with an "application" essentially consisting of all six items.  The lender may rely on the mortgage broker to provide the Loan Estimate, but if so the lender remains liable.
The CFPB seeks comment  on whether the "business function test" or the more precise "federal holiday" rule should be used to define "business day."
Similar to existing requirements, no fees other than for credit reports would be permitted until the applicant receives the Loan Estimate and indicates s/he wishes to proceed.  Receipt of a credit report fee would not affect whether an "application" is received.
Prior to application, and lender or mortgage broker may provide a written estimate of all or part of the information contained in the Loan Estimate.  However, the pre-application estimate must contain specific disclaimer to prevent confusion with the Loan Estimate.  The CFPB provides model forms for such pre-application or "pre-loan" disclaimer disclosures (H-26(A) and (B)).  Such a disclaimer would not be required for advertisements.
Generally, and similar to current requirements under 12 CFR 3500.7, charges for the following services could not increase more than 10% above the total stated in the Loan Estimate:  "(1) the lender's charges for its own services; (2) charges for services provided by an affiliate; (3)  charges for services for which the lender does not permit the consumer to shop."
Exceptions to the fee increase restriction would among other things apply when: "(1) the consumer asks for a change; (2) the consumer chooses a service provider that was not selected by the lender; (3) information provided at application was inaccurate or becomes inaccurate; or (4) the Loan Estimate expires."
However, even when an exception applies, the lender would generally have to provide an updated Loan Estimate disclosure within three business days of learning of the increase, and no more than four days prior to closing.
The second new form ("Closing Disclosure") would combine and replace the Settlement Statement (HUD-1 or HUD-1a), and the revised "final" TILA disclosure form.  The CFPB included various samples of completed Closing Disclosure Forms for different types of loans and different types of scenarios (H-25(B)-(J)).   The content of the Closing Disclosures is prescribed in section 1026.38 of the proposed rules.
The lender would be required to provide the new Closing Disclosure at least three business days prior to closing.  If the disclosures are mailed, the consumer is presumed to have received the disclosures three business days after mailing.
If adjustments to the Closing Disclosure would be required, a new Closing Disclosure would have to be provided, and the applicant would also have to be provided with at least three days to review the revised Closing Disclosure.  The proposed rule provides some limited exceptions (e.g., relating to purchase money loans, and de minimis increases less than $100), and the CFPB requests comment on whether additional exceptions would be appropriate.
The CFPB also requests comment regarding who should be required to provide the Closing Disclosure.  One option suggested by the CFPB is that the lender be required to deliver the Closing Disclosure.  Alternatively, the CFPB proposes that the lender be allowed to rely on the settlement agent to deliver the Closing Disclosure, with the lender remaining liable. 
The CFPB proposes to expand the fees and charges to be included in the finance charge, and requests comments and data regarding the potential effects of this proposal (not the least of which is the effect on state law high-cost-loan triggers). 
The proposed changes to scope of finance charges would apply to closed-end transactions secured by real property or a dwelling, and not just loans secured by real property.
Under the proposed rule, "a fee or charge is included in the finance charge if it is (1) 'payable directly or indirectly by the consumer' to whom credit is extended, and (2) 'imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.'"
However, the CFPB also notes that "the finance charge would continue to exclude fees or charges paid in comparable cash transactions," and the proposed rule would also "exclude from the finance charge late fees and similar default or delinquency charges, seller's points, amounts required to be paid into escrow accounts if the amounts would not otherwise be included in the finance charge, and premiums for property and liability insurance if certain conditions are met."
The proposed rule provides that:  (1) "[a] State law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of the Federal law;  (2) [a] State law is contradictory if it requires the use of the same term to represent a different amount or a different meaning than the Federal law, or if it requires the use of a term different from that required in the Federal law to describe the same item; and  (3) "[a] creditor, State, or other interested party may request the Bureau to determine whether a State law requirement is inconsistent."
The proposed rule also contains amending provisions to effect that the new provisions (other than the finance charge and APR provisions) would not apply to:
(1)  home equity lines of credit; or
(2)  reverse mortgages; or
(3)  loan secured by a mobile home or by a dwelling that is not attached to land; or
(4)  loans made by a creditor who makes five or fewer mortgages in a year (although the CFPB seeks comment on this threshold).
The CFPB notes that "[c]ertain types of loans that are currently subject to TILA but not RESPA (construction-only loans and loans secured by vacant land or 25 or more acres) would be subject to the proposed integrated disclosure requirements, whereas others (such as mobile home loans and other loans that are secured by a dwelling but not real property) would remain solely subject to the existing Regulation Z disclosure requirements." 
Comments as to the proposed amendments to the changes to the calculation of the finance charge and APR, and the delay of the effective date for certain disclosures required under Dodd-Frank, are due on or before September 7, 2012.  As to all of the other proposed amendments, comments are due on or before November 6, 2012.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at: