United States: TRID: Implementation Challenges And Compliance Concerns

The TILA-RESPA Integrated Disclosures rule for mortgages1 ("TRID") went into effect on October 3, 2015, after a nearly two-year implementation period. Yet compliance with the new rule continues to pose challenges for mortgage creditors. Despite significant ambiguities in the rule, the Consumer Financial Protection Bureau ("CFPB" or the "Bureau") has declined to issue further guidance clarifying the rule's implementation, leaving originators, investors, and settlement services providers exposed to potential liability.
 
Director Cordray has acknowledged that the transition required by the new rule has been difficult and that "minor errors" are likely during this transition.2 As a result, CFPB's early review of TRID compliance will, according to Director Cordray, be "corrective and diagnostic, not punitive." It remains to be seen, however, whether CFPB examiners will take a lenient approach to early TRID exams and whether CFPB enforcement staff will exercise discretion and forbear if early problems attract significant public attention.
 
Creditors have taken varying approaches to managing TRID processes and compliance in order to minimize legal and regulatory risks. Because the rule requires creditors to assume responsibility for aspects of the closing disclosure previously handled by settlement services providers, some creditors are moving processes in-house to avoid risks arising from coordination with settlement agents. In addition, creditors who continue to rely on third-party settlement services providers have had to resolve significant vendor management issues in establishing TRID processes.
 
In this bulletin, we highlight issues that continue to complicate TRID implementation and that may pose challenges for entities when the CFPB begins to review compliance efforts, likely later this year.
 
Ability to Reset Tolerances After Issuing the Closing Disclosure—the "Black Hole" Problem
 
One ambiguity in the rule relates to when a creditor can rely on a Closing Disclosure to reset tolerances when a change in circumstance requires a change in fees. Creditors are generally responsible for ensuring that the figures stated in the Loan Estimate are made in good faith and are consistent with the best information reasonably available to the creditor at the time they are disclosed.3 If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the TRID rule requires the creditor to refund the excess to the consumer no later than 60 calendar days after consummation. Different types of charges are subject to different tolerance limitations under the rule.
 
Creditors are permitted to provide revised Loan Estimates (and use them to compare estimated amounts to amounts actually charged for purposes of determining good faith) only in certain specific circumstances.4 The general rule is that the creditor needs to deliver or place in the mail the revised Loan Estimate to the consumer no later than three business days after receiving information sufficient to establish that one of the reasons for revision has occurred.5  Typically creditors are not permitted to provide a revised Loan Estimate on or after the date on which the Closing Disclosure is provided.6 The creditor also needs to ensure that the consumer receives the revised Loan Estimate no later than four business days prior to consummation and the Closing Disclosure no later than three business days prior to consummation.7

Due to this complicated set of deadlines, a scenario can occur where a creditor receives information about a changed circumstance after it issued the Closing Disclosure, such that it is no longer permitted to revise the Loan Estimate. The commentary to the rule seemingly permits the creditor to comply with the revised Loan Estimate requirements by providing a revised Closing Disclosure in lieu of a revised Loan Estimate if there are less than four business days between the time the revised Loan Estimate is required to be provided and consummation. Although the rule is unclear, it appears that the revised Closing Disclosure may then serve as the basis for tolerance determinations.8 Elaborating on this point, the Bureau's Small Entity Compliance Guide ("SECG") explained that "if the event occurs after the first Closing Disclosure has been provided to the consumer (i.e., within the three-business-day waiting period before consummation), the creditor may use revised charges on the Closing Disclosure provided to the consumer at consummation, for purposes of determining good faith and tolerance."9
 
Based on these statements by the Bureau, there may be a small window during which a creditor can use a revised Closing Disclosure to reset tolerances. Specifically, creditors may reset tolerances where there are fewer than four business days between (i) the time the revised version of the disclosure is provided and (ii) consummation. Outside this window, creditors may not be able to reset the tolerance if the Closing Disclosure has already been provided. The timing requirements of the rule thus appear to create a "black hole," when tolerances cannot be reset.
 
As it stands, the rule could lead to counterintuitive results—for example, a post-Closing Disclosure change in circumstances would allow for a resetting of tolerances when it occurs two days before consummation but not six days before. The rule also does not account for other potential scenarios. For example, it appears tolerances may not be reset in cases where there is a delay in closing after the Closing Disclosure has been issued, but where a change in circumstance occurs during the delay period. Without a resetting of tolerances, the creditor would likely need to absorb any increased cost if the permitted tolerance is exceeded, even if the increased cost occurs as a result of the borrower's actions or requests. As such, this "black hole" problem remains an issue that creditors hope will be corrected through further guidance by the CFPB.
 
Civil Liability
 
Another area that has been a significant source of concern and confusion for creditors is the potential liability for violations of the TRID rules. Although Congress directed the CFPB to integrate the mortgage loan disclosure requirements from TILA and RESPA, Congress did not amend the TILA or RESPA liability provisions to integrate liability. As a result, the potential liability for violations of the TRID rule is not clear.
 
As a general matter with respect to mortgage disclosure requirements, TILA provides a private right of action with statutory damages, while RESPA does not. In its rulemaking the CFPB declined to create a bright-line rule for determining whether TILA liability applies, and it instead pointed to its discussion of the authority for each of the integrated disclosure provisions in the rule's preamble.10 CFPB Director Cordray also recently addressed the issue when responding to a letter from the Mortgage Bankers Association; he wrote that although the TRID rule incorporated RESPA requirements into TILA, "it did not change the prior, fundamental principles of liability under either TILA or RESPA."11
 
Based on this guidance, to assess liability for a violation of the TRID rules, a lender must review TRID's preamble to determine whether the CFPB relied upon TILA or RESPA authority when adopting the provision in question. However, the CFPB has also seemingly broadened TILA's liability provisions: although the tolerance restrictions on good faith closing cost estimates are originally from RESPA, the CFPB has stated that TILA's requirement to make good faith cost disclosures provides authority to issue TRID tolerance restrictions under TILA and to apply statutory liability.12
 
Regulatory Enforcement
 
In addition to private litigation concerns, creditors also are focused on the prospect of regulatory enforcement. Due to the scale of the changes under the new rules, creditors are reasonably concerned that, despite best efforts, their compliance may not be immediately perfect or close to it. In light of these concerns, the Bureau has stated that it will initially focus on "good faith" efforts to comply with the rule, and that examiners will focus on the institution's (i) implementation plan, including actions taken to update policies, procedures, and processes; (ii) training of appropriate staff; and (iii) handling of early technical problems or other implementation challenges. Although these statements are intended to provide some comfort, it has yet to be seen how the CFPB will actually handle violations of the new TRID requirements.
 
We believe certain best practices can help creditors adapt to the new regime in ways that may be more likely to meet CFPB expectations. Creditors should document how each rule requirement maps to its internal processes and take pains to ensure they have adequately documented all process changes made pursuant to the new rule. Without such a record, a creditor may face unnecessary challenges in demonstrating to CFPB exam staff that it indeed made the required changes and did so to comply with the new rule. Training documents, manuals, and policies and procedures should be updated promptly to reflect the new rule, and modifications should be made upon the discovery of implementation challenges. Finally, timelines put in place to effectuate specific elements of the rule should be reflected in both internal guidance and external vendor requirements.
 
Despite the CFPB's efforts to provide TRID implementation guidance, there remains significant ambiguity regarding key liability issues, and it is unclear how courts will interpret and apply these provisions. Additional guidance from the Bureau could provide much-needed clarity. In the meantime, creditors continue to face a series of tricky and time-consuming implementation challenges. CFPB's review of TRID compliance will begin soon, and it remains to be seen how the Bureau's promise to focus on "good faith" compliance efforts will shape its examination process. 

1 78 Fed. Reg. 79,730 (Dec. 31, 2013); 80 Fed. Reg. 8,767 (Feb. 19, 2015).
2 Consumer Financial Protection Bureau, Prepared Remarks of CFPB Director Richard Cordray at the Credit Union National Association (Feb. 23, 2016).
3 12 C.F.R. § 1026.19(e)(3); Cmt. 19(e)(3)(iii)-1 through -3.
4 12 C.F.R. § 1026.19(e)(3)(iv).
5 12 C.F.R. § 1026.19(e)(4)(i); Cmt. 19(e)(4)(i)-1.
6 12 C.F.R. § 1026.19(e)(4)(ii).
7 12 C.F.R. § 1026.19(e)(4)(ii); 12 C.F.R. § 1026.19(f)(1)(ii)(A).
8 78 Fed. Reg. 80,321 (Dec. 31, 2013).
9 Cmt. 19(e)(4)(ii)-1. However, the SECG itself disclaims authoritativeness: "Only the rule and its Official Interpretations (also known as commentary) can provide complete and definitive information regarding its requirements."
10 78 Fed. Reg. 79,757 (Dec. 31, 2013).
11 Although somewhat helpful, Cordray's letter was not issued as an official interpretation and it is unclear whether it is binding on courts and regulators (or even the CFPB's own enforcement staff). Consequently, the extent to which lenders can safely rely upon it is unclear. See Letter from Richard Cordray, Director, CFPB, to David Stevens, President and CEO, Mortgage Bankers Association (Dec. 29, 2015).
12 78 Fed. Reg. 79,816-17 (Dec. 31, 2013).

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