CFPB SAYS TILA + RESPA = TRID: Does it add up? A Primer on the New Integrated Disclosure Forms

Terry Jessop & Bitner Newsletter

Issue 27, November 2015

In 2010, Congress created the Consumer Financial Protection Bureau (CFPB) in response to the collapse of the housing market. The CFPB enacted sweeping reforms which, although well-intentioned, have the Orwellian effect of causing honest lenders and title companies to look over their shoulders, because Big Brother is watching.

TRID: Forms Over Substance?

One of the CFPB's reforms, called TRID (TILA-RESPA Integrated Disclosures) recently went into effect. TRID applies to most closed-end consumer credit transactions secured by real property, i.e., most residential sales and refi's. TRID consolidates four existing disclosure forms into two. Specifically, the initial Truth-in-Lending disclosure and the RESPA Good Faith Estimate have been combined into a single Loan Estimate Form, to be issued at the beginning of the transaction. Likewise, at closing, the final Truth-in-Lending disclosure and RESPA HUD-1 have been combined into a single Closing Disclosure. The use of these forms is mandatory as of October 3, 2015. Copies of the forms can be found online.

In addition to new forms, TRID imposes waiting periods. For example, creditors must deliver good faith estimates at least seven days prior to closing. But TRID doesn't just consolidate forms and give consumers time to think it over. TRID is all about making lenders and title companies toe the line, imposing strict requirements and penalties for the violation thereof. Creditors may be liable for statutory damages of $4,000, per violation under TILA, plus fees and costs. And, under Dodd-Frank, the CFPB can impose fines of up to $5,000 per day for a single violation, up to $25,000 per day for reckless violations, or up to $1,000,000 per day for knowing violations. These are significant penalties as compliance can be tricky. For example, under TRID, a lender must issue a Loan Estimate Form not later than three days after receiving an "application." The application need not appear on a single piece of paper or document, and need not be signed by the consumer. Under TRID, a lender is deemed to receive an application if it has the consumer's name, income, social security number, the property address, the estimated value of the property and the amount of the loan sought.

What is Your Tolerance Limit?

TRID also imposes tolerance limits for Loan Estimates and Closing Disclosures. While some charges, such as recording fees and third-party services, are subject to a 10% cumulative tolerance, a creditor may not charge more than the estimated amount for: (1) fees paid to the creditor or mortgage broker; (2) fees paid to an unaffiliated third party if the creditor did not allow the consumer to shop around; and (3) transfer taxes. If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate, the amount charged beyond what was disclosed must be refunded to the consumer. Although creditors may amend the new forms to correct errors, creditors can only do so within strict parameters. In fact, some amendments require a new waiting period to commence, such as when changing a fixed rate to a variable rate, increasing the interest rate beyond a certain percentage, or adding a prepayment penalty.

Like most of the reforms enacted by the CFPB, TRID solves some problems but creates others. We can help you navigate the ever-changing waters of lending to consumers. Give us a call if you have questions about this or any other legal issue.

© Terry Jessop & Bitner November 2015