Blog LenderLaw Watch August 01, 2016

CFPB Finalizes Proposed Update to TRID Rule

On July 29, 2016, the CFPB issued a new proposed rule, which is intended to clarify and ease compliance with certain provisions of the TILA-RESPA Integrated Disclosure (TRID) rule.  The proposed rule tweaks TRID in many minor ways, but the CFPB highlighted four major changes in the proposed rule, which we detail below.  The proposed rule is open for comment until October 18, 2016.

First, the proposed rule introduces an error tolerance for the total payment disclosure, to resolve an ambiguity as to whether the error tolerance applicable to the finance charge also applied to the “total of payments” disclosure. Prior to TRID, the phrase “total of payments” was used to describe how to calculate the finance charge.  When TRID was introduced, the CFPB introduced a “total of payments” disclosure, which is distinct from (and calculated differently than) the finance charge.  Although the CFPB did not intend to apply the finance charge error tolerance to the total payments disclosure, the CFPB recognized that the use of the phrase “total of payments” with respect to both disclosures created confusion in the industry.  The proposed rule clears up this confusion by explicitly applying the finance charge error tolerance to the total payment calculation.  As part of its rationale, the CFPB noted that this change was also justified by the potentially harsh penalties—including potential class action litigation, elimination of the borrower’s responsibility to pay the finance charge, and an extension of the period that the borrower is permitted to rescind the entire loan transaction—for mis-disclosing the total payment calculation.

Second, the TRID currently exempts housing finance agencies from certain disclosure rules, but the CFPB observed that lenders find it difficult to work with Housing Finance Agencies under the current rule.  That is because the current rule imposes a cap on costs payable by the consumer at 1% of the loan’s total value.  Lenders have found it difficult to originate loans that meet that 1% threshold, leading to a decline of loans originated in partnership with housing finance agencies.  To address this issue, the proposed rule exempts recording fees and transfer taxes from counting against the 1% threshold, thus expanding the number of loans that qualify for the exemption.

Third, under the proposed rules, TRID disclosures will be required for all transactions involving cooperative units.  The current TRID rules only apply to transactions secured by “real property,” as defined by state law.  But because of the nature of cooperative units—in which the buyer purchases shares in the cooperative, and executes a proprietary lease entitling the buyer to occupy a housing unit—some states classify cooperative unit transactions as transfers of “personal” rather than “real” property.  This difference led to lender confusion about when TRID-mandated disclosures are required for transfers of cooperative units.  The proposed rule eliminates this confusion by bringing all transactions involving cooperative units under TRID’s umbrella, regardless of how the property is classified under state law.

Fourth, the proposed rule states that the CFPB will clarify when TRID disclosures provided to consumers can be shared with non-parties to the transactions. Although the proposed rule does not provide the clarification directly, the CPFB promises to provide additional Official Interpretations of TRID’s privacy rules in the near future to clarify this issue.

Although the proposed rule is not a sea-change in TRID, it shows that the CFPB will engage with the industry to address TRID compliance issues when they arise. It remains to be seen whether the CFPB will continue to tweak TRID, as new issues arise going forward.  But if and when that happens, LenderLaw Watch will bring you highlights and analysis.