CFPB Amends TRID to Fix So-called "Black Hole"
Written by Brandy Bruyere, Vice President of Regulatory Compliance
The TILA-RESPA integrated disclosures rule (TRID) is quite a way to start a Monday morning, so I apologize in advance. On Thursday, April 26, the CFPB issued a long-awaited amendment to TRID that will go into effect 30 days after the rule publishes in the Federal Register. The amendments are designed to fix the so-called TRID "black hole" and give credit unions more flexibility when there are changes in between the time the Closing Disclosure (CD) is provided to a borrower and consummation.
Background: What Is The Black Hole
TRID requires an estimate of costs to be provided on the Loan Estimate (LE), which must be made in "good faith." Good faith generally means that the costs at closing do not exceed the amount initially disclosed to the member. Some fees can vary within a "tolerance" and in specific circumstances; a credit union may issue a revised LE to reset these tolerances. Currently, section 1026.19(e)(4)(ii) prohibits a credit union from providing a revised LE after the CD has been delivered. It also requires that any revised disclosure be provided within three business days after the reason for the revision is discovered and not later than four business days prior to consummation. If there are less than four business days remaining before consummation, comment 19(3)(4)(ii)-1 clarifies that creditors are allowed to reset tolerances with a CD instead of a revised LE.
However, as originally drafted, TRID does not contain a provision allowing creditors to use a CD to reflect the revised costs if there are more than four business days between the time the revised disclosures are required to be provided and consummation. If a creditor issues a Closing Disclosure and then discovers information which justifies revising the disclosures to reset tolerance, it must do so no later than within three business days after discovering that information. If that third business day is more than four days before closing, TRID does not allow for the revised disclosure and the resetting of tolerances for changes in fees. The result – there could be situations where the credit union ends up covering a higher fee that, but for this four day window, the rule would have permitted issuing a revised disclosure and having the borrower pay the fee. Many in the industry have called this window of time the "black hole."
The Amendment Fixing the Issue
When finalizing the 2017 TRID amendments, the CFPB simultaneously proposed to amend section 1026.19(e)(4) and its commentary to remove the four-business day limit with regard to providing a CD to reset tolerances and determine if an estimated closing cost was disclosed in good faith. The CFPB largely finalized the rule as proposed, so once the rule is in effect, there will no longer be a four-business day limit for resetting tolerances with initial CD or any revised CD. The four-business day limit is still in place with regard to a revised LE.
Further, the CFPB is amending the regulation text of section 1026.19(e)(4)(i) to provide that if a situation occurs that would have permitted the credit union to issue a revised LE, the CD can be used to reset tolerances, rather than burying that information in the commentary. Here is the new version of comment 19(e)(4)(ii)-1 and a couple of the new examples the Bureau added:
"19(e)(4)(ii) Relationship between revised Loan Estimates and Closing Disclosures.
1. Revised Loan Estimate may not be delivered at the same time as the Closing Disclosure.
Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the [LE] on or after the date on which the creditor provides the [CD]. [The rule] also requires that the consumer must receive any revised version of [LE] no later than four business days prior to consummation, and provides that if the revised version of the disclosures are not provided to the consumer in person, the consumer is considered to have received the revised version of the disclosures three business days after the creditor delivers or places in the mail the revised version of the disclosures…However, if a creditor uses a revised [LE] for the purpose of determining good faith [applicable tolerances], § 1026.19(e)(4)(i) permits the creditor to provide the revised estimate in the [CD] (including any corrected disclosures provided under § 1026.19(f)(2)(i) or (ii)). See below for illustrative examples:
iii. Consummation is scheduled for Thursday, June 4. The creditor hand delivers the [CD] on Monday, June 1, and, on Tuesday, June 2, the consumer requests a change to the loan that would result in revised disclosures pursuant to § 1026.19(e)(3)(iv)(C) but would not require a new waiting period [before consummation]. Under § 1026.19(f)(2)(i), the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. The creditor complies with the requirements of § 1026.19(e)(4) by hand delivering the [revised CD] reflecting the consumer-requested changes on Thursday, June 4.
iv. Consummation is originally scheduled for Wednesday, June 10. The creditor hand delivers the [initial CD] on Friday, June 5. On Monday, June 8, the consumer reschedules consummation for Wednesday, June 17. Also on Monday, June 8, the consumer requests a rate lock extension that would result in revised [LE] but would not require a new waiting period pursuant to § 1026.19(f)(2)(ii). The creditor complies with the requirements of § 1026.19(e)(4) by delivering or placing in the mail the [revised CD] reflecting the consumer-requested changes on Thursday, June 11. Under § 1026.19(f)(2)(i), the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. The creditor complies with § 1026.19(f)(2)(i) by hand delivering the disclosures on Thursday, June 11. Alternatively, the creditor complies with § 1026.19(f)(2)(i) by providing the disclosures to the consumer by mail, including by electronic mail, on Thursday, June 11, because the consumer is considered to have received the corrected disclosures on Monday, June 15 (unless the creditor relies on evidence that the consumer received the corrected disclosures earlier)…
v. Consummation is originally scheduled for Wednesday, June 10. The creditor hand delivers the [initial CD] on Friday, June 5, and the APR becomes inaccurate on Monday, June 8, such that the creditor is required to delay consummation and provide corrected disclosures, including any other changed terms, so that the consumer receives them at least three business days before consummation under § 1026.19(f)(2)(ii). Consummation is rescheduled for Friday, June 12. The creditor complies with the requirements of § 1026.19(e)(4) by hand delivering the disclosures required by § 1026.19(f)(2)(ii) reflecting the revised APR and any other changed terms to the consumer on Tuesday, June 9. See § 1026.19(f)(2)(ii) and associated commentary regarding changes before consummation requiring a new waiting period..."
Keep in mind that the general rules for resetting tolerances continue to apply. Whether using a revised LE, an initial CD, or a revised CD to reflecting the revised estimate, the disclosure must be provided to the borrower within three business days of receiving information sufficient to establish that a reason for revising disclosures applies. Also the same limited reasons for issuing a revised disclosure apply, these are listed in section 1026.19(e)(3)(iv).The amendments do not expand upon these situations so a revised disclosure can still only be used to reset tolerances due to a reason set out in the rule.
Also, existing commentary clarifies that issuing a revised disclosure does not open the door to change all fees for making a good faith determination. Unless the reason the cost changed is due to the situation that led to the revision (e.g. a revision requested by the borrower or a changed circumstance impacting settlement costs), the revised LE does not reset tolerances for that fee. This is found in the staff commentary, comment 19(e)(3)(iv)-1 for reference:
"1. Requirement. Pursuant to §1026.19(e)(3)(i) and (ii), good faith is determined by calculating the difference between the estimated charges originally provided [in the LE] and the actual charges paid by or imposed on the consumer. Section 1026.19(e)(3)(iv) provides the exception to this rule. Pursuant to §1026.19(e)(3)(iv), for purposes of determining good faith under §1026.19(e)(3)(i) and (ii), the creditor may use a revised estimate of a charge instead of the amount originally disclosed…if the revision is due to one of the reasons set forth in §1026.19(e)(3)(iv)(A) through (F)." (Emphasis added.)
The CFPB issued an executive summary of the amendment which may be helpful as well.