TRID and Gift Cards; Bureau Survey
Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel, NAFCU
Since the implementation of TRID, the NAFCU Compliance Team has gotten a few questions about providing gift cards in connection with mortgage loans, but in a variety of different scenarios.
At one end of a spectrum, a member asked about a promotion where the credit union would provide furniture or hardware gift cards to first-time homebuyers who close their loan at the credit union. At the other, another member asked about quietly sending gift cards to a member after consummation of the mortgage loan, solely as a relationship management effort for the future.
There is not much discussion on these questions, but we spoke with the CFPB on this issue last week, and received a little bit of guidance.
A Core Question: Legal Obligations of the Parties
The intent of the TRID rules is to provide the borrower with a complete picture of the cost of the transaction. The disclosures must “reflect the terms of the legal obligations between the parties.” 12 CFR § 1026.17(c)(1). So, the core question a credit union must ask is: “Is this gift card a part of the legal obligations of the parties to the loan transaction?”
Where a gift card is used in a promotion to drive the origination of loans, it may well be that the promotional offer is an offer in a legal, contractual sense. And where the gift card is tendered in connection with a specific loan, then the gift card may become part of that transaction
There are many ways to structure a promotion and the facts around these kinds of payments can change the analysis of how disclosure might be appropriate. Generally speaking, it is important to understand that the TRID preamble indicates that the Bureau does not believe “no cost” loans are truly “no cost.” The CFPB believes the borrower is paying for those costs somehow (higher rates, etc.) and so it wants complete transparency of what is being exchanged in the course of the transaction. Promotional payments to the borrower may amount to rebates or offsets of closing costs that must be disclosed as lender credits. See, 12 CFR Part 1026, Supp. I, comments 19(e)(3)(i)-5 and 37(g)(6)(ii)-2.
Not Part of the Transaction
So, is it possible for a gift card to be provided to a borrower in a manner that is not part of the transaction and the legal obligations of the parties? Last week, the Bureau provided an informal, non-binding opinion that, yes, that is entirely possible.
The below question was posed to the Bureau:
“We have a NAFCU-member credit union who is considering implementing an internal customer relationship program where gift cards will be provided as a "Thank You" gift to members following the closing of a mortgage loan with the credit union. The program will not be advertised or promoted in any way or externally visible to loan applicants or the general public. Gift cards would only be provided following the origination and consummation of the loan. There is no indication that the program will result in any change to the pricing or costs of the loans - in other words the expectation is that the cards will be an overhead/marketing expense geared towards future relationship building.
Can you confirm whether the Bureau would view the "Thank You" gift cards under such a program as a lender credit, offset or rebate for closing costs requiring disclosure under TRID?”
Based on this fact pattern, the Bureau confirmed that the credit union’s understanding and belief that these gift cards were not part of the transaction and the legal obligations between the parties was not misplaced. As such, disclosure would not be required by regulation.
The Bureau also indicated that if disclosure was required for a non-regulatory reason, for example, under investor guidelines, it might be appropriate to include the gift card value under section 1026.38(j)(4) as an amount Paid Outside of Closing (P.O.C.).
While this guidance will not clarify every possible situation involving a gift card and a TRID-covered mortgage loan, understanding the contours of the analysis does help. We will keep you updated.
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