CFPB Responds to Industry Concerns About TRID Rule Liability

Reacting to reports of investors refusing to purchase loans based on various, often technical, violations of the TILA/RESPA Integrated Disclosure (TRID) rule, the Mortgage Bankers Association (MBA) sent a letter to the Consumer Financial Protection Bureau (CFPB) on December 21, 2015, seeking guidance to allay investor concerns. (The version of the letter released by the MBA does not include the attachment referenced in the letter.)

While CFPB Director Richard Cordray's December 29, 2015, to the MBA does not provide for any type of safe harbor or protection from liability during the TRID rule implementation period, it does provide some helpful guidance on TRID rule liability.

Director Cordray noted the TRID rule provisions that permit the correction of certain errors post-closing, and states that the provisions can be used to correct non-numerical clerical errors, or as part of the cure for violations of the monetary tolerance limits. He wrote that “consistent with existing Truth in Lending Act (TILA) principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.” This statement likely is directed at the MBA concern that investors were rejecting loans based on technical errors in the loan estimate. The TRID rule does not expressly provide that accurate information in the closing disclosure will correct a technical error in the loan estimate.

Director Cordray also stated that the pre-existing TILA statutory cure provisions apply to the disclosures under the TRID rule. He confirmed that the statutory cure provisions permit a creditor to cure violations in the TRID rule disclosures, as long as the creditor notifies the borrower of the error and makes appropriate adjustments to the consumer’s account before the creditor receives notice of the violation from the consumer.

The Director also confirmed that the TRID rule did not change the fundamental principles of liability under TILA or the Real Estate Settlement Procedures Act (RESPA) and that, as a result, for non-high cost mortgage loans:

  • There is no general TILA assignee liability unless the violation is apparent of the face of the disclosure documents and the assignment is voluntary.
  • TILA limits statutory damages for mortgage disclosures, in both individual and class actions, to failures to provide a closed-set of disclosures.
  • Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages.
  • The disclosures listed in TILA section 130(a) (15 U.S.C. § 1640(a)) that give rise to statutory and class action damages do not include either RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.

This guidance confirms important limitations on the extent of TILA statutory damages that have created concerns among many industry members.

At the end of the letter the Director made two very important statements regarding TILA private liability—in light of the points made in the letter about the existing TILA cure provisions, the specific TRID rule cure provisions, and the limits of private liability under TILA, “we believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like,” and “the Bureau believes that that if investors were to reject loans on the basis of formatting and other minor errors . . . they would be rejecting loans for reasons unrelated to potential liability associated with” the TRID rule.

With regard to administrative liability, Director Cordray confirmed that the CFPB and other regulators initially will focus on good faith efforts to come into compliance with the TRID rule.

- Richard J. Andreano, Jr.

FTC Provides Guidance to Businesses Engaged in Native Advertising

The Federal Trade Commission (FTC) recently issued an enforcement policy statement on deceptively formatted advertisements, which explains how it applies established consumer protection principles to different advertising formats. In conjunction with the enforcement policy statement, the FTC also released guidance for businesses applying these principles to native advertising, which refers to online marketing content that bears a similarity to the surrounding material that appears online, such as news sites, online magazines, or virtual gaming apps. The FTC's business guidance provides helpful examples to illustrate when disclosures are necessary to prevent deception in native ads and how to make clear and prominent disclosures within the format of native ads.

Some highlights and recommended practices outlined in the FTC's guidance include:

  • The more a native ad is similar in format and topic to content on the publisher's site, the more likely that a disclosure will be necessary to prevent deception.
  • Advertisers cannot use ''deceptive door openers'' to induce consumers to view advertising content. Thus, advertisers are responsible for ensuring that native ads are identifiable as advertising before consumers ''click'' to arrive at the main advertising page.
  • Because native ads allow consumers to navigate to the advertising content without first going to the publisher's site, a disclosure that appears only on the publisher's site may not be sufficient. Disclosures should appear both on the publisher's site and the click- or tap-into page on which the complete ad appears, unless the click-into page is obviously an ad.
  • Native ads should be evaluated for whether consumers are likely to understand a native ad is advertising based on the particular circumstances in which the ad is presented to consumers. Factors to consider include consumers' ordinary expectations based on their prior experience with the media in which the ad appears, as well as how they consume content in that media.
  • When consumers come upon native ads in non-paid search engine results, advertisers should take steps to ensure that the native ad does not suggest or imply to consumers that it is something other than an ad.
  • Disclosures must be clear and prominent on all devices and platforms that consumers may use to view native ads.
  • Placing disclosures near a native ad's headline increases the likelihood consumers will see them.
  • Disclosures should ''follow'' a native ad when it is republished by others in non-paid search results, social media, e-mail, or other media. URL links for posting or sharing in social media or e-mail should include a disclosure at the beginning of the native ad's URL.

Businesses should carefully assess any native ad marketing campaigns for compliance with the new FTC guidance.

- Alan S. Kaplinsky, and Kim Phan


CFPB Issues TRID Rule Corrections

The Consumer Financial Protection Bureau (CFPB) has issued a final rule containing “technical corrections” to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015. The corrections became effective December 24, 2015, the date of their publication in the Federal Register.

According to the supplementary information accompanying the corrections, the publication of the TRID rule in the Federal Register “resulted in several unintended deletions of existing regulatory text from Regulation Z and the Official [Regulation Z Commentary] and, in one case, the omission of regulatory language in the [final TRID rule] from the [Code of Federal Regulations].” While not clear from the CFPB’s statement, we understand that the final TRID rule was published correctly in the Federal Register but was incorrectly codified in the CFR by the Government Printing Office.

To correct the CFR, the final rule reinserts existing regulatory text that was “inadvertently deleted” from Regulation Z and its Commentary and amends the Commentary to Appendix D to Regulation Z to add a paragraph that had been included in the final TRID rule published in the Federal Register but “inadvertently omitted” from such Commentary. The CFPB describes the corrections as “non-substantive changes” to the final TRID rule.

During 2015, despite requests from the industry to address many apparent errors with the TRID rule, the CFPB has so far decided not to act, not even to address issues that would be relatively simple to correct. For example, because of an apparent error, property taxes paid at closing were not included in the list of items that are not subject to a specific percentage tolerance. There also are disclosure issues, such as the provisions for determining how to complete the cash to close sections of the loan estimate and closing disclosure, which if followed as set forth in the TRID rule can result in disclosing that there are no closing costs being financed when, in fact, the lender is financing closing costs and disclosing a cash to close amount that is lower than the actual cash needed to close. And, there is the so-called “black hole” issue that appears to prevent a creditor, in various cases, from being able to reset the tolerances with a closing disclosure. Perhaps the CFPB will see fit to address the many issues in 2016.

- Richard J. Andreano, Jr.


CFPB Adjusts to Asset-Size Exemption Threshold

The Consumer Financial Protection Bureau (CFPB) has CFPB has decreased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML). The threshold is currently set at $2.060 billion. Loans made by creditors operating primarily in rural or underserved areas with assets of less than $2.052 billion as of December 31, 2015 (including assets of certain affiliates) that meet the other Regulation Z exemption requirements will be exempt in 2016 from the escrow account requirement for HPMLs. (The adjustment will also decrease the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)

The CFPB is making no change to the asset-size exemption threshold under HMDA/Regulation C which is currently set at $44 million. Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2015 will continue to be exempt from collecting HMDA data in 2016.

- Barbara S. Mishkin


Ninth Circuit Reverses ECOA Violation Ruling

In Gomez v. Quicken Loans, Inc., -- Fed Appx. --, 2015 WL 6655476 (9th Cir. Nov. 2, 2015), the Ninth Circuit reversed the district court's dismissal of the appellant's Equal Credit Opportunity Act (ECOA) claim that was based on Quicken's alleged consideration of a disability in evaluating the appellant's mortgage loan application. The appellant alleged that Quicken violated the ECOA when, as a condition to approving his mortgage loan, it requested verification of his continued receipt of Social Security Disability Insurance (SSDI) in the form of sensitive medical information such as letters from his doctor and other medical records. The district court dismissed the appellant's ECOA claim, reasoning that "information related to the source of current and future income is material to [Quicken's] legitimate and non-discriminatory need to evaluate [the applicant's] creditworthiness."

The Ninth Circuit disagreed with the district court stating that "statutes do not insulate all behavior related to the evaluation of creditworthiness from judicial review" and the ECOA "merely allows a lender to inquire into the source of an applicant's disability income, not the medical reason[.]" The Circuit Court found that Quicken's alleged requirement that an applicant receiving SSDI income divulge medical information in order to obtain a mortgage loan was akin to a presumption that applicants with SSDI award letters did not have sufficient evidence of income and needed to meet a higher standard of proof than other applicants. Thus, the appellant had sufficiently alleged disparate treatment. In an amicus brief, the United States argued that if Quicken was presented with employment income in the form of pay stubs and tax returns from an applicant, they would likely not require additional information to verify the applicant's likelihood of future employment by, for example, calling the applicant's employer to ascertain whether the employer intends to continue employing the applicant or requiring the applicant to provide performance reviews from his employer.

The Ninth Circuit's holding creates a bright line rule that mortgage lenders cannot require verification of future SSDI income in the form of personal medical information lest they be subject to an ECOA claim. It is also an indication that mortgage lenders' actions to thoroughly evaluate creditworthiness may be scrutinized by the courts under ECOA. The Ninth Circuit's holding is yet another example of how sensitively mortgage lenders must approach applications for credit when the applicant fits into a protected class under ECOA. ECOA prohibits discrimination in lending on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.

- Clifford Sacalis


Nevada Mortgage Servicer License Updates

The Nevada Commissioner of Mortgage Lending established new regulations regarding requirements and application procedures for mortgage servicers and supplemental mortgage servicers, such as licensing, application, qualified employee, bond, change of control, renewal, and record-keeping requirements.

A mortgage servicer license is required for the following: a person who directly services a mortgage loan secured by real property in Nevada; a person who interacts with borrowers or manages a Nevada mortgage loan account daily; or a person providing these services by contract as a subservicer. A supplemental mortgage servicer license is required for anyone currently licensed as a mortgage broker or mortgage banker and providing any of the services of a mortgage servicer licensee in relation to one or more mortgage loans that the person did not make or arrange under their qualifying license.

The regulations were effective on January 1, 2016. The NMLS started receiving new applications for the mortgage servicer and supplemental mortgage servicer license on December 24, 2015.

Oregon Revises Record-keeping Requirements to Comply With TRID

The Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, amended its record-keeping requirements to include the Loan Estimate and Closing Disclosure, as required by the TILA-RESPA Integrated Disclosure Requirement (TRID) rule which became effective of October 3, 2015. In Oregon, licensed mortgage bankers and mortgage brokers must preserve a copy of federally mandated disclosures. This amendment specifies that mortgage bankers and mortgage brokers must maintain the Loan Estimate and Closing Disclosure in loan files.

This requirement is effective immediately.

CA-DBO Will Add Money Transmitter License to NMLS

The California Department of Business Oversight will start accepting money transmitter license applications via the NMLS on January 15, 2016.  More information can be found here.

- Wendy Tran

Did you know?

by Wendy Tran

Nevada Mortgage Servicer License Updates


The Nevada Commissioner of Mortgage Lending Established new regulations regarding requirements and application procedures for mortgage servicers and supplemental mortgage servicers, such as licensing, application, qualified employee, bond, change of control, renewal, and record-keeping requirements.

A mortgage servicer license is required for the following: a person who directly services a mortgage loan secured by real property in Nevada; a person who interacts with borrowers or manages a Nevada mortgage loan account daily; or a person providing these services by contract as a subservicer. A supplemental mortgage servicer license is required for anyone currently licensed as a mortgage broker or mortgage banker and providing any of the services of a mortgage servicer licensee in relation to one or more mortgage loans that the person did not make or arrange under their qualifying license.

The regulations were effective on January 1, 2016. The NMLS started receiving new applications for the mortgage servicer and supplemental mortgage servicer license on December 24, 2015.

Oregon Revises Record-keeping Requirements to Comply With TRID


The Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, amended its record-keeping requirements to include the Loan Estimate and Closing Disclosure, as required by the TILA-RESPA Integrated Disclosure Requirement (TRID) rule which became effective of October 3, 2015. In Oregon, licensed mortgage bankers and mortgage brokers must preserve a copy of federally mandated disclosures. This amendment specifies that mortgage bankers and mortgage brokers must maintan the Loan Estimate and Closing Disclosure in loan files.

This requirement is effective immediately.

CA-DBO Will Add Money Transmitter License to NMLS

The California Department of Business Oversight will start accepting money transmitter license applications via the NMLS on January 15, 2016. More information can be found here.

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