Consumer Compliance Outlook
Consumer Financial Protection Bureau (CFPB) Proposes Integrated RESPA/TILA Mortgage Application and Closing Disclosures
On July 9, 2012, the CFPB issued a proposal to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that direct the CFPB to combine the mortgage disclosures required by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into a single integrated disclosure.1 The CFPB proposed a new three-page “Loan Estimate” disclosure that combines the early cost disclosure required under TILA and the Good Faith Estimate provided at application under RESPA. The CFPB also proposed a five-page “Closing Disclosure” to replace the final TILA disclosure and the HUD-1 form provided under RESPA at closing. This Closing Disclosure would summarize final loan terms and detail settlement costs of the transaction.
In addition, the CFPB proposed to include more costs in the disclosed finance charge and annual percentage rate (APR) for closed-end credit secured by real property or a dwelling under Regulation Z, including many costs currently excluded by statute. The broader definition of finance charge would result in more inclusive APRs for mortgage loans, which could increase the number of loans qualifying as high-cost loans under the Home Ownership and Equity Protection Act. To address this concern, the CFPB is also soliciting comment on a new benchmark, referred to as the Transaction Coverage Rate, or TCR, which creditors would use instead of the APR to determine if a loan is subject to the requirements for high-cost loans.2 The definition of TCR would be less expansive than the proposed changes for finance charge.
The Dodd-Frank Act does not specify a deadline for finalizing the integrated mortgage disclosures, but it does require the CFPB to issue final rules to implement new mortgage disclosures that are required under Title XIV of the Dodd-Frank Act (Affected Title XIV Disclosures) no later than January 21, 2013. If the CFPB does not issue these final rules by January 21, 2013, the Affected Title XIV Disclosures become self-effectuating on that date. The CFPB believes that incorporating the Affected Title XIV Disclosures into the proposed integrated mortgage disclosures would benefit consumers and facilitate compliance. However, because of the complexity of the integrated mortgage disclosure rulemaking, the CFPB does not anticipate issuing a final rule by January 21, 2013. Thus, the CFPB proposed delaying the January 21, 2013 statutory deadline for the Affected Title XIV Disclosures until the rulemaking for the integrated mortgage disclosures is finalized.
The CFPB provided two comment periods for the proposal. Comments on the proposal to delay the effective date for the Affected Title XIV Disclosures were due by September 7, 2012. Comments on the proposed integrated mortgage disclosures, changes to the definition of finance charge, and the remainder of the proposal are due by November 6, 2012.3
For more information, including the rulemaking proposal, a summary of the proposal, and the new forms, please see the CFPB’s announcement.