CFPB Issues Letter on TRID Enforcement and Liability: Consumer Financial Protection Bureau
On December 29, 2015, Consumer Financial Protection Bureau, CFPB, Director Richard Cordray sent a letter to the president of the Mortgage Bankers Association regarding implementation of the CFPB’s Know Before You Owe mortgage disclosure rule (more commonly known as the Truth in Lending and RESPA integrated disclosure rule, or TRID) responding to concerns raised by the MBA. The letter addressed concerns that technical TRID violations are resulting in extraordinarily high rejection rates by secondary market purchasers of mortgage loans by stating that rejections based on “formatting and other minor errors” are “an overreaction to the initial implementation of the new rule” and that the risk to private investors from “good-faith formatting errors and the like” is “negligible.”
Director Cordray’s letter also made the following points:
The CFPB and other regulators have made clear that their initial examinations for compliance with TRID “will be sensitive to progress industry has made” and “will be squarely focused on whether companies have made good faith efforts to come into compliance with the rule.”
In response to the MBA’s inquiry about cure provisions for violation of the rule, Director Cordray’s letter stated that the rule “provides for the issuance of a corrected closing disclosure, even after closing” which can be used to “correct non-numerical clerical errors or as a component of curing any violations of the monetary tolerance limits, if they exist.” Consistent with existing Truth in Lending Act 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…private liability.
“There is no general TILA assignee liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary.”
“By statute, TILA limits statutory damages for mortgage disclosures, in both individual and class actions to failure 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 in 15 U.S.C. 1640(a)” which “do not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.”
While Director Cordray’s letter should be helpful, a couple points should be noted. First, the letter is not an official interpretation of TILA or RESPA, and therefore would not appear to be binding on the CFPB, other regulators or courts. Second, Director Cordray’s letter does not address the risk that any TRID violation, no matter how technical or minor, may violate unqualified contractual representations that the loans were originated in compliance with law. Even though Director Cordray’s letter addresses a lender or assignee’s direct liability under TILA for TRID violations, it cannot address how securitizations trustees and federal agencies enforcing federal laws such as the False Claims Act will react to the discovery of technical violations. In order to address that risk, the CFPB would need to formally declare that formatting and other minor errors are not in fact violations for some set period of time.