By John M. Pachkowski, J.D.
Bowing to calls by the banking industry and members of Congress to delay the implementation of its TILA-RESPA Integrated Disclosures (TRID) regulation, the Consumer Financial Protection Bureau has stated that a proposed amendment will be issued to delay the effective date of the TRID rule until Oct. 1, 2015. The TRID rule, which combines certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act, was to go into effect on Aug. 1, 2015.
In the past several weeks, both the banking industry and members of Congress have raised concerns over the approaching August 1 effective date and the fact that many banks were experiencing difficulties in meeting the deadline. All have called on the CFPB to create a grace period or a hold harmless period to allow banks and other mortgage providers time to ensure full compliance with the TRID requirements.
Critical shortfall. In mid-May, the American Bankers Association issued an “urgent appeal” to the CFPB asking the bureau to endorse a “hold harmless period of enforcement and liability” for institutions that, acting in good faith, are unable to comply with the TRID rule. The ABA based its request on a recent survey indicating that more than 20 percent of banks will be unable to meet the deadline.
The ABA noted that 79 percent of surveyed banks could not verify a precise delivery date, or were told that they would not receive systems before June “The survey indicates a critical shortfall. Banks need at least three months to install, test and de-bug systems, and train staff,” said Robert Davis, an executive vice president at the ABA. “We expect actual deliveries of systems to lag what bankers are being promised. If this holds true, and bankers are uncertain about the level of potential supervisory tolerance, we expect a measurable reduction in credit availability during a transition period” (see Banking and Finance Law Daily, May 14, 2015).
Congressional call for action. Following the ABA’s appeal, Sens. Joe Donnelly (D-Ind) and Tim Scott (R-SC) sent a letter to the CFPB calling for a grace period until the end of 2015 for financial institutions that are making a good faith effort to comply with TRID. In addition, more than 250 members of the House, led by Reps. Andy Barr (R-Ky), Carolyn Maloney (D-NY), and Maxine Waters (D-Calif), sent a similar letter to the CPFB director. In their letter, the representatives noted also that January and February are consistently the slowest months of the year for home sales, making them more ideal for implementation (see Banking and Finance Law Daily, May 26, 2015).
Sensitive to progress made. Responding to the calls from industry groups and Congress, the CFPB announced on June 3, 2015, that its oversight of the TRID implementation “will be sensitive to the progress made by those entities that have been squarely focused on making good-faith efforts to come into compliance with the rule on time.” In a letter to Donnelly and Scott, the CFPB director noted that bureau has “made it a point to engage directly and intensively with financial institutions and vendors through a formal regulatory implementation project” and cited a number of initiatives regarding that implementation project. At the time of the announcement, industry groups appreciated the CFPB’s announcement, but were disappointed that the bureau’s statement fell well short of a “hold harmless” period (see Banking and Finance Law Daily, June 3, 2015).
Grace period. Although there was support for the CFPB’s June 3 announcement, a diverse group of 19 financial services trade groups, led by the American Bankers Association, called upon Rep. Jeb Hensarling (R-Texas), the Chairman of the House Financial Services Committee, and Rep. Maxine Waters (D-Calif), the Committee’s Ranking Member, to pass H.R. 2213. The bill, introduced by Reps. Steve Pearce (R-NM) and Brad Sherman (D-Calif) would provide a reasonable hold-harmless period for enforcement of the TRID rule. The groups noted in their letter to Hensarling and Waters that a hold-harmless period helps ensure consumers’ real estate closings will not be disrupted after this complicated regulation’s Aug. 1, 2015, effective date.
Correct an “administrative error”. In a June 17, 2015, statement, indicting the bureau’s intent to delay the effective date of the TRID compliance, CFPB Director Richard Cordray said, “We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”
It was noted in a comment board for an article posted on HousingWire.com that “The ‘administrative error’ was the fact that the CFPB was required to file notice with Congress under the Congressional Review Act, at least 60 days prior to the required effective date.” According to Frequently Asked Questions posted by the Government Accountability (GAO), the Congressional Review Act allows Congress to review “major” rules issued by federal agencies before the rules take effect. Congress may also disapprove new rules, resulting in the rules having no force or effect. In addition, the Congressional Review Act requires the GAO to report to Congress on whether an agency, in promulgating a major rule, has complied with the regulatory process. The GAO does not analyze or comment on the substance or quality of rulemaking. GAO’s report must be made to each house of Congress no later than 15 calendar days after a rule’s submission or publication date.
Reaction. Both the industry and Congress weighed in on the CFPB’s decision to delay the TRID compliance date.
Rep. Blaine Luetkemeyer (R-Mo), Chairman of the House Subcommittee on Housing and Insurance said the announcement “falls short of instituting the formal hold harmless period sought by nearly 300 Members of the House and Senators.” He added, “The need for this extension is a reminder to all of us that we are human beings and mistakes are made, and I appreciate Director Cordray’s actions to remedy the situation. It is my sincere hope that CFPB is as understanding of any errors made at the closing table in the months following final TRID implementation.”
Rep. Carolyn B. Maloney (D-NY), the Ranking Member of the House Subcommittee on Capital Markets and Government Sponsored Enterprises noted that the TRID rule “will reduce the number and complexity of disclosure forms home buyers must review when closing on a home, but the original timeline put implementation smack in the middle of peak home buying season.” She continued, “Thankfully, the CFPB recognized the need for flexibility, and today Director Cordray announced that implementation of TRID would be delayed until October. This will provide the industry and homebuyers with the breathing room they needed to close on homes before the start of the school season. I applaud the CFPB for making this reasonable accommodation and continuing to put consumers first.”
Frank Keating, ABA president and CEO said, “This extension will help protect consumers from disruptions during a traditionally busy period for home purchases. It will also help to assure new loan origination systems and compliance software under development by lenders and the vendors on whom they rely will be adequately installed and debugged, and staff training completed, before the effective date.”
The Independent Community Bankers of America appreciated the CFPB’s decision to propose an amendment to delay the effective date for TRID implementation. The group noted the proposed delay would help all industry stakeholders “to receive, install and test those updates in order to be better prepared for the effective date of Oct. 1.”
Richard Hunt, president and CEO of the Consumer Bankers Association added, “The Director’s decision to delay the effective date of TRID will help the industry as it approaches the date for transition to the new mortgage disclosure rule. Though banks have been working with their vendors to ensure a smooth integration, this additional time will help consumers and bankers in their ongoing partnership to achieve a more streamlined consumer experience in mortgage origination.”
National Association of Realtors® President Chris Polychron called the CFPB’s action a “welcome step” and that the group long advocated the need to avoid implementing the new regulation during the peak summer selling season.
Finally, David H. Stevens, president and CEO of the Mortgage Banker Association welcomed the decision by the CFPB and added, “[the] CFPB continues to prove itself capable of working in a transparent, constructive manner throughout this process, as was evident recently when they announced their intent to delay enforcement of lenders once the rules were to go into effect.”
Companies: American Bankers Association; HousingWire.com; Independent Bankers Association; Mortgage Banker Association; National Association of Realtors®
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