iStock_000004688619Medium-thumb-225x149-186.jpgThe TILA/RESPA integrated disclosures (TRID) rule issued by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act takes effect on August 1, 2015. Once effective, the TRID will drastically alter, among other things, the pre-closing disclosures that creditors, mortgage brokers and settlement agents must provide to borrowers under Real Estate Settlement Procedures Act (RESPA) and the Truth-In-Lending Act (TILA) upon receipt of an application from a consumer for a closed-end credit transaction secured by real property.

Among other changes to the existing pre-closing procedures, the TRID provides for the following “integrated disclosures” in lieu of various documents traditionally utilized under RESPA and TILA for certain qualifying loans: (1) the Loan Estimate, which is intended to replace RESPA’s good faith estimate (GFE) and TILA’s truth-in-lending (TIL) disclosures; and (2) the Closing Disclosure, which is intended to replace the HUD-1 settlement statement and final TILA statement. The Loan Estimate must be delivered within three days after receipt of a consumer’s completed application for a closed-end consumer credit transaction. The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan. For non-qualifying loans, the GFE, TIL and HUD-1 will remain in use after August 1, 2015.

Although the CFPB intended the integrated disclosures to simplify the process and avoid confusion for consumers entering into closed-end credit transactions, the TRID is proving equally problematic for creditors in terms of implementation and compliance. For example, the integrated disclosures are significantly different from the standardized GFE, TIL and HUD-1, which merely require the creditor or its agents to complete only the applicable portions of those forms. Moreover, compliance with the TRID requires the creditor to retain evidence of compliance with the integrated disclosure provisions of the TRID after consummation of the transaction. If a mortgage broker receives a consumer’s application, the mortgage broker may provide the Loan Estimate to the consumer on the creditor’s behalf but the creditor remains legally responsible for any errors or defects. See § 1026.19(e)(1)(ii). The same is true for a settlement agent’s provision of the Closing Disclosure. See § 1026.19(f)(1)(v). These are only a few of the issues that have forced creditors to, in some cases, completely revamp their respective policies and procedures in connection with closed-end consumer credit transactions.

Various lenders have announced the creation of special departments and processes – including the generation, delivery and retention of the integrated disclosures in lieu of outsourcing the task to mortgage brokers or settlement agents – to ensure TRID compliance and minimize the litigation risks and enforcement concerns stemming from the TRID rules. However, many creditors will be unable to test these new processes and procedures until the August 1, 2015, effective date. The reason: The TRID provides that, for transactions where the application is received prior to August 1, 2015, creditors must use the current disclosure requirements and existing forms (TIL, GFE, HUD-1). In other words, the TRID does not provide for early compliance to test the creditors’ policies, procedures and technology with regard to the integrated disclosures until the TRID’s effective date of August 1, 2015.

This lack of gradual transition to the new integrated disclosures has caused many lawmakers and trade organizations to question whether the CFPB should implement a non-enforcement period to allow creditors to adjust their processes to comply with TRID after August 1, 2015. On March 3, 2015, CFPB Director Richard Cordray provided testimony before the House Financial Services Committee in connection with the CFPB’s sixth Semi-Annual Report and responded to questions from Representatives Randy Neugebauer (R-Texas) and Brad Sherman (D-California) as to whether the CFPB would consider a 60-day soft enforcement period after August 1, 2015. In response, Director Cordray remained noncommittal but indicated that a period of restrained enforcement would not be followed. Director Cordray stated that “[p]eople will have had 21 months to implement this regulation,” and additionally stated that the CFPB “won’t come in day one and bring the hammer down, but people should take the Aug. 1 date seriously.” On March 27, 2015, Representatives Neugebauer and Blaine Luetkemeyer (R-Missouri) drafted an open letter to Director Cordray requesting a hold-harmless period through December 31, 2015. The American Land Title Association (ALTA) similarly requested a five-month restrained enforcement period to allow creditors to tweak their processes in connection with problems that arise the during the preliminary stages of TRID’s effective period, citing the fourth-month non-enforcement period that the CFPB granted when the GFE and HUD-1 settlement statements were revised in 2010. More recently, on April 15, 2015, the Escrow Institute of California (EIC) joined in a letter from 17 other trade associations led by the Mortgage Bankers Association and ALTA asking the CFPB to implement restrained enforcement through December 31, 2015.

So far, the CFPB and Director Cordray have been unwilling to provide a clear stance as to whether a period of restrained enforcement will be implemented, despite the drastic changes required from creditors in order to comply with the TRID. For the time being, creditors should be prepared to implement their process and technology changes on August 1, 2015, in order to avoid the stiff civil and regulatory consequences of noncompliance with the integrated disclosure requirements unless and until the CFPB provides further guidance.