InfoBytes Blog

Special Alert: CFPB Finalizes Amendments to TILA-RESPA Integrated Mortgage Disclosures

On January 20, 2015, the CFPB finalized amendments to the TILA-RESPA Integrated Disclosure (“TRID”) rule that make a number of amendments, clarifications, and corrections, including:

CFPB TILA RESPA TRID

Supreme Court Holds That Notice of Rescission Is Sufficient For Borrowers to Exercise TILA's Extended Right to Rescind

As previously reported in our January 15 Special Alert, the Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).

TILA U.S. Supreme Court

Special Alert: Supreme Court Holds That Notice of Rescission is Sufficient For Borrowers to Exercise TILA's Extended Right to Rescind

The Supreme Court on January 13, 2015 held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages.

The Court’s opinion resolved a circuit split over whether borrowers exercising their right to rescind certain loans pursuant to Section 1635(f) must file a lawsuit to rescind their loans within the three-year period set forth in that section or can satisfy the timing requirements by merely submitting notice of rescission to the creditor. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” The Court rejected Respondents’ argument that a court must be involved in a rescission under Section 1635(f).

As a result of the Court’s decision, we now expect that a creditor receiving a post three-day notice of rescission from a borrower would immediately file a lawsuit against the borrower to address the validity of the purported rescission in order to avoid ongoing ambiguity regarding the status of the loan, and, if the rescission were validly noticed, to condition the rescission on the return of the loan principal.

BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).

TILA U.S. Supreme Court

CFPB Increases Asset-Size Thresholds Under HMDA and TILA

On December 29, the CFPB published final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules take effect on January 1, 2015.

HMDA requires certain lenders to collect and report data about mortgage application, origination, and purchase activity, and to make such data available to the public. Institutions with assets below certain dollar thresholds are exempt from the HMDA collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $43 million to $44 million, thereby exempting institutions with assets of $44 million or less as of December 31, 2014, from collecting and reporting HMDA data in 2015.

TILA, among other things, require creditors to establish escrow accounts when originating higher-priced mortgage loans (HPMLs). However, TILA exempts certain entities from this requirement, including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.028 billion to $2.060 billion, thereby exempting creditors with assets of $2.060 billion or less as of December 31, 2014, from the requirement to establish escrow accounts for HPMLs in 2015.

CFPB TILA HMDA

CFPB & State Attorneys General Fine Retailer and Debt Collectors for Alleged Illegal Debt Collection Practices Against Military Servicemembers

On December 18, the CFPB and the Attorneys General of North Carolina and Virginia announced an enforcement action against three affiliated companies offering credit and financing services to military servicemembers. The complaint filed in the Eastern District of Virginia alleges that the companies used illegal tactics to collect debts in violation of Dodd-Frank, including by (i) filing illegal lawsuits; (ii) debiting consumers’ accounts without authorization; and (iii) contacting servicemembers’ commanding officers. The complaint also charges that one of the companies violated the EFTA by failing to properly disclose the terms of preauthorized transfers, while another company violated TILA by failing to properly disclose terms and interest rates on the loans it offered to servicemembers. The CFPB and the Attorneys General filed a consent order in the district court to require the companies and their owners and chief officers to provide over $2.5 million in consumer redress, pay a $100,000 civil penalty, and undergo ongoing compliance monitoring for a period of five years.

CFPB TILA Servicemembers Debt Collection EFTA Enforcement

CFPB Proposes Amendments to Mortgage Servicing Rules

On November 20, the CFPB announced the issuance of a proposed rule to amend RESPA (Reg. X) and TILA (Reg.Z). The proposed rule changes primarily focus on clarifying, revising or amending (i) Regulation X’s servicing provisions regarding force-placed insurance, early intervention, and loss mitigation requirements; and (ii) periodic statement requirements under Regulation Z’s servicing provisions. In addition, the proposed amendments also revise certain servicing requirements that apply when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. Further, the proposed rule makes technical corrections to several provisions of Regulations X and Z. The public comment period will be open for 90 days upon publication in the Federal Register.

CFPB TILA FDCPA Mortgage Servicing RESPA Loss Mitigation

CFPB Holds Field Hearing On Prepaid Products, Proposes New Rule

On November 13, the CFPB held a field hearing in Delaware to discuss its proposed rule regarding prepaid products. The proposal, which would amend Regulation E and Regulation Z, requires prepaid companies to provide certain protections under federal law.

In his opening remarks, Director Cordray noted that the many prepaid card consumers are some of the most economically vulnerable among us and that such cards have few, if any, protections under federal consumer financial law. Cordray outlined the reasons the Bureau’s proposed rule would “fill key gaps” for consumers. First, the proposed rule would provide consumers free and easy access to account information. Second, the proposed rule would mandate that financial institutions work with consumers to investigate any errors on registered cards. Third, the proposed rule would protect consumers against fraud and theft. Fourth, the rule includes “Know Before You Owe” prepaid disclosures, which would highlight key costs associated with the cards. Fifth, where prepaid card providers also extend credit to consumers such offers would be treated the same as credit cards under the law.

CFPB TILA Prepaid Cards EFTA Regulation Z

Jesinoski Case Raises TILA Questions

On November 4, the Supreme Court heard oral arguments in Jesinoski v. Countrywide Home Loans, Inc., No. 13-648, to resolve a circuit split on whether under TILA a borrower who has provided notice of rescission within three years must also file a lawsuit within that three-year period, or whether such a borrower may file a lawsuit even after the three-year period lapses. In the court below, the Eighth Circuit Court of Appeals agreed with the creditor that a borrower must file suit within three years to rescind a loan under TILA. As noted in BuckleySandler attorneys’ November 4 article, Justices’ Questioning In Jesinoski May Be Cause For Concern, during oral arguments the Justices closely questioned counsel on the statutory text. While lawyers for the borrowers and the Department of Justice met with little opposition from the bench, the Justices struggled with the argument advanced by counsel for the creditor. Ultimately, as discussed in BuckleySandler’s article, “Questions from both conservative and liberal judges suggest that both camps may be more receptive to the textual reading advanced by the Jesinoskis.” BuckleySandler attorneys also filed an amici curiae brief on behalf of industry groups in this case.

TILA U.S. Supreme Court

Proposed Changes to the TILA-RESPA Integrated Disclosure Rule

On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.

CFPB TILA RESPA TRID

CFPB Updates Dodd-Frank Mortgage Rules Readiness Guide

Recently, the CFPB published an updated mortgage rules Readiness Guide for financial institutions to assist them in complying with new mortgage lending requirements. The Guide contains: (i) a summary of the mortgage rules finalized by the CFPB as of August 1, 2014; (ii) a readiness questionnaire to help perform self-assessments; (iii) a section on frequently asked questions; and (iv) a section on further tools to assist with compliance with the new rules. The guide discusses, among other rules, the TILA-RESPA Integrated Disclosure rule that integrates the mortgage loan disclosures currently required under TILA and RESPA. That rule requires a new Loan Estimate form that combines two existing forms, the Good Faith Estimate and the initial Truth-in Lending disclosure. The Loan Estimate must be provided to consumers no later than the third business day after they submit an application. The rule also requires a Closing Disclosure form, which combines the current Settlement Statement (“HUD-1”) and final Truth-in Lending disclosures forms. The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan. The new requirements are effective for loans where the lender receives an application on or after August 1, 2015.

TILA RESPA TRID