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The Truth in Lending RESPA Integrated Disclosure Rule (TRID) took effect October 3, 2015, and placed the mortgage industry in unchartered waters. Our office has spent countless hours reviewing the rule, the commentary, the CFPB Guidelines, and listening to lenders’ concerns about the Rule. Here are our initial observations.
Initial Examinations: All of the relevant regulators have provided assurances to their supervised entities that examiners will “evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance.” So what does this mean? It means that examiners will likely be focused on the implementation of policies and procedures and due diligence testing of software in initial examinations. The good news is that most lenders began implementing policies and procedures regarding TRID well ahead of October 3rd; however, reports from the CFPB and lenders themselves indicate that the software roll out from vendors may not have been as smooth. Several lenders have indicated that software is still being updated making it difficult for them to do their due diligence in testing the software. The CFPB has indicated some awareness of the issue, acknowledging that the implementation process “was not as smooth as we would have hoped” and placing the blame largely at the feet of the software vendors. Our message for lenders, however, remains the same: make sure you are adequately testing the software and remember, TRID places liability for noncompliance squarely on the lender.
Private Rights of Action/Class Actions: Simply put, TRID provides more risk for litigation exposure to lenders. Under TRID, lenders are solely responsible for compliance with the rule. While RESPA did not provide a private right of action; the TRID Rule relies on the Truth in Lending Act for all disclosure, timing and content requirements. Truth in Lending does provide a private right of action and thus, it is a foregone conclusion that we will see more litigation under TRID. Additionally, class actions are likely to become more prevalent.
Loan Estimates: The timing requirements for Loan Estimates (3 business days from application) places immense pressure on underwriters to perform their analysis of credit worthiness in a very tight time frame. The ramifications of this are that lenders are going to make loan decisions without adequate time to fully vet credit worthiness. Additionally, we see the following pitfalls for Loan Estimates:
Closing Disclosures and Consummation:
Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE