by Adam Deutsch
As published in the The Hill.
Need a sign that the Consumer Financial Protection Bureau (“CFPB”) is quickly becoming the most effective regulatory arm of the Federal Government? Look no further than the absolute panic being shown by the home loan industry over changes to the disclosures that must be provided to persons entering into mortgage loan agreements.
Under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), homeowners are entitled to receive disclosures that provide clarity and transparency to the finance terms of a loan prior to closing. Roughly 18 months ago the CFPB announced a streamlining of disclosure forms known as the TILA-RESPA Integrated Disclosure (“TRID”), which goes into effect August 1, 2015. TRID is not a new set of regulations, but rather a consolidation of four existing disclosure rules required under the TILA and RESPA. In other words, the new rule simplifies the disclosure process for loan originators and brokers, while providing homeowners more clarity in being able to understand the contents of disclosures accompanying loan documents.
Over the past 18 months, the CFPB has gone above and beyond its obligation to provide the industry with education materials to help prepare for the rule change. The materials include video and written tutorials, compliance guides, uniform templates for disclosures, and timelines explaining when various disclosures must be made. In April 2014, the CFPB began providing the lending industry with written guide materials. Despite having substantial notice to prepare for the rule change, the industry has moved into panic mode, defiantly turning to Congress to help give the industry permission to mislead homeowners.
As a result of industry lobbying efforts, on April 27, 2015, a bill was introduced in the House of Representatives (H.R.2213) which seeks to legislate a safe harbor provision following implantation of the August 1, 2015 TRID rules. The bill is sponsored by Reps. Steve Pearce (R-N.M.) and Brad Sherman (D-Calif.). If adopted, the TRID regulations “may not be enforced against any person until January 1, 2016 and no suit may be filed against any person for a violation of such requirements occurring before such date, so long as such person has made a good faith effort to comply with such requirements.” The effect of the bill would be catastrophic. As drafted, the bill would strip homeowners of their private right of action for actual damages and statutory damages suffered by virtue of a mortgage broker or lender’s failure to provide accurate and timely loan disclosures.
A month later, appearing unlikely that H.R.2213 will be adopted, 255 Members of Congress signed a letter to CFPB Director Richard Cordray requesting that the CFPB itself delay implementation of TRID by adding a grace period allowing the industry to make errors without liability. The letter states “Even with significant advance notice, understanding how to implement and comply with this regulation will only become clear when the industry gains experience using these new forms and processes in real-life situations.” Congressional signatories to the letter have drawn a line in the sand declaring that the rights of their constituents are trumped by the rights of the non-voting businesses.
The proposed House of Representatives bill and the May 20 letter to Richard Cordray ask that the lending industry be provided a window of immunity. This is immunity not only from enforcement by the CFPB, but also from private rights of action from borrowers who are directly harmed by the mortgage loan industry’s conduct. The Congress members who support the safe harbor have learned nothing from the collapse of the housing market in late 2007. A safe harbor provision would provide a green light for mortgage brokers and loan originators to return to practices of old, seeking to do as much damage as possible during the immunity period. Americans should be outraged by the suggestion of providing immunity to lenders from legislation that promotes financial literacy and transparency. The panic is a sign that the CFPB is producing meaningful and effective legislation pursuant to its authority as created by Congress. At a minimum, this is a sign that even as Congress ignores its constituents in an effort to follow money, the financial rights of consumers are being guarded by the federal government.
Deutsch, senior associate attorney at Denbeaux & Denbeaux in Westwood, New Jersey, is currently concentrating his practice on consumer rights litigation.