CUNA discovers discrepancy in CFPB’s TRID rule, seeks answers

CUNA discovers discrepancy in CFPB’s TRID rule, seeks answers

Washington, D.C. – June 22, 2015 – (RealEstateRama) — The Credit Union National Association (CUNA) asked the Consumer Financial Protection Bureau (CFPB) to clarify a discrepancy and to exempt credit unions that make five or fewer mortgages in a calendar year from the Know Before You Owe rule, which includes the Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID) in a letter today.

CUNA found a discrepancy between the CFPB’s previous TILA-RESPA Small Entity Compliance Guide and supplementary information to the TRID rule compared with text in the latest Small Entity Compliance Guide and the final rule text, and is requesting answers from the Bureau.

“At its core, this is an issue of transparency,” said Jim Nussle, President and CEO of CUNA. “The CFPB made a change to the Small Entity Compliance Guide that will affect over 700 credit unions and numerous other financial institutions but did not highlight, publicize, or explain this change. Although listed as a ‘miscellaneous administrative change’ by the Bureau, the new rule is a substantial change that may deal a striking blow to anyone making five or fewer mortgages in a calendar year. CUNA urges the CFPB to address our concerns and confirm that creditors making five or fewer mortgages per year, as outlined in the rule’s supplementary information and the September 2014 Small Entity Compliance Guide, are exempt from the TILA-RESPA rule.”

Earlier this month, CUNA brought to the attention of Bureau staff a discrepancy related to the scope of the new requirements that CUNA urged the CFPB to address during the re-proposal period.  The final rule offers a different description of the scope of the rule than both the guide that the Bureau issued in September 2014 to help small financial institutions understand how to comply with the new rule and the supplementary information that accompanies the rule.

CUNA estimates that more than 700 credit unions would be exempt from TRID under the definition provided in the CFPB’s September 2014 version of the TILA-RESPA Small Entity Compliance Guide, which stated, “Consistent with the current rules under TILA, the rule also does not apply to loans made by a person or entity that makes five or fewer mortgages in a calendar year and thus is not a creditor.” However, CUNA discovered that the Small Entity Compliance Guide was updated this month and now reads: “Consistent with the current rules under TILA, the rule also does not apply to loans made by a person or entity that is not a creditor.”

See CUNA’s full letter to the CFPB below:

June 19, 2015

Mr. Richard Cordray

Director

Consumer Financial Protection Bureau

1700 G Street NW

Washington, DC 20552

Dear Director Cordray:

On behalf of the Credit Union National Association (CUNA), I am writing to thank you and the Consumer Financial Protection Bureau (CFPB or Bureau) for extending the effective date to October 1, 2015 for the Know Before You Owe rule, which includes the Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID), and to bring to your attention a discrepancy in the information the Bureau has been publishing regarding compliance with the rule. CUNA represents America’s state and federally chartered credit unions and their more than 100 million members.

In your statement announcing the extended effective date, you said that the additional compliance time is necessary to correct an administrative error which would have delayed the effective date of the rule by two weeks, and for the purpose of better accommodating the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time. While we strongly support a safe harbor for legal liability and enforcement until the end of the year, the additional two month period is a step in the right direction.  We appreciate this accommodation.

Earlier this month, we brought to the attention of Bureau staff a discrepancy related to the scope of the new requirements that we urge you to address during the re-proposal period.  The final rule offers a different description of the scope of the rule than both the guide that the Bureau issued in September 2014 to help small financial institutions understand how to comply with the new rule and the supplementary information that accompanies the rule.  We appreciate that Bureau staff has been responsive to our inquiries and we have been assured we would receive a clarification, but we have received none to date.

In September 2014, the CFPB’s TILA-RESPA Small Entity Compliance Guide stated,

“Consistent with the current rules under TILA, the rule also does not apply to loans made by a person or entity that makes five or fewer mortgages in a calendar year and thus is not a creditor.”

Based on this language and the final rule’s supplementary information which states, “the final rule also does not apply to loans made by a creditor who makes five or fewer mortgages in a year,” many small credit unions understand they are exempt from the new requirements if they originate five or fewer mortgages per year, regardless of the number of non-mortgage loans they originate.  In fact, we estimate more than 700 credit unions would be exempt under the definition provided in these documents and have been operating under that guidance provided by the Bureau.

The text in Regulation Z states, however:

“A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of §1026.32) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year.”

The commentary further clarifies that, “Once one of the numerical tests is satisfied, the person is also a creditor for the other type of credit.”

CUNA has recently brought this discrepancy to the attention of CFPB staff and was told we would receive an answer clarifying the inconsistent language. Despite CUNA’s numerous discussions with CFPB staff, the Bureau has not yet provided clarification with respect to the discrepancy in the Small Entity Compliance Guide and final rule’s supplementary information. Nevertheless, we noticed on the same day as your announcement that the Small Entity Compliance Guide was updated in June 2015, and now states:

“Consistent with the current rules under TILA, the rule also does not apply to loans made by a person or entity that is not a creditor.”

The Guide no longer states that the rule does not apply to loans made by a person or entity that makes five or fewer mortgages in a calendar year. The version log accompanying the Guide describes this substantive change as a “miscellaneous administrative change.” Furthermore, this change does not address the current language in the final rule’s supplementary information which is still relied upon.

We urge the CFPB to address our concern and confirm that creditors that make five or fewer mortgages per year, as outlined in the rule’s supplementary information and the September 2014 Small Entity Compliance Guide, are exempt from the TILA-RESPA rule. Now that the effective date for the regulation has been extended, we believe there is adequate time for the CFPB to correct this inconsistency so that the lending operations of credit unions are not negatively impacted and members can continue to receive financial services to meet their needs.

Thank you for your prompt attention to this important matter. Please feel free to contact me if you would like to discuss this issue further.

Sincerely,

Jim Nussle
President & CEO

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About CUNA:
With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves America’s credit unions, which are owned by more than 100 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information about CUNA, visit www.cuna.org or follow @CUNA on Twitter. For more information about credit unions, visit www.aSmarterChoice.org and follow @asmarterchoice on Twitter. Visit the CUNA Press Room for a full listing of media mentions, press releases and resources to stay informed on current events within the credit union industry.

Contact: Vicki Christner – CUNA Communications; 202-508-6754;

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CUNA (Credit Union National Association), based in Washington, D.C., and Madison, Wisconsin, is the premier national trade association serving America's credit unions. The not-for-profit trade group is governed by volunteer directors who are elected by their credit union peers.

CUNA also works with related organizations to provide products and services to credit unions. CUNA Strategic Services (CSS) partners with league service corporations to offer products, services, and technology that credit unions need to compete in the modern financial market.

Contact:

Rick Roseneck

(800) 356-9655 ext. 4933

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