July 20, 2015
Clients and Friends,
Given the timing of this email on a Monday morning, let’s call this email my “bagel briefing.” And in this bagel briefing, there are two events from last week that I wanted to highlight for you: CFPB Director Cordray’s Senate Banking Committee testimony on TRID, and the CFPB’s announcement of an eClosing Forum.
Director Cordray’s Testimony on TRID
Last week, on Wednesday, July 15, CFPB Director Cordray testified in front of the Senate Banking Committee at its hearing on the CFPB’s Semi-Annual Report to Congress. TRID came up a few times. The testimony during the question and answer portion touched upon the rule’s effective date, the requested “good faith” period, and the length of the rule and disclosures. Below is a summary, with some key takeaways.
Cordray faced a question about the CFPB’s response to a letter from over 200 members of Congress requesting a “hold harmless” period for TRID. Cordray defended the original TRID effective date, stating that the CFPB “finalized the rule in November of 2013” providing “a 21-month implementation date, a long implementation date in response to what we heard from industry.” He sounded upset as he stated despite the “long” implementation period, industry was not entirely ready for August 1, 2015. “Nonetheless, as we get toward the end of it, some people aren’t ready,” he said. He then noted the CFPB’s proposed delay, stating that it was evidence of Congressional oversight of the CFPB, before noting that it was caused by the CFPB’s “administrative error.”
Regarding the CFPB’s “administrative error,” Cordray stated that the CFPB had to, “in the end…due to an error on our part…back up the implementation date further out of the summer sale season.” But he said that because of feedback, the CFPB is considering moving the effective date back to October. He suggested that, based on the CFPB’s experience from implementation of the Title XIV rules, industry would find it inconvenient to move the date further out to January, because of other end-of-year systems work.
Cordray also discussed how the CFPB would initially approach supervision for compliance with TRID. He stated that the CFPB has “worked with the other agencies to get an agreement, which we have, that the early examination of this will be diagnostic and corrective.” He stated that “for the first period, which may last many months,” they would not look to be “punitive.”
Director Cordray was also asked about the length of the integrated disclosures. He responded that, “the rule that actually implemented these forms is lengthy. I wish it weren’t, but it is lengthy.” He continued discussing the disclosures, stating that they were not the one-page disclosures that Senator Warren had wanted, stating that “we’re at five and three pages…it is the executive summary of the whole transaction.” He defended the length, stating that the CFPB conducted consumer testing and that the forms are “much easier, and more accessible, and more understandable,” and that, “these are not lengthy forms.” Interestingly, he also stated that, “we’re looking to try and do electronic closings and push the industry in that direction, which they want to go anyway, so that a lot of paper gets taken off and you can really focus on the key forms here.”
There are a few key takeaways here. Regarding the CFPB’s proposal to delay the effective date, it appears unlikely that the TRID rule will be delayed until January, as some commenters to the proposal requested. Cordray’s statements indicate that some in the industry have successfully convinced the CFPB that a January effective date would be disruptive to other operations. Also, Cordray appears to believe still that the implementation period was “long,” and to fault the industry for not being ready, so he is unlikely to push the date back much further than the proposed October 3 effective date.
Significantly, Cordray’s statements provided more specificity regarding the CFPB’s announced “good faith” period. Cordray’s statement that during this period, examinations will be “diagnostic and corrective,” rather than “punitive,” provides more information. But, although Cordray skillfully credited the delayed effective date to Congressional oversight, it is still quite apparent that his “good faith” period does not provide industry with the “hold harmless” period Congress had actually requested. While his reference to “punitive” likely means the CFPB will not seek civil money penalties, “corrective action” could include all of the other tools of the CFPB’s trade. For example, this could still leave the door open to enforcement actions ordering restitution to consumers. It would be unlike the CFPB not to seek redress for consumers, a UDAAP claim, and a strongly worded press release, if it viewed consumers as having been harmed. Even without a civil money penalty, a TRID violation could be costly and result in reputational risk.
Director Cordray also indicated that the CFPB has obtained agreements with other “agencies” to follow this same approach, which is positive. However, he did not specify which agencies. Was he referring to the federal banking agencies, or state regulators that have the authority to enforce TRID under state law? Hopefully the CFPB will address this with more specificity at some point, perhaps in the delay final rule.
And although Cordray stated this “sensitive” period could last for “many months,” that sounded more like he was telling a fairy tale than describing a “good faith” period that could affect the operations of U.S. mortgage market. It would be more helpful to have a fixed, defined period. But, it appears to me that the CFPB may want to retain discretion and flexibility with respect to the length of the period, so that they can make adjustments based on what they’re seeing in examinations.
Forum on eClosing
The CFPB announced last week a “Know Before You Owe Forum on eClosing,” which will take place on Wednesday, August 5 at 1 p.m. EDT. The forum will focus on the “Know Before You Owe initiative on eClosing.” It will “feature remarks from Director Richard Cordray, as well as a panel discussion with consumer groups, industry representatives, and members of the public.” It is likely that the CFPB will announce the results (or at least some) of its eClosing Pilot Project.
Notably, the date of this forum, which must have been planned well in advance of the proposed TRID delay, would have coincided with the original TRID effective date. This timing, and Director Cordray’s testimony on the hill about looking to “push the industry” in the direction of electronic closings, shows the CFPB’s very strong interest in electronic closings. And you may remember that the CFPB also focused on electronic closings in its field hearing back in November 2013 that announced the CFPB’s issuance of TRID. In that field hearing, the CFPB also announced its work on electronic closings. All of this indicates that the CFPB likely views TRID as only a step towards a larger goal, electronic closings. It will be interesting to see if Cordray provides any information during this forum about how, and when, he plans to “push” the industry towards electronic closings, especially after such an arduous implementation of TRID.
Please let me know if you have any questions, or if you’d like to discuss.