The residential mortgage market underwent a significant regulatory change on October 3, 2015, when the TILA-RESPA Integrated Disclosure (TRID) rule went into effect. TRID was promulgated by the Consumer Financial Protection Bureau (CFPB). As the name implies, TRID combines the disclosure requirements of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These disclosures must be provided to consumers in connection with home mortgage loans. TRID is more than a re-codification of existing regulations, however. It is a major overhaul of the mortgage application and closing process.
The most visible change of TRID is the forms that must be provided to borrowers. The Truth in Lending Statements, Good Faith Estimate, and HUD-1 Settlement Statement have been replaced by the “Loan Estimate” and “Closing Disclosure.” The new forms are supposed to be more streamlined and easier for consumers to understand. Behind those forms, however, is an almost 1900-page rule filled with new directives for mortgage lenders and other industry participants.
TRID imposes a significant compliance burden on the residential mortgage market. So much so, in fact, that several industry groups requested a grace period from the CFPB. They wanted a guaranty that good-faith violations would not be punished while the industry adjusts to the new regulations. The CFPB declined to provide such a grace period, but indicated that it will initially focus on remedial actions rather than punishment. However, CFPB Director Richard Cordray recently stated that many technology vendors have done a poor job implementing TRID. This should concern any lender that relies on a third-party vendor for its mortgage loan origination software. If the third-party vendor fails to comply with TRID, the lender will likely be held responsible.
Failure to comply with TRID can have significant consequences. One potential consequence is an enforcement action by regulators. This should come as no surprise. What may be less obvious, however, is the risk of litigation from individual borrowers. TRID greatly increases the risk of private lawsuits for disclosure violations.
The increased litigation risk is largely due to the fact that TRID blurs the line between TILA and RESPA. TILA offers borrowers a private right of action. RESPA generally does not. Although TRID relies on both TILA and RESPA, the CFPB implemented the new rule entirely under Regulation Z (the regulation that implements TILA). Therefore, the statutory remedies under TILA are now arguably available for any violation of TRID, including those provisions that derive from RESPA. If courts accept this argument, TRID will effectively create a private right of action for numerous disclosure violations where none previously existed.
The increased litigation risk under TRID has not gone unnoticed. Several commenters pointed it out before the rule became final. The CFPB did not share their concern, however. In the final rule, the CFPB summarized the issue as follows:
TILA provides for a private right of action, with statutory damages for some violations, whereas RESPA does not provide a private right of action related to the RESPA GFE and RESPA settlement statement requirements. Some industry commenters expressed concern that if the final rule implements the combined disclosure requirements in Regulation Z, consumers would bring lawsuits seeking TILA’s remedies for RESPA violations. These commenters, which included several trade associations, several title companies, two large banks, and a large non-bank lender, requested that the Bureau specify which provisions of the integrated disclosure rules relate to TILA requirements and which relate to RESPA requirements. One title industry trade association commenter suggested that the Bureau implement the TILA disclosure requirements in Regulation Z and the RESPA disclosure requirements in Regulation X to discourage litigation invoking TILA’s liability scheme for RESPA violations.
While the final regulations and official interpretations do not specify which provisions relate to TILA requirements and which relate to RESPA requirements, the section-by-section analysis of the final rule contains a detailed discussion of the statutory authority for each of the integrated disclosure provisions. As stated in part IV, above, the authority for the integrated disclosure provisions is based on specific disclosure mandates in TILA and RESPA, as well as certain rulemaking and exception authorities granted to the Bureau by TILA, RESPA, and the Dodd-Frank Act. The details of the Bureau’s use of such authority are described in the section-by-section analysis. The Bureau believes these detailed discussions of the statutory authority for each of the integrated disclosure provisions provide sufficient guidance for industry, consumers, and the courts regarding the liability issues raised by the commenters.
Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 79,757 (Dec. 31, 2013).
The CFPB’s proposed solution (looking to the section-by-section analysis to determine whether a provision is based on TILA or RESPA) may work better in theory than in practice. The whole purpose of TRID was to integrate the disclosure regimes under TILA and RESPA in a way that created a better consumer experience. To that end, Dodd-Frank gave the CFPB broad flexibility to modify or exempt statutory requirements based on the public interest. The Bureau used that flexibility liberally. As a result, it may be difficult to isolate a particular statutory basis for many of TRID’s requirements.
TILA is already a heavily litigated area of law, and a go-to statute for consumers trying to prevent or delay foreclosure. TRID may add fuel to the fire. Many in the residential mortgage industry fear that it will. Indeed, their concern led the House of Representatives to pass a bipartisan bill creating a four-month grace period for any person who makes a good faith effort to comply with TRID. The bill is now before the Senate, but even if it is eventually signed into law, it will only delay the litigation risk.
It’s unclear whether borrowers can bring new causes of action under TRID, but they will almost certainly try. This may be the next frontier of consumer litigation.
