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Consumer Financial Protection Bureau

3 Things Not Included in the CFPB’s Final Integrated Disclosures Rule

January 21, 2014

While there’s a lot to analyze in the 1,888 pages of the Consumer Financial Protection Bureau’s final rule for integrated mortgage disclosures, there are a few things not included from the proposed rule.

First, the proposed rule would have redefined the way the Annual Percentage Rate (APR) is calculated. Under the Proposal, the APR would have encompassed almost all of the up-front costs of the loan.

Specifically, under current TILA requirements, a fee or charge is included in the finance charge if it is payable directly or indirectly by the consumer to whom credit was extended and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. Certain real estate-related fees are excluded from the calculation, including fees for title searches, document preparation, appraisals, credit reports, and notaries.

The CFPB had proposed to remove these exclusions and create an “all-inclusive” finance charge calculation to include nearly all of the up-front costs of the loan. Such a proposal sparked concern among settlement service providers and lenders that an “all-inclusive” finance charge calculation would result in higher APRs, result in more high-cost loans, and cause loans to fail the three-point test under the definitions of qualified mortgage and qualified residential mortgage.

After listening to ALTA and industry concerns, the CFPB’s final rule did not include a proposal that would have included title insurance in the total costs listed on the new mortgage disclosures. ALTA had told the CFPB that an "all-in" APR would not help consumers shop for a mortgage and could limit their settlement choices.

The proposed rule also would have required creditors to keep records of the Loan Estimate and Closing Disclosure forms provided to consumers in an electronic, machine readable format to make it easier for regulators to monitor compliance.

Based on public comments the CFPB received that raised implementation and cost concerns regarding the record keeping proposal, the Bureau did not finalize this provision in the final rule. The Bureau, however, stated that it continues to believe the idea may have benefits for consumers and the industry and intends to continue following up on data standards and electronic record keeping systems.

For example, the Bureau intends to work closely with industry on private data standard initiatives to promote consistency in data transmission and storage. After additional study, the Bureau may propose rules on either or both topics.

The Bureau also decided not to require in the final rule a disclosure item that had been mandated by the Dodd-Frank Act, but that caused confusion at its consumer testing. Specifically, the Dodd-Frank Act requires creditors to disclose, in the case of residential mortgage loans, “the approximate amount of the wholesale rate of funds in connection with the loan.” To implement this requirement, the proposal would have required creditors to disclose the approximate cost of funds used to make a loan on the Closing Disclosure. Based its consumer testing and the comments it received on this proposed disclosure; the Bureau has decided to exempt creditors from the cost of funds disclosure requirement. The Bureau believes this approach will simplify the disclosure forms, making them more effective for consumers and reduce compliance burden. For more information about the final rule, check out ALTA’s blog.

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