Application of Certain Provisions in the TILA-RESPA Integrated Disclosure Rule and Regulation Z Right of Rescission Rules in Light of the COVID-19 Pandemic

Cited as:85 FR 26319
Court:Consumer Financial Protection Bureau
Publication Date:04 May 2020
Record Number:2020-09515
Federal Register, Volume 85 Issue 86 (Monday, May 4, 2020)
[Federal Register Volume 85, Number 86 (Monday, May 4, 2020)]
                [Rules and Regulations]
                [Pages 26319-26321]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-09515]
                ========================================================================
                Rules and Regulations
                 Federal Register
                ________________________________________________________________________
                This section of the FEDERAL REGISTER contains regulatory documents
                having general applicability and legal effect, most of which are keyed
                to and codified in the Code of Federal Regulations, which is published
                under 50 titles pursuant to 44 U.S.C. 1510.
                The Code of Federal Regulations is sold by the Superintendent of Documents.
                ========================================================================
                Federal Register / Vol. 85, No. 86 / Monday, May 4, 2020 / Rules and
                Regulations
                [[Page 26319]]
                BUREAU OF CONSUMER FINANCIAL PROTECTION
                12 CFR Part 1026
                Application of Certain Provisions in the TILA-RESPA Integrated
                Disclosure Rule and Regulation Z Right of Rescission Rules in Light of
                the COVID-19 Pandemic
                AGENCY: Bureau of Consumer Financial Protection.
                ACTION: Interpretive rule.
                -----------------------------------------------------------------------
                SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
                issuing this interpretive rule to provide guidance to creditors and
                other covered persons involved in the mortgage origination process. The
                Bureau understands that the COVID-19 pandemic could pose temporary
                business disruptions and challenges for covered persons that are
                involved in the mortgage origination process, including creditors, loan
                originators, settlement agents, and other parties such as real estate
                appraisers. The Bureau recognizes, furthermore, that consumers may have
                acute needs for proceeds from mortgage transactions as well as
                uncertainty and confusion about the origination process. In recent
                weeks, the Bureau has received a number of questions and requests for
                clarification from stakeholders, including creditors, industry
                representatives, and State regulators, about the application of certain
                provisions in the TILA-RESPA Integrated Disclosure (TRID) Rule and
                Regulation Z's right of rescission rules (Regulation Z Rescission
                Rules) in light of the COVID-19 pandemic. The Bureau concludes in this
                interpretive rule that if a consumer determines that his or her need to
                obtain funds due to the COVID-19 pandemic (1) necessitates consummating
                the credit transaction before the end of the TRID Rule waiting periods
                or (2) must be met before the end of the Regulation Z Rescission Rules
                waiting period, then the consumer has a bona fide personal financial
                emergency that would permit the consumer to utilize the modification
                and waiver provisions, subject to the applicable procedures set forth
                in the TRID Rule and Regulation Z Rescission Rules. The Bureau also
                concludes in this interpretive rule that the COVID-19 pandemic is a
                ``changed circumstance'' for purposes of certain TRID Rule provisions,
                allowing creditors to use revised estimates reflecting changes in
                settlement charges for purposes of determining good faith. This
                interpretive rule will help expedite consumers' access to credit under
                the TRID Rule and Regulation Z Rescission Rules.
                DATES: This interpretive rule is effective on May 4, 2020.
                FOR FURTHER INFORMATION CONTACT: Michael G. Silver, Senior Counsel,
                Office of Regulations, (202) 435-7700, or https://reginquiries.consumerfinance.gov/. If you require this document in an
                alternative electronic format, please contact
                [email protected].
                SUPPLEMENTARY INFORMATION:
                I. Discussion
                A. Background
                 The Bureau recognizes the serious impact the COVID-19 pandemic is
                having on many consumers and on the operations of many entities,
                including those involved in the mortgage origination process, and the
                challenges of this unique and rapidly evolving situation.
                 The Bureau understands that the current crisis is causing temporary
                business disruptions and is creating challenges for some businesses
                involved in the mortgage origination process, including creditors,
                mortgage loan originators, settlement agents, and other parties such as
                real estate appraisers. The difficulties some businesses are facing
                include operational and staffing challenges in processing loan
                applications, estimating mortgage transaction costs, delivering
                disclosures, providing third party services relating to mortgage
                origination, and closing loans. The Bureau understands that these
                difficulties also are affecting some other entities, such as county
                recorders' offices, that provide information relating to the costs of
                mortgage transactions or otherwise play a role in the mortgage
                origination process.
                 The Bureau recognizes, furthermore, that due to the impacts of the
                COVID-19 pandemic, some consumers have an acute need for proceeds from
                mortgage transactions as well as uncertainty or confusion about the
                origination process. Some consumers are seeking to refinance their
                homes quickly to obtain funds to meet financial needs that are due to
                the COVID-19 pandemic.
                 The timely good-faith estimates of mortgage transaction costs under
                the TRID Rule and the disclosures under the Regulation Z Rescission
                Rules along with their corresponding waiting periods, the provisions
                for which are described in more detail in part I.B, facilitate prudent
                consumer decision-making. Providing these estimates and disclosures
                along with their corresponding waiting periods under the general legal
                standards in these rules, however, may result in delay in the
                transactions of some consumers seeking to respond to emergency
                conditions. However, the TRID Rule and Regulation Z Rescission Rules
                include provisions intended to provide regulatory flexibility in
                certain circumstances. This interpretive rule is intended to spotlight
                and clarify these provisions for consumers and mortgage origination
                businesses so that they can take advantage of these provisions during
                the COVID-19 pandemic.
                 The TRID Rule (which is codified in Regulation Z) and the
                Regulation Z Rescission Rules implement the Truth in Lending Act
                (TILA).\1\ The TRID Rule imposes certain disclosure requirements and
                waiting periods related to mortgage transactions.\2\ The Regulation Z
                Rescission Rules provide consumers with the right to rescind certain
                credit transactions secured by their principal dwelling.\3\ The
                Regulation Z Rescission Rules also impose waiting periods.
                ---------------------------------------------------------------------------
                 \1\ 12 U.S.C. 1601 et seq.
                 \2\ See 12 CFR 1026.19(e) and (f).
                 \3\ See 12 CFR 1026.15, 1026.23.
                ---------------------------------------------------------------------------
                 In recent weeks, the Bureau has received a number of questions and
                requests for clarification from stakeholders, including creditors,
                industry representatives, and State regulators, about these provisions
                and their application in light of the COVID-19 pandemic. Given the
                challenges posed by the current crisis, the Bureau is issuing this
                interpretive rule to
                [[Page 26320]]
                provide guidance to covered persons that must comply with the TRID Rule
                or the Regulation Z Rescission Rules. The Bureau continues to seek
                stakeholder feedback and evaluate whether the Bureau should provide any
                additional guidance about the application of the laws and regulations
                under the Bureau's purview pertaining to the mortgage origination
                process in light of the COVID-19 pandemic.
                B. Specific Guidance Regarding the TRID Rule and the Regulation Z
                Rescission Rules in Light of the COVID-19 Pandemic
                1. Bona Fide Personal Financial Emergency
                 Under the TRID Rule, creditors generally must deliver or place in
                the mail the Loan Estimate to consumers no later than seven business
                days before consummation and consumers must receive the Closing
                Disclosure no later than three business days before consummation.\4\
                The Regulation Z Rescission Rules also provide consumers with at least
                three business days from consummation to rescind certain credit
                obligations secured by the consumer's principal dwelling, and creditors
                are required to provide consumers with a disclosure informing them of
                this rescission right.\5\ Under the TRID Rule and the Regulation Z
                Rescission Rules, however, after receiving the required disclosure(s),
                a consumer may modify or waive these waiting periods if the consumer
                determines that he or she needs credit extended to meet a bona fide
                personal financial emergency.\6\ For the waiting periods to be modified
                or waived, the creditor must have a dated written statement by the
                consumer that: (1) Describes the emergency, (2) specifically modifies
                or waives the waiting period, and (3) bears the signature of all
                consumers who are primarily liable on the legal obligation (for the
                TRID Rule) or who are entitled to rescind (for the Regulation Z
                Rescission Rules).\7\ Commentary to the TRID Rule modification and
                waiver provisions clarifies that ``[t]he consumer must have a bona fide
                personal financial emergency that necessitates consummating the credit
                transaction before the end of the waiting period.'' The commentary also
                clarifies that whether these conditions are met is determined by the
                facts or circumstances of individual situations, and provides one
                example.\8\ Commentary to the Regulation Z Rescission Rules waiver
                provision similarly clarifies that for a consumer to waive the
                rescission waiting period, ``the consumer must have a bona fide
                personal financial emergency that must be met before the end of the
                rescission period.'' \9\
                ---------------------------------------------------------------------------
                 \4\ 12 CFR 1026.19(e)(1)(iii)(B), 1026.19(f)(1)(ii)(A). Section
                1026.19(f)(2)(ii) also provides for a corrected Closing Disclosure
                and additional three-day waiting period if certain changes are made
                before consummation, which is subject to the TRID Rule modification
                and waiver provisions described below. 12 CFR 1026.19(f)(2)(ii).
                 \5\ 12 CFR 1026.15(a), 1026.23(a). These Regulation Z provisions
                implement the statutory rescission right provisions in TILA section
                125. See 12 U.S.C. 1635. The rescission right generally applies to
                refinancings and other non-purchase credit transactions (subject to
                certain limitations), but not to residential mortgage transactions
                (i.e., where a security interest is created or retained in the
                consumer's principal dwelling to finance the acquisition or initial
                construction of that dwelling, as defined in Sec. 1026.2(a)(24)).
                See 12 CFR 1026.23(f). See also 12 CFR 1026.15(f).
                 \6\ 12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12
                CFR 1026.23(e). See also 12 CFR 1026.19(a)(3). The modification and
                waiver provisions in the TRID Rule and the Regulation Z Rescission
                Rules implement the statutory provisions in TILA sections
                128(b)(2)(F) and 125(d). See 12 U.S.C. 1638(b)(2)(F), 12 U.S.C.
                1635(d).
                 \7\ 12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12
                CFR 1026.23(e). See also 12 CFR 1026.19(a)(3).
                 \8\ See comments 19(e)(1)(v)-1, 19(f)(1)(iv)-1 (``The imminent
                sale of the consumer's home at foreclosure, where the foreclosure
                sale will proceed unless loan proceeds are made available to the
                consumer during the waiting period, is one example of a bona fide
                personal financial emergency.''); see also comment 19(a)(3)-1.
                 \9\ Comment 23(e)-1. Comment 23(e)-2 also clarifies that, ``To
                waive or modify the right to rescind, the consumer must give a
                written statement that specifically waives or modifies the right,
                and also includes a brief description of the emergency.'' Unlike the
                TRID Rule, the commentary to 12 CFR 1026.23(e) does not include any
                examples of what circumstances constitute a bona fide personal
                financial emergency. See also comment 15(e)-2.
                ---------------------------------------------------------------------------
                 On September 14, 2018, the Bureau issued its ``Statement on
                Supervisory Practices Regarding Financial Institutions and Consumers
                Affected by a Major Disaster or Emergency'' (2018 Supervisory
                Statement). The 2018 Supervisory Statement explained that Regulation Z
                provides that consumers may waive or modify the timing requirements
                described above if necessary to meet a bona fide personal financial
                emergency and that this ``regulatory flexibility can help expedite
                access to credit for consumers facing a bona fide personal financial
                emergency following a major disaster or emergency.'' \10\
                ---------------------------------------------------------------------------
                 \10\ Bureau of Consumer Financial Protection, ``Statement on
                Supervisory Practices Regarding Financial Institutions and Consumers
                Affected by a Major Disaster or Emergency,'' Sept. 14, 2018,
                available at: https://files.consumerfinance.gov/f/documents/bcfp_statement-on-supervisory-practices_disaster-emergency.pdf.
                ---------------------------------------------------------------------------
                 The Bureau recognizes that a consumer's need to obtain funds due to
                the COVID-19 pandemic can similarly create a bona fide personal
                financial emergency. The Bureau is responding to stakeholders'
                questions and requests for clarification about the applicability of
                these provisions during the COVID-19 pandemic. The Bureau has
                determined to issue this interpretive rule to provide general guidance
                to stakeholders and other members of the public. Accordingly, the
                Bureau is clarifying that (1) if a consumer determines that the
                extension of credit is needed to meet a bona fide personal financial
                emergency, (2) the consumer's brief statement describing the emergency
                identifies a financial need that is due to the COVID-19 pandemic, and
                (3) the emergency necessitates consummating the credit transaction
                before the end of an applicable TRID Rule waiting period or must be met
                before the end of the Regulation Z Rescission Rules waiting period,
                then the consumer has a bona fide personal financial emergency that
                would permit the consumer to utilize the modification and waiver
                provisions, subject to the applicable procedures set forth in the TRID
                Rule and the Regulation Z Rescission Rules.\11\
                ---------------------------------------------------------------------------
                 \11\ Neither the TRID Rule nor the Regulation Z Rescission Rules
                modification and waiver provisions permit creditors to use printed
                forms for consumers to agree to such modifications or waivers. See
                12 CFR 1026.15(e); 1026.19(e)(1)(v) and (f)(1)(iv); 12 CFR
                1026.23(e). The Bureau notes that this prohibition also applies to
                disclosures delivered in compliance with the Electronic Signatures
                in Global and National Commerce Act (15 U.S.C. 7001 et seq.). For
                example, the creditor cannot include a pre-populated waiver form
                within a batch of electronic disclosures provided to the consumer
                under the TRID Rule, Regulation Z, and other regulations.
                ---------------------------------------------------------------------------
                 Regulation Z does not mandate that creditors inform consumers of
                their ability to use the modification and waiver provisions in the TRID
                Rule or the Regulation Z Rescission Rules if the consumer has a bona
                fide financial emergency. Some consumers may be unaware that these
                provisions may be available to them. Thus, the Bureau encourages
                creditors to consider voluntarily informing consumers during the COVID-
                19 pandemic of their ability to utilize the modification and waiver
                provisions for bona fide personal financial emergencies if the consumer
                has a need to obtain funds due to the COVID-19 pandemic prior to the
                end of an applicable waiting period.
                2. Changed Circumstances
                 Under the TRID Rule, creditors \12\ must estimate in good faith the
                costs that consumers will incur in connection
                [[Page 26321]]
                with their mortgage transaction and disclose them on the Loan
                Estimate.\13\ For purposes of determining good faith under the TRID
                Rule, creditors may use revised estimates of such costs in a limited
                number of situations pursuant to Regulation Z, Sec.
                1026.19(e)(3)(iv).\14\ One such situation is if there are ``changed
                circumstances'' that affect the settlement charges consumers would
                incur.\15\ The TRID Rule specifies that changed circumstances includes
                ``an extraordinary event beyond the control of any interested party,''
                with the commentary to the TRID Rule clarifying that a ``war or natural
                disaster'' is an example of such an extraordinary event.\16\
                ---------------------------------------------------------------------------
                 \12\ The TRID Rule also permits mortgage brokers to provide the
                Loan Estimate, but the creditor remains responsible for satisfaction
                of the requirements under Sec. 1026.19(e). See 12 CFR
                1026.19(e)(1)(ii).
                 \13\ 12 CFR 1026.19(e)(3). As a general rule, an estimated
                closing cost disclosed on the Loan Estimate pursuant to Sec.
                1026.19(e)(1)(i) is in good faith if the charge paid by or imposed
                on the consumer does not exceed the amount originally disclosed. 12
                CFR 1026.19(e)(3)(i). For certain categories of settlement charges,
                good faith is determined with reference to whether: (1) The
                aggregate amount of certain charges paid by or imposed on the
                consumer does not exceed the aggregate amount of those charges
                disclosed pursuant to Sec. 1026.19(e)(1)(i) by more than 10 percent
                (see 12 CFR 1026.19(e)(3)(ii)(A)); or (2) the charge was estimated
                consistent with the best information reasonably available at the
                time it was disclosed, regardless of whether the final amount
                exceeds the estimated amount (see 12 CFR 1026.19(e)(3)(iii)).
                 \14\ 12 CFR 1026.19(e)(3)(iv); 12 CFR 1026.19(e)(4)(i). Under
                Sec. 1026.19(e)(4)(i), the revised estimates must be reflected on a
                revised version of the Loan Estimate, on the Closing Disclosure, or
                on a corrected Closing Disclosure.
                 \15\ 12 CFR 1026.19(e)(3)(iv)(A).
                 \16\ 12 CFR 1026.19(e)(3)(iv)(A)(1); comment 19(e)(3)(iv)(A)-2.
                ---------------------------------------------------------------------------
                 Economic disruptions and shortages during the COVID-19 pandemic may
                affect the ability of stakeholders to provide accurate estimates of
                some settlement charges. Stakeholders have sought guidance from the
                Bureau as to whether the COVID-19 pandemic is an extraordinary event
                that permits creditors to provide consumers with revised estimates
                reflecting changes in settlement charges. For example, a stakeholder
                asked to clarify whether, for purposes of establishing good faith, a
                creditor could provide a revised estimate of the appraisal fee based on
                changed circumstances where (1) the amount disclosed on the Loan
                Estimate was based on a reasonable market price at the time of the
                estimate and (2) the actual appraisal fee was higher because of a
                shortage of available appraisers due to the effects of the COVID-19
                pandemic. Upon consideration of the interpretive issues, the Bureau
                concludes that, as with wars or natural disasters, the COVID-19
                pandemic is an example of an extraordinary event beyond the control of
                any interested party, and thus is a changed circumstance. Accordingly,
                for purposes of determining good faith, creditors may use revised
                estimates of settlement charges that consumers would incur in
                connection with the mortgage transaction if the COVID-19 pandemic has
                affected the estimate of such settlement charges.\17\
                ---------------------------------------------------------------------------
                 \17\ See id.; 12 CFR 1026.19(e)(4)(i). As noted above, the
                revised estimates must be reflected on a revised version of the Loan
                Estimate, on the Closing Disclosure, or on a corrected Closing
                Disclosure. 12 CFR 1026.19(e)(4)(i). See also 12 CFR 1024.2(b)
                (definition of ``Changed circumstances'' in Regulation X, which
                predates the TRID Rule changed circumstance definition, includes
                ``Acts of God, war, disaster, or other emergency'').
                ---------------------------------------------------------------------------
                3. Legal Authority and TILA Safe Harbor Provisions
                 The Bureau is issuing this interpretive rule based on its authority
                to interpret TILA and Regulation Z, including under section 1022(b)(1)
                of the Dodd-Frank Act, which authorizes guidance as may be necessary or
                appropriate to enable the Bureau to administer and carry out the
                purposes and objectives of the Federal consumer financial laws.\18\
                ---------------------------------------------------------------------------
                 \18\ 12 U.S.C. 5512(b)(1). The relevant provisions of TILA and
                Regulation Z form part of Federal consumer financial law. See 12
                U.S.C. 5481(12)(O), (14).
                ---------------------------------------------------------------------------
                 By operation of TILA section 130(f), no provision of TILA sections
                108(b), 108(c), 108(e), 112, or 130 imposing any liability applies to
                any act done or omitted in good faith in conformity with this
                interpretive rule, notwithstanding that after such act or omission has
                occurred, this interpretive rule is amended, rescinded, or determined
                by judicial or other authority to be invalid for any reason.\19\
                ---------------------------------------------------------------------------
                 \19\ 15 U.S.C. 1640(f).
                ---------------------------------------------------------------------------
                II. Effective Date
                 Because this rule is solely interpretive, it is not subject to the
                30-day delayed effective date for substantive rules under section
                553(d) of the Administrative Procedure Act.\20\ Therefore, this rule is
                effective on May 4, 2020, the same date that it is published in the
                Federal Register.
                ---------------------------------------------------------------------------
                 \20\ 5 U.S.C. 553(d).
                ---------------------------------------------------------------------------
                III. Regulatory Requirements
                 This rule articulates the Bureau's interpretation of Regulation Z
                and TILA. As an interpretive rule, it is exempt from the notice-and-
                comment rulemaking requirements of the Administrative Procedure
                Act.\21\ Because no notice of proposed rulemaking is required, the
                Regulatory Flexibility Act does not require an initial or final
                regulatory flexibility analysis.\22\
                ---------------------------------------------------------------------------
                 \21\ 5 U.S.C. 553(b).
                 \22\ 5 U.S.C. 603(a), 604(a).
                ---------------------------------------------------------------------------
                 The Bureau has determined that this interpretive rule does not
                impose any new or revise any existing recordkeeping, reporting, or
                disclosure requirements on covered entities or members of the public
                that would be collections of information requiring OMB approval under
                the Paperwork Reduction Act.\23\
                ---------------------------------------------------------------------------
                 \23\ 44 U.S.C. 3501 et seq.
                ---------------------------------------------------------------------------
                IV. Congressional Review Act
                 Pursuant to the Congressional Review Act,\24\ the Bureau will
                submit a report containing this interpretive rule and other required
                information to the United States Senate, the United States House of
                Representatives, and the Comptroller General of the United States prior
                to the rule's published effective date. The Office of Information and
                Regulatory Affairs has designated this interpretive rule as not a
                ``major rule'' as defined by 5 U.S.C. 804(2).
                ---------------------------------------------------------------------------
                 \24\ 5 U.S.C. 801 et seq.
                ---------------------------------------------------------------------------
                V. Signing Authority
                 The Director of the Bureau, having reviewed and approved this
                document, is delegating the authority to electronically sign this
                document to Laura Galban, a Bureau Federal Register Liaison, for
                purposes of publication in the Federal Register.
                 Dated: April 29, 2020.
                Laura Galban,
                Federal Register Liaison, Bureau of Consumer Financial Protection.
                [FR Doc. 2020-09515 Filed 5-1-20; 8:45 am]
                BILLING CODE 4810-AM-P