Last week, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule which would prohibit mandatory arbitration provisions in millions of banking contracts, including contracts with consumers for credit cards and bank accounts. While financial institutions would still be allowed to offer arbitration as an option to customers individually, they would no longer be able to require it be done individually for claims brought as class actions. The intended, and drastic, result of the rule is that consumers would be free to join together in class action suits against their financial institutions for grievances which they had previously only been able to negotiate individually.
In December 2015, the Mortgage Bankers Association wrote to the Consumer Financial Protection Bureau for clarification regarding the implementation of the recent TILA-RESPA Integrated Disclosure (“TRID”) rule. In its letter to the CFPB, the Mortgage Bankers Association expressed concern that third-party due diligence firms are failing a high percentage of loans in the secondary market over minor TRID violations, in part due to uncertainty as to what errors in the Loan Estimate document may be remedied by the Closing Disclosure form.
Director Cordray of the CFPB responded to the Mortgage Bankers Association’s letter, hoping to quell concerns with TRID liability and enforcement. In his response, Cordray first assured the Mortgage Bankers Association that initial assessments of industry compliance with TRID will focus on good faith efforts to comply, rather than technical compliance. Cordray then emphasized the various cure provisions and limits on private liability available under the TRID rule:
- A corrected Closing Disclosure may be used to remedy non-numerical clerical errors or to cure violations of the monetary tolerance limits that were present in the Loan Estimate.
- Just as under TILA, creditors may remedy errors if they inform the borrower of the error and make adjustments prior to borrower discovering the error himself
- Generally, there will be no assignee liability for non-high-cost mortgages unless the error is apparent on the face of the disclosure document
- Formatting errors alone are unlikely to create private liability for non-high-cost mortgages unless the error interferes with one of the TILA disclosures that gives rise to statutory and class action damages (which (according to Cordray) does not include new Dodd-Frank disclosures such as Total Cash to Close and Total Interest Percentage or traditional RESPA disclosures)
Cordray noted that investors who are rejecting loans based on formatting errors are simply overreacting to TRID. Although it is not clear whether Cordray’s letter carries the force of law, his assurances are a good reminder that, while errors will happen, TRID provides many possible cures and limits on liability.
One key point for future litigation may be Cordray’s statement that “liability for statutory and class action damages would be assessed with reference to the final closing disclosures, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.” It appears that the CFPB is likely to look more kindly on lenders that act in good faith in their attempts to comply with the new TRID requirements.