CFPB Issues Interpretive Rule Regarding Waiving TRID and Rescission Waiting Periods Based on COVID-19 and Blog Post on Fair Lending Issues under CARES Act and Relief Programs

The CFPB today, April 29, 2020, issued an interpretive rule to provide some clarification regarding COVID-19 and the TRID and Regulation Z rescission waiting periods.  Although not mentioned in the press release, the interpretive rule also provides a clarification regarding the use of COVID-19 as a “changed circumstance” under the TRID rule’s tolerance requirements.  In addition, on April 27, 2020, the CFPB issued a blog post reminding financial institutions of their responsibility under fair lending laws when providing COVID-19-related financial services or relief to small business owners.  I will briefly discuss both issuances below. 

In addition, considering the CFPB’s fair lending blog post, I wanted to note that I presented a webinar on February 19, 2020 regarding the CFPB’s focus on redlining and marketing discrimination under the Equal Credit Opportunity Act (ECOA) with Karen Cullen of CrossCheck Compliance, LLC (thank you Karen!).  You can find more information and request a copy of the webinar here: https://www.garrishorn.com/webinarcfpbfocusonfairlending. 

I.  TRID and Rescission Waiting Period Interpretive Rule

Specifically, the CFPB’s interpretive rule regarding the TRID and Regulation Z waiting periods clarifies that COVID-19-related financial emergencies can be the basis of a “bona fide personal financial emergency” under TRID and Regulation Z with respect to: (1) the seven-business-day waiting period before closing for the Loan Estimate (LE) under 12 C.F.R. § 1026.19(e)(1)(iii)(B); (2) the three–business-day waiting period before closing for the Closing Disclosure (CD) under 12 C.F.R. §§ 1026.19(f)(1)(ii)(A) and 1026.19(f)(2)(ii); and (3) the three-business-day waiting period after closing for rescission under 12 C.F.R. §§ 1026.15(a) and 1026.23(a).

Although the CFPB’s press release describes this rule as “paving the way” to help consumers to “obtain access to mortgage credit more quickly,” the rule arguably isn’t clearing any regulatory jungle or knocking down any hurdles.  It is a clarification of the existing “bona fide personal financial emergency” waiver provision in the rule.   It does not exempt lenders from the waiver requirements.

Specifically, the rule already provides the ability to waive or modify these waiting periods in the case of “bona fide personal financial emergencies,” and this interpretive rule only clarifies that COVID-19 related financial emergencies can qualify as such an emergency.  It does not say they necessarily do.  There is some real benefit to this though.  The only example of a “bona fide personal financial emergency” that is in the existing rules, and has been from the pre-Dodd-Frank days, is a consumer in foreclosure.  Because it was a horrible example, it meant that almost no lenders or investors were allowing use of this provision.  The TRID rule did not expand the examples of a “bona fide personal financial emergency” in the regulatory text or commentary.  So, there is some benefit to the industry in this clarification, because it essentially provides another, albeit very generalized, example of a “bona fide personal financial emergency.” 

But the interpretive rule doesn’t say that all COVID-19 issues necessarily satisfy this definition, as noted above.  The interpretive rule says that if, "the emergency necessitates” closing or funding before the waiting period, “then the consumer has a bona fide personal financial emergency.”  Thus, it appears the lender is still in a similar boat as before, because it still has an obligation to make sure that there is there is an emergency that creates that necessity.  In addition, the consumer still has to satisfy the requirement in the rule to provide a dated and signed written statement describing the emergency and specifically modifying or waiving the waiting period.  The rule still prohibits lenders from using printed forms for this purpose, which the interpretive rule also reiterates.  The interpretive rule does encourage lenders to inform consumers of this ability to waive these periods though, so that is also something.

There is another piece to this interpretive rule that is not mentioned in the press release, which can also provide some helpful clarity to the industry.  The interpretive rule clarifies that the COVID-19 pandemic can qualify as a “changed circumstance,” which as you know, is one of the valid changes in the rule that allows lenders to increase their estimated closing costs under the TRID rule’s “tolerance” requirements. 

Specifically, the regulatory definition of “changed circumstance” includes an “extraordinary event beyond the control of any interested party,” an example of which is a “natural disaster.”  The CFPB said that COVID-19 can be considered such an event, similar to a natural disaster.  In line with the rule’s requirements regarding using “changed circumstances,” the CFPB qualified their statement regarding COVID-19 to say this ability to the use the pandemic as a “changed circumstance” applies, "if the COVID-19 pandemic has affected the estimate of such settlement charges.”  This is how the rule already works.  A change has to actually cause the increase in the fee for it to be a valid “changed circumstance” for that fee.  Lenders cannot willy-nilly say COVID-19 happened so they’re increasing all of their fees on all of the LEs they already provided. 

Note that the TRID rule and Regulation Z generally still require documentation of compliance, so it may be prudent for lenders to start thinking about how to document the COVID-19-related financial emergencies and “changed circumstances.” 

The press release for the interpretive rule can be accessed here: https://www.consumerfinance.gov/about-us/newsroom/cfpb-paves-way-consumers-facing-financial-emergencies-access-mortgage-credit-quickly/.

II.  CARES Act Fair Lending Blog Post

The CFPB also issued a blog post on April 27, 2020 reminding financial institutions of the applicability of the fair lending laws to their provision of COVID-19-related financial services and relief to small business owners. 

Specifically, the post describes the Paycheck Protection Program under the CARES Act, which as you know, is the loan program for small businesses that is administered by the Small Business Administration.  The CFPB’s post says that, “as small business owners and lenders work together to access the CARES Act options or other loan programs, anti-discrimination laws, such as the federal Equal Credit Opportunity Act, protect business owners from discrimination because of race, color, national origin, sex, and other protected characteristics.” 

In addition, the CFPB’s post provides a list of potential warning signs of lending discrimination, which include:

·      Refusal of available loan or workout option even though you qualify for it based on advertised requirements

·      Offers of credit or workout options with a higher rate or worse terms than the one you applied for, even though you qualify for the lower rate

·      Discouragement from applying for credit by the lender because of a protected characteristic

·      Denial of credit, but are not given a reason why or told how to find out why

·      Negative comments about race, national origin, sex, or other protected statuses

The post also invites small business owners to submit consumer complaints to the CFPB if they believe they’ve been discriminated against. 

Although these examples are described in the context of small business owners, they are equally applicable to the treatment of individual consumers by financial institutions.  For example, they could also apply to the provision of CARES Act forbearance or other private forbearance or mortgage relief programs. 

Of particular note is the inclusion of the example of “discouragement from applying for credit,” because we know that the CFPB has been interested in marketing discrimination and redlining issues.  In a webinar with Karen Cullen of CrossCheck Compliance, LLC that we presented on February 19, 2020, I described the CFPB’s interest in this issue.  Karen and I discussed ways financial institutions can assess and reduce their risk of such a fair lending violation.  You can find more information and request a copy of the webinar here: https://www.garrishorn.com/webinarcfpbfocusonfairlending.

If you would like to discuss any of the issues in the post, please contact me at rich@garrishorn.com.