QUESTION
The 2017 amendments (“TRID 2.0”) to the TILA-RESPA Integrated
Disclosure Rule (“TRID”) include tolerances for the “Total of Payments”
calculation on the Closing Disclosure (“CD”), which mirror the tolerances
applicable to determining the accuracy of the Finance Charge. It is unclear to
me what I should be comparing the “Total of Payments” to in order to determine
accuracy. On the Loan Estimate (“LE”),
the total of payments is based on five years as opposed to amortization over
the life of the loan as it is on the CD. So, for the purpose of calculating
tolerance, should we be running a five year test with respect to the CD and
comparing that calculation to the “In 5 Years” calculation on the LE?
ANSWER
In discussing statutory tolerances for Total of
Payments, you need to distinguish between the 1026.19(e)(3) good faith analysis
for closing costs and the separate and independent statutory tolerances
afforded for the accuracy of the Total of Payments disclosure, similar to those
provided for the Finance Charge calculation. There is no comparison between the
“In 5 Years” section on the LE to the “Total of Payments” section on the CD. In
fact, analyzing the proposed amendment, the Consumer Financial Protection Bureau
(the “Bureau”) noted that the two calculations do not include the same
information, as the information available to the creditor at the time the CD
issues differs from that available at the time the LE issued. [Amendments to Federal Mortgage Disclosure
Requirements Under the Truth in Lending Act, Section by Section Analysis, p.
352] Rather, the tolerances with respect to the Total of Payments relate to the
accuracy of the calculation.
The Bureau revised § 1026.38(o)(1) to specifically provide that “the
disclosed total of payments shall be treated as accurate if the amount
disclosed as the total of payments: (i) is understated by no more than $100; or
(ii) is greater than the amount required to be disclosed”. [Ibid. at 346]
One of the driving forces behind the amendment was
the statutory consequences for misdisclosing the Total of Payments. A
misdisclosure of the Total of Payments can give rise to civil liability which
may result in an award of actual damages, statutory damages (individual and
class action), costs and attorney’s fees. [15 U.S.C. § 1640] Moreover, a
misdisclosure of the Total of Payments can result in an extended right of
rescission, which generally runs for three years after the date of consummation
of the transaction, and if exercised, terminates the creditor’s security
interest in the property and eliminates the consumer’s obligation to pay any
finance charge (even if already accrued) or any other costs incident to the
loan. [Ibid. at 350; See also 12 C.F.R. § 1026.23]
The Truth in Lending Act authorizes the Bureau to
“adopt tolerances necessary to facilitate compliance with the statute, provided
such tolerances are narrow enough to prevent misleading disclosures or
disclosures that circumvent the purposes of the statute”. In its analysis, the
Bureau stated its belief that the Total of Payments accuracy tolerances, which
are identical to the finance charge tolerances, “are sufficiently narrow to
prevent these tolerances from resulting in misleading disclosures or
disclosures that circumvent the purposes of TILA”. [Ibid. at 352-353]
One further note, several trade groups supported
the clarification regarding tolerances for the accuracy of the Total of
Payments disclosure, stating that the approach will “positively impact
secondary market execution by affording investors comfort that minor
inaccuracies do not raise liability concerns”. [Ibid. at 346]
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
