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CFPB Issues New Rule Regarding Emergency Flexibility

As financial institutions continue to provide lending services to consumers, the Consumer Financial Protection Bureau (CFPB) issued a rule and an opinion to help facilitate these processes. The documents discuss the utilization of bona fide emergency and regulatory flexibility status to waive certain timing and servicing requirements to expedite the loan process. This document discusses changes to the Truth in Lending Act (TILA) – Regulation Z and the Equal Credit Opportunity Act (ECOA) – Regulation B.

Loan Estimate, Closing Disclosure, and Right of Rescission Notices

On April 28, 2020, the CFPB issued an interpretative rule regarding performance under the TILA-RESPA Integrated Disclosure Rule (TRID) and the Regulation Z right of rescission requirement. Under the TRID Rule, creditors generally must deliver or 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. 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.

Under the TRID Rule and the Regulation Z Rescission Rules, a consumer may modify or waive these waiting periods after receiving the required disclosure. The consumer may waive the waiting periods if the consumer determines that the loan is needed to meet a bona fide personal financial emergency. The consumer must submit a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and contains 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).

This interpretative rule states that borrowers may exercise their ability to request a waiver if the following conditions are satisfied:

  • The consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency
  • The consumer’s “brief statement” describes the emergency that identifies a financial need due to the COVID-19 pandemic
  • 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

Regulation Z doesn’t require that creditors inform consumers of their ability to use these modification and waiver provisions if the consumer has a bona fide financial emergency. However, creditors may consider voluntarily informing consumers with need of these rights, given the current COVID-19 pandemic.

Changed Circumstances

Creditors must reasonably estimate, “in good faith,” the settlement costs associated with the requested loan product and disclose them on the Loan Estimate to the consumer. Regulation Z allows for the revision of certain estimated closing costs due to “changed circumstances.” Changed circumstances are defined as being “an extraordinary event beyond the control” of the lender, such as war or natural disaster. The CFPB states that the COVID-19 pandemic is an extraordinary event, and thus constitutes a changed circumstance. Creditors may revise estimates of previously disclosed settlement costs if the COVID-19 pandemic has affected such settlement cost estimates. The CFPB provides an example of a Loan Estimate quoting an appraisal fee that was previously reasonably market priced, but is now increasing due to the shortage of appraisers due to the COVID-19 pandemic. Lenders must still comply with changed circumstances validation, documentation, and notification requirements.

ECOA Copies of Appraisals/Valuations

On April 29, 2020, the CFPB revised its Mortgage Origination Rules FAQs related to the COVID-19 Emergency to include a specific reminder regarding the distribution of copies of appraisals and valuations. Generally, Equal Credit Opportunity Act (ECOA) § 1002.14(a) requires the creditor provide the applicant for a loan secured a first-lien on a dwelling with a copy of the collateral property valuation. The copy must be provided either upon completion of the appraisal/valuation or within three business days of the loan consummation (closed-end credit) or account opening (open-end credit).

The ECOA Valuation Rule allows an applicant to waive the advance distribution timing requirement through and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. The applicant must communicate the waiver request through an affirmative oral or written statement. The creditor must obtain the waiver no later than three business days prior to consummation or account opening.

A September 14, 2018 CFPB Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency lists the ECOA valuation distribution as an example of regulatory flexibility to be utilized during emergencies. The April 29, 2020 CFPB Mortgage Origination Rules FAQs related to the COVID-19 Emergency addresses that the COVID-19 pandemic merits similar regulatory flexibility measures regarding valuation copy distributions.   

ECOA Notice of Credit Decision

On May 6, 2020, the CFPB issued ECOA and Regulation B FAQs related to the COVID-19. Generally, ECOA § 1002.9 requires the creditor to notify the applicant of action taken on the credit request 30 days after the receipt of a completed application. The § 1002.2 definition of a completed application includes the creditor’s receipt of “any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral.”

Under the Small Business Association (SBA) Paycheck Protection Program (PPP) structure, the creditor submits the loan application to the SBA and delegates its loan approval authority to the SBA. The SBA doesn’t guarantee the loan for the creditor until it issues an SBA PPP loan number. Consequently, the CFPB states that the creditor doesn’t have an ECOA “completed application” until the SBA provides the creditor with either a loan number or a statement about the availability of funds regarding the credit request.

The FAQ reminds creditors that if they “refuses to grant” the SBA PPP loan without having submitted the PPP loan application to the SBA for approval consideration, then the creditor has made the credit decision and is responsible for issuing the appropriate § 1002.9 notification. However, the issue is different if the creditor has submitted the PPP loan application to the SBA, but hasn’t received a corresponding PPP loan number or a statement regarding the availability of funds.

ECOA only allows the creditor to deny a loan application for incompleteness or to issue a notice of incompleteness when the application submission is missing information that the loan applicant can provide, or if the creditor is missing sufficient information so as to make a credit decision. If the creditor’s delay is based on not receiving either a PPP loan number or a response of the availability of funds from the SBA, this information is not within the applicant’s authority or ability to provide. Provided that the PPP loan application was complete when submitted to the SBA for approval, the creditor can’t deny these PPP loan applications due to incompleteness or issue notices of incomplete loan application due to these specific SBA delay circumstances.