The CFPB announced on June 17 that it would delay the effective date of the “Know Before You Owe” rule until October 1, 2015. However, the proposed rule issued by the Bureau on June 25 now delays the effective date to Saturday, October 3, in part because it “may allow for smoother implementation by affording industry time over the weekend to launch new systems configurations and to test systems.” This rule, more commonly called the TRID (TILA-RESPA Integrated Disclosure) rule, seeks to provide customers a better understanding of their loan product when purchasing a home, while imposing countless new regulatory requirements upon the mortgage lending industry.
The CFPB announced that the delay was necessary “[b]ecause of an administrative error on the Bureau’s part in complying with the [Congressional Review Act] with respect to the TILA-RESPA Final Rule.” This “administrative error” was a failure to timely file with Congress a two-page form giving official notice of the new rule’s implementation. However, rather than merely delaying the implementation the required two weeks until mid-August, the CFPB extended the implementation until October 3, giving an additional six-week cushion.
The CFPB announced in early June – at which time the effective date for TRID was to be August 1 – that it would allow an informal, undefined “grace period” before commencing TRID enforcement for lenders working in good faith to implement TRID’s requirements. Director Cordray stated in a letter to Congress, “I have spoken with our fellow regulators to clarify that our oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” Now that TRID will not be effective until October, it is unclear whether the CFPB will be less forgiving for good faith errors than it had planned to be when the rule was set to take effect in August. In light of the uncertainty, a bill was introduced in the House of Representatives in May that would prevent litigation and assessment of penalties for TRID violations where the conduct alleged to be in violation occurred prior to January 1, 2016 and there has been a good faith effort to comply with TRID.
The delay in the rule’s implementation, while welcomed by many, has caused difficulty for some institutions. Many lenders were prepared and had programmed their internal systems for an August 1 “go-live” date, and in some cases they must now undertake significant work to reverse course and prepare for an October implementation. For most institutions, however, the delay provides an opportunity for additional employee training, systems testing, and fine-tuning of processes.
Lenders can take advantage of this additional time to make process changes prior to October 1 that will ease the transition. For instance, while the CFPB prohibits early adoption of the rule’s new forms, lenders can begin using the new six-item application standard in advance of the rule’s implementation in order to work out any errors before they become legal violations. Further, lenders can begin sending closing packages earlier to become comfortable with the requirement to provide closing disclosures at least three days prior to consummation. Although the possibilities are limited for early application of the rule’s requirements, dealing now with key changes such as these can allow greater focus on other inevitable glitches that will arise after the rule’s implementation. It can also serve as evidence of good faith compliance to the extent such evidence may be necessary in a future investigation or enforcement proceeding.