TRID 2.0: Determining Accuracy of “Total of Payments”

July 13, 2018
Zillow has announced that the Consumer Financial Protection Bureau (CFPB) will not bring enforcement actions against it following an investigation of its marketing practices over concerns of violating the Real Estate Settlement Procedures Act (RESPA)
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?
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 is Director/Legal & Regulatory Compliance for Lenders Compliance Group.