Spring-Summer 2018 Federal Highlights

CFPB Issues Final Rule to Address the “Black Hole” and Resetting Fee Tolerances Using Closing Disclosures

The CFPB issued its long-anticipated final rule to address the “black hole” under TRID and when fee tolerances may be reset using a Closing Disclosure (“CD”). The final rule was effective June 1, 2018.

The prior rule restricted a creditor’s ability to reset fee tolerances using a CD. Specifically, the commentary to Regulation Z provided that if there are less than four business days between the time a revised version of the disclosures is required to be provided (i.e. within three business days of receiving information sufficient to establish a reason for revision) and consummation, a creditor may reflect revised disclosures to reset tolerances on the CD. This language limited the ability of a creditor to reset fee tolerances once a CD was provided, particularly if the closing date was delayed.

Under the new rule, the “four-day” restriction referenced above is removed and the process is greatly simplified. The new rule provides that if a creditor uses a revised estimate for purposes of determining good faith (i.e. a revised disclosure is used to reset fee tolerances), the creditor may provide either a revised Loan Estimate (“LE”) or a CD. The revised fees may be set forth on the initial CD or subsequent, revised CDs. The revised LE or CD must be provided within three business days of receiving information sufficient to establish that a change of circumstance, borrower requested change, or other reason for revision has occurred. This means that fee tolerances can be reset using a CD regardless of when the loan is scheduled to close, provided that the revised CD is given timely.

The new rule maintains the existing requirement that an LE cannot be provided after a CD has been provided, and that the consumer must receive any revised LE no later than four business days prior to consummation. The new rule also does not change existing requirements regarding redisclosure of the CD. Under the current rule, a revised CD must be provided if information on the initial CD becomes inaccurate. Depending on the change, the revised CD must be provided at or before consummation, or received by the consumer no later than three business days before consummation. These requirements continue to be in effect. If a CD is used to reset fee tolerances, creditors must consider whether the changed circumstance also triggers a new waiting period and ensure both timing requirements are met.

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