On April 28 the Consumer Financial Protection Bureau (CFPB) released an Interpretative Rule that concludes that a consumer has a “bona fide personal financial emergency” if the consumer determines that his or her need to obtain funds due to the COVID-19 pandemic
- Necessitates consummating the credit transaction before the end of the TRID Rule waiting periods or
- Must be met before the end of the Regulation Z Rescission Rules waiting period.
Under such circumstances the Rule permits the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and Regulation Z Rescission Rules.
Also, the CFPB concluded that the COVID-19 pandemic is a “changed circumstance” for purposes of certain TRID Rule provisions, allowing creditors to use revised estimates reflecting changes in settlement charges for purposes of determining good faith. This interpretive rule will help expedite consumers’ access to credit under the TRID Rule and Regulation Z Rescission Rules.
TRID Waiting Periods
Under the TRID Rule, creditors generally must deliver or place in the 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.
Rescission Rules Waiting Period
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.
Waiver of the Waiting Periods
Under the TRID Rule and the Rescission Rules, however, after receiving the required disclosure(s), a consumer may modify or waive these waiting periods if the consumer determines that he or she needs credit extended to meet a bona fide personal financial emergency. For the waiting periods to be modified or waived, the creditor must have a dated written statement by the consumer that:
- Describes the emergency;
- Specifically modifies or waives the waiting period; and
- Bears 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 Rescission Rules).
On September 14, 2018, the CFPB issued its “Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency” (2018 Supervisory Statement). The 2018 Supervisory Statement explained that Regulation Z provides that consumers may waive or modify the timing requirements described above if necessary to meet a bona fide personal financial emergency and that this “regulatory flexibility can help expedite access to credit for consumers facing a bona fide personal financial emergency following a major disaster or emergency.”
The CFPB recognizes that a consumer’s need to obtain funds due to the COVID-19 pandemic can similarly create a bona fide personal financial emergency. The CFPB is clarifying that the consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and the Rescission Rules if:
- A consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency;
- The consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic; and
- 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 Rescission Rules waiting period.
Regulation Z does not mandate that creditors inform consumers of their ability to use the modification and waiver provisions in the TRID Rule or the Rescission Rules if the consumer has a bona fide financial emergency. The CFPB encourages creditors to consider voluntarily informing consumers during the COVID-19 pandemic of their ability to utilize the modification and waiver provisions for bona fide personal financial emergencies if the consumer has a need to obtain funds due to the COVID-19 pandemic prior to the end of an applicable waiting period.
TRID Changed Circumstances
Under the TRID Rule, creditors must estimate in good faith the costs that consumers will incur in connection with their mortgage transaction and disclose them on the Loan Estimate and/or the Closing Disclosures. For purposes of determining good faith under the TRID Rule, creditors may use revised estimates of such costs in a limited number of situations pursuant to Regulation Z, § 1026.19(e)(3)(iv). One such situation is if there are “changed circumstances” that affect the settlement charges consumers would incur.
The TRID Rule specifies that changed circumstances includes “an extraordinary event beyond the control of any interested party,” with the commentary to the TRID Rule clarifying that a “war or natural disaster” is an example of such an extraordinary event. Economic disruptions and shortages during the COVID-19 pandemic may affect the ability of stakeholders to provide accurate estimates of some settlement charges. The CFPB concludes that, as with wars or natural disasters, the COVID-19 pandemic is an example of an extraordinary event beyond the control of any interested party, and thus is a changed circumstance.
Accordingly, for purposes of determining good faith, creditors may use revised estimates of settlement charges that consumers would incur in connection with the mortgage transaction if the COVID-19 pandemic has affected the estimate of such settlement charges. For example, a creditor could provide a revised estimate of the appraisal fee based on changed circumstances where:
- The amount disclosed on the Loan Estimate was based on a reasonable market price at the time of the estimate; and
- The actual appraisal fee was higher because of a shortage of available appraisers due to the effects of the COVID-19 pandemic.
The Interpretive Rule is effective upon publication in the Federal Register, which is expected soon.