CFPB and TRID - What They Mean For You
The formation of the Consumer Financial Protection Bureau (CFPB) and the passage of the TILA-RESPA Integrated Disclosure Rule (TRID) both have their roots in the economic downturn of 2008 and the impact felt on consumers in the housing crisis that followed. However, to understand the purpose of them, we need to go back to the beginning, when Congress first started looking to protect consumers during the lending process.
In 1968, Congress passed the Truth In Lending Act (TILA), which began to standardize the disclosure of costs associated with borrowing. This gave us Regulation Z, which required lenders to issue Good Faith Estimates (GFE) as well as Truth In Lending disclosures to advise borrowers about certain terms and costs of the loan. In 1974, Congress expanded on TILA by passing the Real Estate Settlement Procedures Act (RESPA) and gave oversight of the rule to the U.S. Department of Housing & Urban Development (HUD). HUD then issued Regulation X, which mandated further transparency of consumer’s costs to borrow by introducing the HUD-1 Settlement statement, a full itemization of all costs to all parties associated with a mortgage loan or real estate purchase. Additionally, RESPA implemented strict rules against kickbacks and referral fees which often increased the consumer’s costs unnecessarily.
In 2010, on the heels of the housing crisis, Congress passed Dodd-Frank. CFPB was born and began their dissection of the interactions between the financial services sector and consumers. In 2015, the CFPB issued the TILA-RESPA Integrated Disclosure Rule, which eliminated the Good Faith Estimate, Truth In Lending disclosures and the HUD-1 Settlement statement (in most cases), replacing them with a new Loan Estimate and Closing Disclosure.
The purpose of the CFPB is to be a resource and advocate for consumers trying to navigate through the myriad of financial products and services they will need in their life. The TRID rule is more specific, in that it had a two-fold purpose. First, consolidate several of the important disclosures into a single form (the CD) so that all important terms and costs would be disclosed in a format that was easy to understand for consumers, and second, require that the consumer receive the CD at least three (3) business days prior to settlement so they have adequate time to review the final costs associated with the transaction and, in the case where a mortgage is being obtained, compare the final terms on the CD to those quoted in the original Loan Estimate given at the time they applied for the mortgage.
This second one is very important because it is specifically designed to try to eliminate situations where consumers are surprised at settlement with costs or terms not previously disclosed- whether in error or intentionally omitted. The mandate that borrowers/buyers have three days to review and question the final costs on their real estate transaction, coupled with strict regulations regarding how lenders must account for any differences in costs quoted on the CD when compared to the Loan Estimate, creates a landscape where it is increasingly difficult for predatory lenders or unscrupulous real estate agents and title companies to function.