CFPB Issues Clarification of Escrows Rule

by: Marissa Aquila Blundell, Esq.

On May 16, 2013, the Consumer Financial Protection Bureau (CFPB) published clarifying and technical amendments to its Escrow Requirements under the Truth in Lending Act (Escrows Rule) which takes effect on June 1, 2013.

With this amendment, the CFPB addresses a problem inadvertently created when it removed language applying ability-to-repay requirements and prepayment penalty restrictions to Higher Priced Mortgage Loan (HPML) transactions from its original location, Regulation Z (Reg Z) Section 35(b). The CFPB did not intend to remove these protections for HPMLs. However, a coverage gap resulted because the CFPB relocated these provisions to Reg Z Section 43 in its Ability-to-Repay Rule (ATR Rule), which is not effective until January 10, 2014. The CFPB has now finalized a temporary provision, new Section 35(e) which will maintain the ability-to-repay requirements and the prepayment penalty restrictions for HPMLs until the similar provision of the ATR Rule take effect on January 10, 2014.

In addition, several of the new mortgage rules effective in January 2014 contain exemptions or special provisions applicable to certain creditors operating in “rural or underserved” areas. Therefore, the CFPB is offering clarification and implementation guidance for use when determining whether a particular area qualifies as “rural” or “underserved”. Specifically, the CFPB clarifies:
  • Creditors are expected to make this determination themselves even though the CFPB will publish an annual list of qualifying counties, which will provide a safe harbor;
  • The meaning of the word “adjacent” entails “physical contiguity” when used in a portion of its definition of “rural”;
  • New counties for which no Urban Influence Code has been assigned will be considered “rural”, if all the land for the new county was taken from counties which were rural under the rule;
  • In defining “underserved” based on HMDA data, the county is considered “underserved” during a given calendar year based on HMDA data for the previous calendar year; therefore, a creditor would rely on the underserved status of a county based on HMDA data from two years previous to the use of this exemption.

The CFPB has also posted a list of rural and underserved communities for use with transactions completed on or after June 1, 2013, and through December 31, 2013. The CFPB plans to update this list when the 2014 data is available.

The TILA Escrow Compliance Guide for Small Entities, published by the CFPB on April 18, 2013, contains additional information to assist the industry in its efforts to comply with the Escrows Rule beginning on June 1, 2013.

About the Author:
Marissa is Senior Vice President and General Counsel at Bankers Advisory, Inc. She can be reached at

  • 781-402-6406

Marissa Blundell, JD, principal, services as CLA Bankers Advisory’s chief operating officer, overseeing all quality control and compliance assessment services. She is a graduate of Skidmore College and New England School of Law. She is admitted to the Massachusetts Bar. Marissa provides compliance training to clients, conducts public training webinars, and speaks at state and regional industry events. She is co-chair of the Massachusetts Mortgage Bankers Association Legislative Committee and is a member of the Mortgage Action Alliance Steering Committee and the national Mortgage Bankers Association's Quality Assurance Committee.

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