CFPB Publishes TILA Escrow Compliance Guide for Small Entities
by: Marissa Aquila Blundell, Esq.
On April 18, 2013, the Consumer Financial Protection Bureau (CFPB) published a TILA Escrow Compliance Guide for Small Entities, the latest in a series of implementation guides designed to help small creditors comply with new regulations issued in accordance with the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act.
The TILA Escrow Compliance Guide covers the requirement to establish and maintain an escrow account for at least five years, for higher-priced mortgage loans (HPMLs) secured by a first lien on a principal dwelling. In its rule summary, the CFPB emphasizes the limitations on canceling the account. After the five-year mandatory maintenance period has elapsed, creditors may only cancel the account if the consumer requests to cancel the escrow account and two conditions are satisfied:
(i) the unpaid principal balance of the loan is less than 80 percent of the original value of the property and
(ii) the consumer is not delinquent or in default. Exceptions to the general rule exist for properties located in condominiums, planned unit developments, or other “common interest communities”, and for loans held in portfolio by certain creditors in rural or underserved areas.
The CFPB notes responsible creditors are already escrowing as required by Regulation Z, and points out that the universe of affected transactions has decreased in light of the new exception for certain transactions made and held in portfolio by particular creditors. Therefore, according to the CFPB, complying with the extension of a pre-existing required maintenance period of one year to five years is markedly less burdensome because the servicing systems are already in place for such transactions.
The guide also highlights considerations for creditors that seek to utilize the exception to the rule for small creditors serving a rural or underserved community. For example, a two-part test should be utilized to determine whether a creditor is “small”:
(1) the organization, together with its affiliates, cannot originate more than 500 first-lien covered transactions during the previous calendar year, and
(2) the organization must have less than $2 billion in assets, as adjusted annually, as of December 31st of the preceding year. Information related to the additional criteria for the exception to apply, including a test to determine whether an institution “operates predominantly in rural or underserved area” is also provided.
A related note:
On April 12, 2013, prior to its release of the TILA Escrow Compliance Guide, the CFPB proposed to clarify and amend its previously published TILA Escrow rule. This proposal contained a technical amendment to correct an inadvertent coverage gap created between the June 1, 2013 effective date for the escrow rules and the January 10, 2014 effective date for the “Ability to Repay” rule. Additionally, the CFPB clarified that how to determine whether a county is considered “rural or underserved.” Industry comments regarding this proposal must be submitted on or before May 3, 2013.
About the Author:
Marissa Aquila Blundell, Esq. is Senior Vice President and General Counsel at Bankers Advisory, Inc. She can be reached at marissa@bankersadvisory.com
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