Compliance Blog

Written by JiJi Bahhur, Director of Regulatory Compliance

As part of our continued TILA/RESPA blog series, I’d like to take a look at when a credit union must provide a consumer with a corrected Closing Disclosure pre-consummation.  I stress the word pre-consummation because there are also instances post-consummation that require the credit union to reissue a Closing Disclosure; however, those instances will be discussed in a later blog.

Once the Closing Disclosure has been provided to the consumer, if the actual terms or cost of the transaction change and cause the disclosures to become inaccurate prior to consummation, re-disclosure is required. Depending on the type of change involved, a new three business day waiting period may also be required.  

Changes Before Consummation that Require a New Waiting Period

Under new section 1026.19(f)(2)(ii), which goes into effect on August 1, 2015, there are three types of changes that require a creditor to provide corrected disclosures and require a new three business day waiting period. These changes are:

1. The annual percentage rate (APR) previously disclosed becomes inaccurate. If the disclosed APR, which is determined in accordance with section 1026.22, becomes inaccurate, the creditor must provide the consumer with a corrected Closing Disclosure that reflects the corrected APR and all other terms that have changed.
2. The loan product changes.  If the loan product is changed, causing information previously disclosed about the loan product to become inaccurate, the creditor must provide a corrected Closing Disclosure that reflects the corrected loan product and all other terms that have changed.
3. A prepayment penalty is added.  If a prepayment penalty is added, causing the statement about the prepayment penalty to become inaccurate, a corrected Closing Disclosure must be provided disclosing the prepayment penalty and all other terms that have changed.

In any of the above instances, the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation. For some examples of changes that would require a new waiting period, take a look at the CFPB’s commentary to new section 1026.19(f)(2)(ii).

As with the Closing Disclosure generally, a consumer may modify or waive the three business day waiting period if the consumer has a “bona fide personal financial emergency” that necessitates consummating the transaction before the end of the waiting period.  Applicable commentary uses “imminent sale of the consumer’s home at foreclosure, when the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period,” as an example of a bona fide personal financial emergency.

Changes Before Consummation that Do Not Require a New Waiting Period

For changes unrelated to the APR, loan product or the addition of a prepayment penalty, new section 1026.19(f)(2)(i) requires a creditor to provide the consumer with a corrected Closing Disclosure reflecting any changed terms at or before consummation, but does not require a new waiting period.  For an example, take a look at the CFPB’s commentary to new section 1026.19(f)(2)(iii).

Even in instances where no new waiting period is required, it should be noted that a consumer has the right to inspect the Closing Disclosure during the business day before consummation.  If the consumer asks to inspect the Closing Disclosure on the business day before consummation, the disclosure provided for inspection must reflect any adjustment to the costs or terms that are known to the creditor at the time the consumer inspects the disclosure.

For more detail on corrected Closing Disclosures, take a look at the January 2015 issue of NAFCU’s Compliance Monitor (NAFCU log-in required).  Also, as I mentioned earlier, we will take a look at other situations, including changes that occur after consummation that can trigger the need to provide a corrected Closing Disclosure, in a future blog post.