Dealing with Closing Disclosure Errors Post-Consummation
Credit unions just want to get it right. In terms of getting it right, there may be no greater frustration than getting to the end of a real estate closing, and then discovering an error in the Closing Disclosure after consummation has taken place. The TRID rule is full of flaming hoops to jump through and mud pits to leap over: there's nothing like getting to the end, turning around feeling victorious, and realizing out you left a shoe on the course and that's a technical violation. So, I'm going to walk through some decision points and considerations for credit unions who find themselves staring at an error in a Closing Disclosure for a file that has already been consummated.
The Standard for a Closing Disclosure
It's important to understand that TRID requires a Closing Disclosure to reflect the actual terms of the transaction and the actual costs associated with settlement. See, 12 C.F.R. § 1026.19(f)(1)(i). Unlike with the Loan Estimate, a Closing Disclosure can be revised as necessary before consummation to satisfy the regulation without having to meet any particular circumstantial requirements. The revised Closing Disclosure must simply be provided in the timeframes set out in paragraph 19(f)(1)(ii) and 19(f)(2). However, once consummation has come and gone, a credit union's options begin to narrow quickly.
Inaccuracy Due to Post-Consummation Events Occurring Within 30 Days
If an event occurs within 30 days after the consummation date, and that event causes the Closing Disclosure to become inaccurate in a way that results in a change to an amount actually paid by the consumer, the credit union can mail a corrected Closing Disclosure to the borrower. See, 12 C.F.R. § 1026.19(f)(2)(iii). The Bureau did not want credit unions reissuing Closing Disclosures due to every post-consummation event that could occur. It felt borrowers would only benefit from a corrected disclosure if it changes a charge imposed on the borrower. The corrected Closing Disclosure should reflect that actual terms of the transaction and the actual costs associated with the settlement. It must be mailed no later than 30 days after the credit union discovered the event had occurred. Credit unions are not required to issue corrected Closing Disclosures for terms which changed due to post-consummation event where charges paid by the borrower were not affected. It is important to note that a change resulting from a post-consummation event is different than discovering an error which was not correct at the time of consummation.
Inaccuracy Due to Clerical Errors
If the credit union discovers that a clerical error was made on the Closing Disclosure, it can correct that error post-consummation only if the error was non-numerical. See, 12 C.F.R. § 1026.19(f)(2)(iv). A non-numerical clerical error is an error that does not affect a numerical disclosure and does not affect requirements imposed by paragraphs 19(e) and 19(f). The commentary cites listing the wrong service provider as a correctable, non-numerical clerical error. It cites an incorrect address as a non-correctable error. 12 C.F.R. Part, 1026, Supp. I, comment 19(f)(2)(iv)-1. This is a very narrowly-drawn provision for curing a specific kind of error.
Other Kinds of Errors
So what if you discover an error that is numerical? Or is non-numerical, but affects a requirement in paragraphs 19(e) or 19(f)? The answer is: it's an incurable violation.
Steady yourselves, compliance officers. Not all violations are created equal. It may be a technical, incurable violation or it might be substantive. NAFCU has repeatedly asked the Bureau to provide additional avenues to cure these issues; after all, credit unions just want to get it right. However the Bureau has demurred. In the TRID preamble, the Bureau stated that it did not want to offer further regulatory provisions on curing errors, because it did not want to affect that statutory liability provision in the Truth in Lending Act itself. So that is where credit unions must go to determine next steps.
The Truth In Lending Act's Correction of Errors Provision
So TRID will not tell you how to correct all possible errors. If the credit union discovers an error post-consummation and it does not fit one of the categories addressed in paragraph 19(f)(2), credit unions can look to the Truth in Lending Act (TILA) itself. The Act is codified at 15 U.S.C. § 1601 et seq. Paragraph (b) in section 1640 discusses how creditors can correct errors in order to avoid any civil liability in connection with the error.
"(b) Correction of errors
A creditor or assignee has no liability under this section or section 1607 of this title or section 1611 of this title for any failure to comply with any requirement imposed under this part or part E of this subchapter, if within sixty days after discovering an error, whether pursuant to a final written examination report or notice issued under section 1607(e)(1) of this title or through the creditor's or assignee's own procedures, and prior to the institution of an action under this section or the receipt of written notice of the error from the obligor, the creditor or assignee notifies the person concerned of the error and makes whatever adjustments in the appropriate account are necessary to assure that the person will not be required to pay an amount in excess of the charge actually disclosed, or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower." 15 U.S.C. § 1640(b) (emphasis added).
In other words, the credit can avoid any civil liability if it catches its own errors, and then notifies the member of the error and ensures they did not pay more than what was disclosed. Credit unions must provide this notice within 60 days of identifying the error.
Credit unions may wish to establish a policy as to when corrected Closing Disclosures will be issued to take advantage of the error correction provisions in TILA. Because such a correction only avoids liability for a violation, rather than actually curing the violation itself, it may not always make sense to spend funds and staff time on issuing corrected Closing Disclosures under this provision, as not all errors may create liability to begin with. Local counsel can assist credit unions in making these determinations.
Elizabeth M. Young LaBerge,