Compliance Blog

Written by Brandy Bruyere, Regulatory Compliance Counsel

As credit unions work to implement the TILA/RESPA Integrated Disclosures rule, one question that arises is the difference between the tolerances for amounts disclosed under the current RESPA Good Faith Estimate (GFE) and the TILA/RESPA Loan Estimate disclosure. Tolerances restrict increases in closing costs when the disclosed cost of a service is lower than the actual cost. Upon a passing glance, the current and new rules seem very similar, but there are some important differences, most notably for fees subject to a zero tolerance.

Current RESPA GFE—Section 1024.7

First, it is worth taking a moment to review the current rule. The tolerances for fees that are included in the GFE are set forth in 12 C.F.R. 1024.7(e) and different fees are subject to zero tolerance, ten percent tolerance, or no tolerance limit. If the cost of a disclosed service changes at settlement from the GFE disclosure, the credit union cannot require the member to pay additional amounts above the applicable tolerance level. This could leave the credit union paying for the difference in some cases.

Currently, origination charges and transfer taxes are subject to zero tolerance, as are credits or charges for the interest rate and adjusted origination charges after the interest rate has locked. Lender required settlement services where the credit union selects the third-party service provider, services where the member can shop but uses a service provider identified by the credit union, and government recording charges are subject to ten percent tolerance. All other settlement services included on the GFE may change at settlement without a tolerance limitation.

TILA/RESPA Loan Estimate Disclosure—Section 1026.19(e)

The TILA/RESPA Loan Estimate disclosure retains some similarities to the existing GFE in terms of how disclosed fees are grouped together and that there are still three tolerance levels—zero, ten percent, and no tolerance limit. However, TILA/RESPA is stricter in some regards. First, those charges that do not have a tolerance limit must still be based on estimates using the “best information reasonably available.” Also, instead of “all other fees” being subject to no tolerance, the fees that are not specifically subject to the 10% tolerance or no tolerance are subject to zero tolerance. The result is that when the credit union requires a particular service, the member is not permitted to shop for the service, and the fee is paid to an unaffiliated third party, the tolerance is now zero instead of the current ten percent. Here is a chart that compares the current rules to the new rules:

This chart is a generalized overview and is not intended to be a nuanced representation of where all possible fees may fall in the new disclosure effective August 1, 2015. For more detailed information, the Loan Estimate tolerance requirements are explained in detail on pages 35-41 of the CFPB’s Small Entity Compliance Guide and are worth reviewing when working to understand which fees will be subject to what tolerance level. This section of the guide also explains what constitutes a “changed circumstance” that would permit the credit union to issue a new Loan Estimate with different costs.

Bear Bunting. With winter here, Nolan needs to be bundled up before we head out the door every morning. He seems apathetic at best about his bear suit.