CFPB Issues Revised TILA and RESPA Examination Procedures
On November 27, 2013, the Consumer Financial Protection Bureau (CFPB) released updated examination procedures intended to test loan originators’ and servicers’ compliance with the Truth in Lending Act ( TILA Update) and the Real Estate Settlement Procedures Act ( RESPA Update).
This is yet another update to the CFPB's Supervision and Examination Manual (Exam Manual) originally adopted in October 2011. The 924-page Manual describes how the CFPB supervises and examines originators and servicers to determine if companies are complying with consumer financial protection laws. The newly issued TILA and RESPA Updates are not yet a part of the Exam Manual. However, according to the CFPB, they will be incorporated into the Exam Manual at a later date.
The updated examination modules confirm that the CFPB’s primary focus is on appraising the quality of the mortgage companies’ compliance management systems, determining the actual level of compliance, and initiating corrective actions when violations of consumer protection laws or regulations are identified. To highlight a few examples, the CFPB will be examining loan originators and servicers in the following areas:
Key TILA Examination Areas:
- Mortgage companies’ policies and procedures used daily to detect TILA errors and violations promptly: the CFPB examiners’ review will include organizational charts, process flowcharts, policies and procedures, loan documentation and disclosures, checklists, worksheets, and even computer programs.
- Mortgage companies’ internal controls: the CFPB will examine whether steps are taken to follow up on previously identified deficiencies; whether the work performed is accurate; whether significant deficiencies, and the root cause of the deficiencies, are included in reports to management/board; and whether corrective actions are timely and appropriate.
- Record retention practices: the CFPB examiners’ goal is to ensure that mortgage companies retain documentary evidence of compliance for two years for most of the TILA requirements and three years for compliance with the loan originator compensation requirements, ability-to-repay minimum standards, and prepayment penalty restrictions.
- Disclosure Forms: In addition to examining policies, procedures, and actual practices, the CFPB will verify the accuracy of each required disclosure, including initial disclosures, periodic statement disclosures, changes in terms notices, notices of right to rescind/cancel, ARM disclosures, high-cost mortgage disclosures, reverse mortgage disclosures, and others.
Key RESPA Examination Areas:
- Disclosure Forms: the CFPB will review all disclosures and notices required by Regulation X, including the Special Information Booklet, good faith estimate form, Uniform Settlement Statement form, mortgage servicing transfer disclosure forms, and affiliated business arrangement disclosure form for compliance with the requirements of Regulation X.
- Policies, procedures, and internal controls to prevent unlawful kickbacks: the CFPB will seek to uncover any instances of unlawful kickbacks in violation of RESPA by conducting interviews with mortgage lending personnel and by “other appropriate methods.” Specifically, the CFPB’s inquiry will focus on the identity of persons or entities referring mortgage loan business, the nature of services provided by referral sources, and the identity of the settlement service providers used by mortgage companies.
- Close supervision of loan servicing transfers: as stated in its prior bulletin, the CFPB continues to emphasize that it will closely supervise loan servicing transfers. The CFPB’s examiners will be investigating the mortgage companies’ procedures and practices to ensure that all necessary documentation and information concerning mortgage loan files are transferred from or to another financial institution.
The updated TILA and RESPA examination procedures are an important reminder of the CFPB’s vast investigative and enforcement powers. The recent $19 million settlement of the CFPB’s enforcement action against a payday lender further evidences the grave consequences of non-compliance with the CFPB’s rules and regulations. Loan originators and servicers should seek professional advice to ensure compliance with the CFPB’s origination and servicing rules set forth in the Exam Manual and its updates. Please do not hesitate to contact David Anthony, John Lynch, or Maryia Jones if you have questions or would like additional information on compliance with the CFPB’s origination and servicing rules.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities
of the CFPB on its
CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action
litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB. Finally, Troutman Sanders’ White Collar and Government Investigations Practice has represented numerous financial
institutions, officers, directors, and employees in federal and state criminal investigations.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.