NAR Says Consumers Win With Proposed ‘Know Before You Owe’ Rule Changes
John Jordan | August 2016
WASHINGTON— Since the October 2015 implementation of the Consumer Financial Protection Bureau’s “Know Before You Owe” mortgage initiative, Realtors have raised red flags over challenges in gaining access to the mortgage “closing disclosure” form, or CD. The CD is delivered to homebuyers in advance of their closing and contains important financial information related to their purchase.
Unfortunately, many lenders have chosen to withhold this document from real estate agents since “Know Before You Owe” went into effect, despite a longstanding tradition of sharing similar information.
Earlier this year, the Consumer Finance Protection Bureau announced that it was considering changes to Know Before You Owe —also known as the TILA-RESPA Integrated Disclosure, or TRID—including a clarification of the rules regarding sharing the CD.
On July 28th, the CFPB made good on that promise when it announced a proposed rule on TRID, and stated in its announcement that “the Bureau understands that it is usual, accepted and appropriate for creditors and settlement agents to provide a closing disclosure to consumers, sellers and their real estate brokers or other agents.”
The National Association of Realtors believes this announcement marks significant progress for consumers, as well as for its members. Giving Realtors access to the CD would strengthen consumers’ understanding of their mortgage and home purchase by helping agents continue to provide expert advice to their clients.
NAR President Tom Salomone said in a statement, “Realtors have reported challenges gaining access to the Closing Disclosure ever since TRID went into effect, despite a long history of access to the substantively similar HUD-1 that it replaced. Today the CFPB acknowledged that concern by making it clear that it is appropriate and accepted for creditors and settlement agents to share the CD with consumers, sellers and their real estate agents.”
He added, “This is a significant victory that will help Realtors continue to provide the expert service their clients have come to expect. We appreciate the CFPB’s willingness to reconsider the TRID-related challenges our members face and will continue to monitor the progress on this important issue in the months ahead.”
The Mortgage Bankers Association seems to be taking more of a wait and see approach to the proposed new regulations. MBA President and CEO David H. Stevens also released a statement in connection with the Consumer Protection Financial Bureau’s proposed updates to the TILA-RESPA Integrated Disclosure “Know Before You Owe” rule.
Stevens stated, “MBA appreciates the CFPB’s efforts to update and clarify certain aspects of the ‘Know Before You Owe’ rule. This particular regulation has a big impact on both borrowers and lenders, so it’s important that the bureau and stakeholders continually reassess the implementation process to ensure its effectiveness. We look forward to commenting on the rule, and continuing to work with the CFPB to gain further clarity in order to improve this and other rules and regulations.”
The CFPB said in its announcement that the proposals under consideration would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.
Under the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details, and make it easier to dispute the debt. When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred. The bureau’s proposals under consideration would overhaul debt collections from when third-party collectors first examine their portfolios of debt to their last attempts to collect.
“Today we are considering proposals that would drastically overhaul the debt collection market,” said CFPB Director Richard Cordray. “This is about bringing better accuracy and accountability to a market that desperately needs it.”
The outline of the proposals under consideration can be found here:
Debt Collection Protections
Debt collectors are already prohibited by federal law from harassing, oppressing, or abusing consumers. The main law that governs the industry and protects consumers is the 1977 Fair Debt Collection Practices Act. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act revised that law, making the Bureau the first agency with the power to issue substantive rules under the statute.
The proposals under consideration would increase protections pertaining to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers. As part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track. Specifically, the new protections are aimed at ensuring that debt collectors:
Collect the correct debt: Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm they have sufficient information to start collection, such as the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
Limit excessive or disruptive communications: Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. In addition, if a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that. The CFPB is also considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties, like surviving spouses.
Make debt details clear and disputes easy: Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights. They would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit. The proposal under consideration would also add a “tear-off” portion to the notice that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off would also allow consumers to pay the debt. The consumer could also verbally question the debt’s validity at any time, and prompt the collector to have to check its files again.
Document debt on demand for disputes: If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report—written information substantiating the debt—back to the consumer. The collector could not continue to pursue the debt until that report and verification is sent.
Stop collecting or suing for debt without proper documentation: If a consumer disputes—in any way—the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific warning signs that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. Warning signs could include a portfolio with a high rate of disputes or the inability to obtain underlying documents to respond to specific disputes. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court. For example, collectors would have to review evidence of the amount of principal, interest, or fees billed, and the date and amount of each payment made after default.
Stop burying the dispute: If debt collectors transfer debt without responding to disputes, the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outline information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.