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CFPB Leaves Definition of “Finance Charge” Unchanged . . . For Now

As anticipated, the Consumer Financial Protection Bureau (CFPB) recently issued final rules on November 20, 2013 that provide new forms and disclosure requirements applicable to most consumer, closed-end, real estate-secured loans. The new rules take effect on August 1, 2015, and finalize the CFPB’s proposed rule that was issued on July 9, 2012 (TILA-RESPA Proposal). While the CFPB’s recent final rules will require creditors to make significant changes to their mortgage lending disclosures and systems, the CFPB decided that it would not at this time expand the definition of the term “finance charge” under Regulation Z as proposed in the TILA-RESPA Proposal. As financial institutions (FIs) are aware, the CFPB’s TILA-RESPA Proposal would have redefined the term “finance charge,” to include charges that previously were excluded from “finance charges.” For example, Regulation Z excludes certain fees imposed in connection with real estate loans, such as title examination fees, title insurance premiums, document preparation fees, appraisal fees, and credit report fees from the definition of “finance charge.” The CFPB’s TILA-RESPA Proposal proposed to broaden the definition of “finance charge” to include these fees, which could have resulted in more loans triggering high-cost loan and higher-priced mortgage loan requirements, and potentially reducing the number of loans that would satisfy the “points and fees” requirements for “qualified mortgages.” As a result, the industry and trade associations were very vocal in commenting regarding their concerns as to the CFPB’s proposed changes. Fortunately, the CFPB considered the “several hundred comments” it received regarding its proposed change to the definition of “finance charges” and decided not to revise the definition for the time being. In revisiting this aspect of the TILA-RESPA Proposal, the CFPB appears to have heeded comments from the industry regarding the cost and difficulty of implementing required changes to creditors’ systems and procedures, as well as the need to study the potential effect of the changes before they are implemented. Consequently, the CFPB determined that it needed to further study this issue after all of the changes to mortgage regulations under the Dodd-Frank Act have been implemented and in effect for a meaningful period of time. It seems that although FIs will have to make changes to address a number of pending Dodd-Frank Act regulations that take effect in the near future, the industry’s comments regarding the CFPB’s proposed changes to “finance charges” appear to have had a meaningful impact. That is at least one less change for your FI to worry about in the next year.