CFPB Director Richard Cordray downplayed the risk of legalliability for failure to comply with new Know Before You Owe mortgage disclosure rules in a Dec. 29letter to Mortgage Bankers Association President/CEO DavidStevens.

The CFPB chief pointed out that while the KBYO rule integrated TILA/RESPA disclosures, it did not change the prior,fundamental principles of liability under the existing TILA orRESPA laws. Therefore, he continued, according to United StatesCode, the following legal protections apply to non-high-costmortgages:

• There is no general TILA assignee liability unless theviolation is apparent on the face of the disclosure documents andthe assignment is voluntary.
• By statute, TILA limits statutory damages for mortgagedisclosures, in both individual and class actions to failure toprovide a closed-set of disclosures.
• Formatting errors and the like are unlikely to give rise toprivate liability unless the formatting interferes with the clearand conspicuous disclosure of one of the TILA disclosures listed asgiving rise to statutory and class action damages.
• Disclosures that give rise to statutory and class actiondamages do not include either the RESPA disclosures or the newDodd-Frank Act disclosures, including the Total Cash to Close andTotal Interest Percentage.

“While complete and accurate use of the Regulation Z forms isthe ultimate compliance goal, we recognize that a certain level ofminor errors in the early days of implementation is to be expected.As noted above, we, other regulators and the GSEs have publiclystated that we are looking, in these early days, for good faithefforts to come into compliance,” Cordray wrote.

“Moreover, in light of the points made above about the existingprovisions for cure under TILA, the specific cure mechanisms in theKnow Before You Owe mortgage disclosure rule, and the limits ofprivate liability under TILA, we believe that risk of privateliability is negligible for good-faith formatting errors and thelike.”

Download and read the letter here.

“Bi-partisan Congressional calls for a reasonable safe harborwere ignored by the CFPB in the run-up to TRID implementation,”Total Spectrum Partner John McKechnie said. “Now as the expectedproblems with compliance surface, the CFPB is essentially tellingthe mortgage lending community, 'don't worry, nobody will getsued.' Given the hyper-litigious world in which we live, I doubtthat will suffice.”

Cordray also told Stevens in the letter that if investors wereto reject mortgages because they did not precisely conform to thenew regulations, as Stevens reported, they would do so for reasonsunrelated to potential liability.

“Such decisions may be an overreaction to the initialimplementation of the new rule, and our assessment is that theseconcerns will dissipate as the industry gains experience withclosings, loan purchases and examinations,” Cordray wrote.

The HomebuyersAssistance Act, a bill that would provide a safe harborfrom both agency enforcement and private lawsuits forlenders acting in good faith to comply with TRID requirements, passed the House of Representatives Oct. 7.It awaits consideration by the Senate.

Check back with CU Times to read industry reaction toCordray's position. Will it be enough to protect lenders who makeminor compliance errors from being sued?