The changes made by TRID 2.0 were interesting. On one hand, a few things (like the expiration date of fees for revised loan estimates) made significant changes to the way we have always done things. On the other hand, however, the majority of changes were fairly minor in nature or didn’t seem to affect the majority of financial institutions.
One question we have received a few times relates to the new TRID 2.0 rules for total of payment tolerances. When TRID 2.0 was first announced, this seemed to be one of biggest changes included in the rules. Now that TRID 2.0 is in affect, however, some may be wondering what all of the fuss was about relating to the TRID 2.0 tolerances for total of payments.
Background of Total of Payments Tolerances
To understand the new TRID 2.0 tolerance rules for total of payments, it is important to remember that before TRID, the total of payments requirements requirements were found in Regulation Z and were disclosed on the Truth-in-Lending (TIL) disclosure, rather than being included on the Good Faith Estimate (GFE) under RESPA. This means that we must look to Regulation Z to understand why there is now a need for a new total of payments tolerance.
Traditionally, the accuracy requirements for the total of payments disclosed on the TIL related to the tolerances for accuracy of the finance charge. The main reason for this was that all amounts included in the total of payments were directly affected by the finance change. With the implementation of TRID, however, the CFPB changed the calculation for the total of payments in that they added more costs to the total than just amounts included in the finance charge. These additional costs include disclosure of the sum of principal, interest, mortgage insurance, and loan costs. In other words, TRID 1.0 changed the way the amount of total of payments was calculated.
The preamble to the 2017 TRID amendments explains it this way:
“In the TILA-RESPA Final Rule, the Bureau modified the requirement under TILA section 128(a)(5) to disclose the total of payments as the sum of the amount financed and the finance charge by requiring instead that a creditor disclose the total of payments on the Closing Disclosure as the sum of principal, interest, mortgage insurance, and loan costs.”
No Tolerances for Total of Payments Under TRID 1.0
It appears that the main reason the CFPB added a tolerance threshold to the total of payments in TRID 2.0 was to align the total of payments liability with that of the liability for a finance charge. The challenge with TRID 1.0 was that the finance charge tolerances only applied to the amounts of the total of payments that related to the finance charge rather than all amounts included in the total of payments calculation. This meant that any inaccuracies in the total of payments calculation that were not related to the finance charge subjected a creditor to liability. In other words, TRID 1.0 had a flaw - it did not allow any wiggle room if an error was made related to the new fees added into the calculation of payments. The tolerances related to the finance charge remained the same in TRID 1.0 as they were pre-TRID, but this oversight actually created an additional burden for creditors in relation to the new fees that were included in the total of payments calculation.
The preamble to the 2017 TRID amendments explains it this way:
“The existing finance charge tolerance extends to any disclosure affected by the finance charge, including the total of payments as long as a misdisclosure of the total of payments resulted from a misdisclosure of the finance charge. Conversely, under the current rule, a misdisclosure of the total of payments that does not result from a misdisclosure of the finance charge is not subject to the finance charge tolerances. Because the current rule does not provide for a tolerance for the total of payments, other than to the extent a total of payments misdisclosure results from a misdisclosure of the finance charge, under the current rule, any misdisclosure of the total of payments that does not result from a misdisclosure of the finance charge could potentially subject a creditor to liability.”
TRID 2.0 Total of Payment Tolerances
TRID 2.0 has amended the original TRID 1.0 to now allow a tolerance in calculating the total of payments relating to the non-finance charge fees. The CFPB explains in the preamble to the final rule that the adoption of tolerance for the total of payments offers a new tolerance that applies to the components of the total of payments that were previously not permitted to vary by any amount, even if those components are not finance charges and therefore would not benefit from the existing finance charge tolerance.
In other words, the new total of payments tolerance is not a new tolerance burden, but a relief - from basically a zero tolerance standard - because of the way TRID 1.0 was written.