Among the many changes in TRID 2.0 - which went into effect on October 1, 2018 - the CFPB has provided a few changes in relationship to the written provider list. The final amendments to the written provider list are significantly better than what the CFPB originally proposed and provide creditors with guidance on how to deal with circumstances where a creditor did not provide the written list of providers or failed to disclose a required service on the list. The changes, however, can be quite confusing upon initial review. Therefore, it is important for each financial institution to fully understand the TRID 2.0 changes that relate to the written list of service providers.
Background Requirements for the Written List of Providers
When a creditor requires a specific settlement service, but does not require the use of a specific provider, creditors are supposed to give a list of preferred providers to the applicant - known as the written list of providers - which provides at least one provider for the service being required. The way this works is that if the customer chooses the creditor’s recommended provider, the consumer has some protection of costs as the quoted fees are only permitted to increase by a minimal amount (10% in aggregate with all other fees in the 10% bucket). If a borrower decides to use a provider that is not on the list, however, they do not get a protection of the closing costs associated with the unrelated third party.
For example, assume a lender requires lender’s title insurance and includes ABC Title on their written list of providers and also includes a quote of their costs on the Loan Estimate. If a borrower uses ABC Title, the actual costs of the title insurance cannot increase by more than 10% (in aggregate with all other fees in the 10% category) when compared to the fees quoted on the Loan Estimate. If, however, a borrower chooses to use a prestigious title company from New York City and their fees are ten times greater than what was quoted on the Loan Estimate, the consumer is completely responsible for the increase in fees.
The challenge under TRID 1.0 was that the guidance was not clear in instances where either 1) the written list of providers was not given to a consumer or 2) in instances where a creditor failed to include a required settlement service on the service provider list. In these cases, most in the industry assumed that creditors would have to cover the costs of any settlement services they required but did not disclose.
Written List of Service Providers Under TRID 2.0
Fortunately for creditors, TRID 2.0 has provided clarification on how the written list of providers applies to calculating good faith and required reimbursements. The amendments to the integrated disclosure rules relating to the written list of providers can be summarized into two categories:
Information that must be included on the Written List of Providers
Good faith when the written list of providers was not given
What Information Must Be on the Written List of Providers
TRID rules have long said that creditors must identify at least one available provider of a settlement service for which a consumer may shop. They have also said that the written list of providers must identify settlement service providers that provide services in the area in which the consumer or property is located, and must include sufficient information about each provider to allow the consumer to contact the provider. Furthermore, the rules require that settlement service providers identified on the written list must correspond to the required settlement services for which the consumer may shop.
TRID 2.0 makes two main amendments to clarify what information must be included on the written list of providers. First, the CFPB has clarified that the written list of providers does not need to include all settlement services that may be charged to the consumer, but rather must include at least those services that are required by the creditor and for which the consumer may shop. Said another way, TRID 2.0 clarifies that every service that is “required” by the creditor must be listed separately on the written list of providers. This means that lenders must be cautious in “lumping” certain fees - like title company fees - together. The CFPB did clarify, however, that certain charges that are not technically “required” can be lumped together in the list. The bottom line is that each “required” settlement service (where the consumer may shop) must be listed separately on the written list of providers.
The following sections from the preamble to the final rule explains this:
“The Bureau understands from the comments that there may be uncertainty as to the extent a creditor must itemize settlement services on the Loan Estimate and the written list of providers. In revising comment 19(e)(1)(vi)-2, the Bureau is clarifying that the disclosure of settlement services under § 1026.19(e)(1)(vi)(B) need not include all settlement services that may be charged to the consumer, but must include at least those settlement services required by the creditor for which the consumer may shop. The Bureau is also revising comment 19(e)(1)(vi)-4 to provide that the creditor must identify settlement service providers, that are available to the consumer, for the settlement services that are required by the creditor for which a consumer is permitted to shop.”
“However, the creditor is not required by the provisions under § 1026.19(e)(1)(vi) to provide a detailed breakdown of all related fees that are not themselves required by the creditor but that may be charged to the consumer such as a notary fee, title search fee, or other ancillary and administrative services needed to perform or provide the settlement service required by the creditor.”
The second clarification in TRID 2.0 regarding what information must be included on the written list of providers relates to listing the actual fees of services on the list. Under TRID 1.0, the understanding was that fees did not need to be listed on the written list of providers. However, the CFPB had discussed requiring the disclosure of fees on the written list of providers in their initial discussions of the TRID 2.0 amendments. Final TRID 2.0 clarifies that fees do not need to be disclosed on the written list of providers. In fact, the CFPB explained in the preamble that the entire fee section can be removed from the model form without a creditor losing the safe harbor from using the form.
The following section of the preamble explains that fees do not need to be included on the written list of providers, and that the fee section can actually be removed from the model form:
“Regarding commenters' request for clarification that creditors do not lose the model form's safe harbor protection if they delete the column for estimated fee amounts, the Bureau notes that current § 1026.19(e)(1)(vi) does not require creditors to list the estimated fees of the service providers. As finalized, comment 19(e)(1)(vi)-3 states that deleting the column for estimated fee amounts is an example of an acceptable change to form H-27.”
Good Faith when the Service Provider List is not Given
The next, and probably biggest change clarified in TRID 2.0 regarding the written list of providers relates to how good faith is calculated when either 1) the list was not provided to the consumer or 2) when a required service for which the consumer could shop was not disclosed on the list.
The following clarifications were provided in TRID 2.0 regarding how to calculate good faith when the written list of providers was not provided:
How to calculate good faith
Violations for not providing the service provider list
Providing revised written service provider lists at a later time
How Typographical errors effect good faith
How to Calculate Good Faith When the Written Service Provider List is Not Given
One of the biggest changes in TRID 2.0 relates to how good faith is calculated when a creditor does not provide a written list of providers, or does not include a required service the consumer can shop for on the list. In the past, creditors were concerned that the omission of a required settlement service on the written list of providers would result in a 0% tolerance, meaning that a creditor would be required to pay for any services not disclosed on the written list of providers.
The way good faith generally works under TRID 2.0 is that the 10% aggregate standard for determining good faith applies to an otherwise compliant required third-party, non-affiliated settlement service charge - even if the required settlement service was not included on the written provider list (or the list wasn’t provided). Basically, the unlimited tolerance for an unaffiliated third party is replaced by the 10% bucket when a settlement service was not disclosed on a written list of providers.
This is the general rule, however, as there are a few caveats that could change things. First if a creditor fails to permit a consumer to shop or the service provider is the creditor or their affiliate, good faith for such charges is subject to the zero tolerance standard. In addition, true determination of whether a creditor was permitted to shop will come down to relevant facts and circumstances. Said another way, whether or not a creditor permits a consumer to shop comes down to three things in TRID 2.0:
Whether the service provider is the creditor,
Whether the service provider is an affiliate.
Other relevant facts and circumstances, such as requiring a specific service provider.
To explain this TRID 2.0 change further, we must keep in mind that a creditor is still required to provide the required settlement service fee on the LE, even if it was not provided on the SPL. If the service was missed on the SPL, it is considered a violation of the requirement to provide the list, but it does not affect a creditor’s ability to calculate good faith by using the fees disclosed on the Loan Estimate - the only difference being that the creditor now must assume that the provider chosen by the borrower was on the creditors preferred provider list and, therefore, must calculate good faith for any provider chosen by the borrower by using the 10% bucket rather than the unlimited bucket.
Said another way, the good faith calculation (when a creditor fails to provide a service provider list or fails to include a required service they can shop for on their list) is still based on what the creditor provided on the LE, except that the undisclosed service is automatically calculated at 10%, unless the creditor or their affiliate were the service provider (or there are other "facts and circumstances" that say otherwise) which result in 0%.
The challenge with this, of course, is if a customer chooses an extremely expensive service provider (like a NYC title co), then those fees from the expensive provider would be subject to the 10% category and will be compared to whatever was quoted on the LE.
The preamble to the final rule helps t o explain this yet another way:
“Comment 19(e)(3)(iii)-2 continues to provide that, if the creditor permits the consumer to shop consistent with § 1026.19(e)(1)(vi)(A) but fails to provide the list required by § 1026.19(e)(1)(vi)(C), good faith is determined under § 1026.19(e)(3)(ii) instead of § 1026.19(e)(3)(iii) unless the settlement service provider is an affiliate of the creditor in which case good faith is determined pursuant to § 1026.19(e)(3)(i).”
“Final comment 19(e)(3)(iii)-2 provides that good faith is determined under § 1026.19(e)(3)(ii) even if the creditor fails to issue the list required by § 1026.19(e)(1)(vi)(C), as long as the fee for the settlement service required by the creditor is paid to an unaffiliated third party and the creditor permits the consumer to shop consistent with § 1026.19(e)(1)(vi)(A).”
Violations for not Providing the Service Provider List
The second clarification in the TRID 2.0 changes relating to the written list of providers was explained briefly in the last section and relates to the fact that technical violations of TRID rules still occur even though eligibility is calculated differently. Basically, the CFPB has clarified that while the good faith standard can be calculated at the 10% level instead of the 0% level, a technical violation (for not providing an appropriate written list of providers) has still occurred. This means that financial institutions should monitor such activities as systematic violations could present further risks to the organization.
The preamble to the final rule provides this statement:
“These revisions do not extinguish the obligation to comply with § 1026.19(e)(1)(vi)(B) and (C) if the creditor permits the consumer to shop. For example, although the good faith determination under § 1026.19(e)(3)(ii) may apply to settlement services even when a creditor fails to issue the written list of providers, the creditor is still in violation of § 1026.19(e)(1)(vi)(C) for failure to comply with the requirements to issue a written list of providers.”
Providing Revised Service Provider Lists at a Later Time
The next clarification provided by the CFPB regarding how to calculate good faith when the written list of providers was not provided relates to revised provider lists that are provided to the consumer at a later time. Specifically, the CFPB clarified that a revised written list of providers may be issued when a settlement service is added as a result of a changed circumstance (or reason for relying on a revised estimate). In addition to this, the CFPB clarified that good faith is still calculated at the 10% level whether or not a revised written list of providers is given to the consumer - unless, of course, the service provider is the creditor or an affiliate or other facts and circumstances required a 0% tolerance.
What this means to creditors is that providing a revised written list of providers due to a changed circumstance is not going to change the fact that good faith is calculated at the 10% level, meaning that a revised written list of providers does not put applicable fees that were initially missed back into the unlimited tolerance bucket.
The CFPB explained this in the preamble to the final rule:
“As discussed above, some commenters asked the Bureau to clarify whether a creditor may issue a revised written list of providers. As Bureau staff noted in an informal webinar,[53] a revised written list of providers may be issued when a settlement service is added as a result of a reason provided for under § 1026.19(e)(3)(iv). Whether or not a creditor issues a revised written list of providers, in accordance with final comment 19(e)(3)(ii)-6, if the creditor permits the consumer to shop consistent with § 1026.19(e)(1)(vi)(A), good faith is determined under § 1026.19(e)(3)(ii), unless the settlement service provider is the creditor or an affiliate of the creditor, in which case good faith is determined under § 1026.19(e)(3)(i).”
Typographical Errors on the Written Service Provider List
The final change regarding how to calculate good faith when the written list of providers was not provided relates to typographical errors. Specifically, clarification was provided that true typographical errors regarding a settlement service do not automatically change the fees to the zero percent tolerance category when determining good faith. The only stipulation to this is that if the error interferes with the consumer’s ability to shop, that could be considered applicable “facts and circumstances” that may change the tolerance bucket.
The CFPB also explained this in the preamble to the final rule:
“Regarding the § 1026.19(e)(3) good faith determination, as discussed above some commenters were concerned that typographical errors regarding § 1026.19(e)(1)(vi)(B) and (C) could be considered a violation of § 1026.19(e)(3)(ii) and subject certain settlement services to zero tolerance if the error hinders the consumer's ability to shop. As noted in the section-by-section analysis of § 1026.19(e)(3)(ii) above, typographical errors regarding a settlement service under § 1026.19(e)(1)(vi)(B) and (C) do not subject the charges for such service to the zero percent tolerance category when determining good faith, unless the error interferes with the consumer's ability to shop.”
