VIDEO: LE & CD Signature Requirements

In this Compliance Clip (video), Adam reviews the LE and CD signature requirements of Regulation Z. As you will see, Regulation Z provides a few options for applicant signatures, but also has a few requirements that must be met.

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Video Transcript

The following is a transcript of this video.

This Compliance Clip is going to answer the question of whether a LE and CD need a signature. The question here we have is: do the LE and CD have to be signed by the applicant?

The answer to this, of course, comes from Regulation Z. It comes from 1026.37, 1026.38, as well as the CFPB's Frequently Asked Questions. In fact, I like how the CFPB's Frequently Asked Questions explains this in clear English so we're going to start with that. But this is a topic that's good to understand because if you're a lender you might be questioning, is this actually required to be provided? Or maybe you're a financial institution where an auditor has cited you for not having a specific customer signing this and you're wondering, is this actually a violation of the regulation? Or maybe you're an auditor wondering, what technically has to be done because they do have a signature line, does this have to be required?

Let's take a look at this in a little bit of detail here.

The CFPB’s frequently asked questions talk about this under their “Optional Signature Line” section and it is FAQ 1 one under that section. The answer to this says, “While the TRID rule does not require consumers to sign the Loan Estimate or Closing Disclosure, it provides creditor the option to include a line for consumer signature acknowledgement receipt. So it's making it obvious here that it's optional.

However, they go on to say this, “A creditor may include the signature line and require the consumer to sign the disclosure, but only if the consumer receives the disclosure in a form that they may keep,” which is the key piece to the loan estimate and closing disclosure. The consumer has to have a copy, so you can't require them to give the copy back. You can require them to sign a copy, but they also have to have a copy they can keep.

Then it goes on to say “the consumer must have the ability to retain the copy of the disclosure after returning the signed disclosure to the creditor.”

So, that's what they tell us in the CFPB's Frequently Asked Questions.

Now, let's take a look at the regulation and see what it tells us exactly. Keep in mind, the loan estimate requirements are in 1026.37, where the closing disclosure requirements are in 1026.38. So, if we look at 1026.37(n), this is going to tell us the loan estimate requirements as it relates to signatures.

Specifically, section n of 1026.37. 1026.37 says, “At the creditor's option, under the master heading required by paragraph (k) of this section and under the heading “Confirm Receipt,” a line for the signatures of the consumers in the transaction is permitted. If the creditor includes a line for the consumer’s signature, the creditor must disclose the following above the signature line.” And this disclosure says this, “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form.”

In other words, if you have a signature line on your loan estimate, as well as what we'll see in the closing disclosure requirements, as well as a on a closing disclosure, it has to be under a header that says “Confirm Receipt” and then have a disclosure that says by signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form. So, both of those things must be there if you require a signature from your consumers on a loan estimate or a closing disclosure.

That's what's required under 1026.37(n), but it goes on to tell us this: “If the creditor does not include a line for the consumer's signature, the creditor must disclose the following statement under the heading “Other Considerations” required by paragraph(m) of this section, labeled “Loan Acceptance”: “You do not have to accept this loan because you have received this form or signed a loan application.”

In other words, if you have a signature, you have to have the disclosure under the first paragraph. If you do not have a signature, you have to have the disclosure under the second paragraph. That's what 1026.37(n) is telling us.

Now, the commentary goes on to expand this and give us a little more guidance. They say a couple of things.

First of all, they say “whether a signature line is provided under 1026.37(n) is determined solely by the creditor. If a signature line is provided, however, the disclosure must include the statement required by 1026.37(n)(1).”

They go on to say this about multiple consumers: “If there is more than one consumer who will be obligated in the transaction, the first consumer signs as the applicant and each additional consumer signs as a co-applicant. If there is not enough space under the heading “Confirm Receipt” to provide signature lines for every consumer in the transaction, the creditor may add additional signature pages as needed at the end of the form for remaining consumer’s signatures. However, the creditor is required to disclose the headings and statements required by 1026.37(n)(1) on such additional pages.” So you have to have that subheading and that disclosure as required on the last slide.

The commentary goes on to also tell us this about the consumer's name. It says, “The creditor may insert the consumer's name under the signature line rather than using the designation applicant or co-applicant” if they choose to and there's an example in Appendix H in model form H-24.

So that's all the information under 1026.37 we have about signatures for the loan estimate.

For the closing disclosure, this information is found at 1026.38(s) and it says this: “At the creditor's option under the heading “Confirm Receipt”, a line for the signatures of the consumers in the transaction can be provided. If the creditor provides a line for the consumer signature, the creditor must disclose above the signature line a statement that is required to be disclosed under 1026.37(n)(a) which is that loan estimate disclosure. So the same disclosure we have under the loan estimate has to also be provided under the closing disclosure the exact same way.

They go on to say that if a creditor does not provide a line for the consumer signature, the other disclosure is required. Just like the loan estimate, if you have a signature the first disclosure is required in the first bullet point here, and if you don't require a signature, the second disclosure is required under the second bullet point here. It's the same disclosure for both the loan estimate and the closing disclosure.

As far as commentary for the closing disclosure, there really isn't anything under 1026.38(s) they just reference us back to the commentary for the loan estimate.

Hopefully that answers any questions you have about the signature line on the loan estimate or the closing disclosure because that's all Reg Z tells us and all the frequently asked questions tell us from the CFPB. That's it for this Compliance Clip.