Why TRID Grace Period Still Leaves Lenders Vulnerable

The Consumer Financial Protection Bureau announced Tuesday that it will support a hold harmless period for banks to get into TILA-RESPA Integrated Disclosures compliance. There is a move to pass legislation that would formalize this grace period. For any grace period to have a reasonable effect, it must provide such broad relief that lenders would not face a secondary market backlash or subsequent lawsuits. The agency announced that it and other regulators would be “diagnostic and corrective” but not “punitive.” If investors return loans as unsalable it will hardly matter that the CFPB will not fine the lender. Similarly — regardless of what the CFPB will or will not do on an audit — if a bank is subject to liability in a lawsuit filed in a year for violations through Dec. 1, 2015, it will hardly matter that a grace period of “diagnostic and corrective” action was in place for regulators. The CFPB’s position does not protect banks from lawsuits and investors. Without broad-based relief, any regulatory grace period will do little to protect lenders from liability during a challenging transition where many answers — and even some questions — are still unknown.