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Truth in Lending: 4.4.7.3.2 Redisclosure for loans applied for on or after October 3, 2015

Effective October 3, 2015, the redisclosure rules for loan estimates given in transactions governed by the TILA-RESPA integrated disclosure rules are more extensive than the previous rules.411 The loan estimate delivered or mailed no later than the third business day after the creditor receives the consumer’s application is binding. Redisclosure is allowed only in the event of a limited universe of changed circumstances.

Truth in Lending: 4.5.7.1 Estimated Disclosures: General Requirements

A creditor does not have to gamble its TILA liability on information that is unknown at the time the disclosures are made.573 If any information necessary for an accurate disclosure is unknown, the creditor must make the disclosure based on the best information “reasonably available” and must state that the disclosure is an estimate.574 Where an estimate can be made, the creditor may not avoid disclosure because the exact figures were not known.575

Truth in Lending: 5.11.2.2 Coverage

Regulation Z § 1026.19(e) contains rules governing timing, waiting periods, shopping, a list of providers, predisclosure imposition of fees, the good faith standard, estimates, and changed circumstances, and related rules governing the early disclosures, now named the “Loan Estimate.” These rules are discussed at §§ 4.4.7.2.1,

Truth in Lending: 5.11.2.3 Persons Subject to the Rules

First and foremost, creditors are ultimately responsible for providing the early and final disclosures.800 The TILA definition of creditor applies rather than the RESPA definition of lender.801 Second, when a mortgage broker802 receives the consumer’s application, the broker or the creditor may provide the early TILA-RESPA combined disclosure to the applicant.803 If the broker delivers the loa

Truth in Lending: 4.4.7.4 TILA-RESPA Integrated Closing Disclosure

Effective October 3, 2015, the creditor must ensure that the consumer receives the closing disclosures no later than three business days before consummation for mortgage loans to which the TILA-RESPA integrated disclosure rules apply.432 In the context of the closing disclosure, “business day” is defined to mean all calendar days except Sundays and the legal public holidays.433 In a rescindable transaction, each consumer who has a right to rescind must be given a

Truth in Lending: 4.4.7.6 Waiver

Consumers can, in some circumstances, waive receipt of the early disclosures.462 Consumers may also waive the timing of the early disclosures. Thus, a consumer could choose to get the disclosures more than three days after application or less than seven days before closing.

Truth in Lending: 4.4.7.7 Remedies for Violations of the Early Disclosure Rules

As with the preexisting timing regulations, failure to comply with the timing requirements should give rise to a claim for actual damages.482 The question of statutory damages for timing claims is controversial and is discussed elsewhere.483 Rescission will not ordinarily be available for the failure to make the early disclosures in purchase money mortgages, since rescission is not generally available for purchase money mortgages.484

Truth in Lending: 4.4.8 Timing Rules for Variable Rate Transactions Secured by the Consumer’s Principal Dwelling

Creditors are required to provide consumers with extensive information about the variable rate feature of closed-end adjustable-rate mortgages (ARMs) secured by the consumer’s principal dwelling and with a maturity longer than one year when such loan terms are contemplated.489 These disclosures must be provided to prospective borrowers when an application form is furnished or before the payment of a nonrefundable fee, whichever is earlier.490 However, creditors may deliver disclosures, or place

Truth in Lending: 4.5.1 Disclosures Reflect the Legal Obligation

The disclosures must reflect the terms of the legal obligation between the creditor(s) and the consumer(s).510 As with the definition of consummation, the “legal obligation” is determined by applicable state or other law.511 Informal agreements as to when payments can be made512 or as to how they may be made513 need not be reflected in the disclosures.

Truth in Lending: 4.5.2 Effect of Unenforceable Term or Contract on the “Legal Obligation” Rule

The fact that a term or contract may later be deemed unenforceable by a court does not by itself mean that disclosures based on that term or contract did not reflect the legal obligation.518 For example, the disclosure of a security interest in household goods that was later held by a court to be unenforceable would not be inaccurate, presumably as long as the consumer had signed a facially valid security agreement and the creditor had acted in good faith.519

Truth in Lending: 4.5.3.1 What Is a Change in the Legal Obligation?

The disclosures should reflect the legal obligation in effect at the outset of the transaction.522 Thus, for example, if a contract permits payments of less than the full principal and interest payment for a period of time, these “minimum payments” may be all that need be disclosed (at least for the initial period when only minimum payments are called for).523 However, if the creditor is clearly obligated to reduce the contract interest rate upon the borrower’s making a certain number of consecu

Truth in Lending: 4.5.3.2 Must TILA Disclosures Reflect Subsequent Changes?

As a general rule, subsequent changes to the contract need not be reflected in the TILA disclosures unless the modification “rises to the level of a change in the terms of the legal obligation.”526 This is so even if the changes to the legal obligation after consummation render the TILA disclosures meaningless.

Truth in Lending: 4.5.4 Multiple Transactions and Advances

Some consumers have argued that certain credit transactions were actually multiple transactions, each of which should generate its own disclosures.528 However, a series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction or may be disclosed as separate transaction.529 Construction loans may be treated similarly.530 The official interpretations provide creditors with additional “flexibility in

Truth in Lending: 4.5.6.1 Description

Often, car dealers want to obligate the consumer to the deal but still retain the option to cancel. The ability to cancel gives dealers an out if they are unable to locate a financial institution willing to purchase the credit contract. Additionally, dealers may have an in-house financing department that needs time to verify the credit information submitted by the consumer. In that event, the dealer will want to cancel the sale if the information check reveals some problems.

Truth in Lending: 4.5.6.3.1 Overview

In addition to the timing problems occasioned by the conditional nature of the contract, discussed at § 4.4.6, supra, the conditional contract may result in inaccurate TILA disclosures.553 The TILA inaccuracies may manifest themselves in three ways: an understated APR, an overstated amount financed, or the failure to mark disclosures of conditional terms as estima

Truth in Lending: 4.5.6.3.2 Understated APR

Most often, the APR (and finance charges on which it is based) will have been calculated from the date of the consumer signed the paperwork, instead of from the date the dealer would sign title to the consumer. The same problem may arise when the RISC is backdated.557 The shortened repayment period will cause the actual APR to be higher than disclosed.

Truth in Lending: 4.5.6.3.3 Overstated amount financed

The failure to transfer title to the consumer on the day of sale may result in an overstated amount financed. On the day of sale or consummation, the consumer will have received mere possession of the vehicle and not legal title. The consumer, however, did not agree to borrow the disclosed amount financed and repay this amount with interest in order to obtain the right to rent the car. Rather, the consumer intended to become the owner of the car on the date of the contract.

Truth in Lending: 4.5.6.3.4 Failure to label disclosures as estimates

A third way to characterize the TILA violation that flows from a spot delivery credit sale is that all the TILA disclosures should have been marked as estimates.565 The dealer’s defense will usually be that the disclosures were intended to be accurate, but the deal was not yet final. This defense admits that the TILA disclosures were estimates about the transaction the dealer hoped to complete.

Truth in Lending: 4.5.6.4 Proving a TILA Violation and Other Claims

Absent careful factual development, TILA claims are likely to fail in this context.569 Practitioners may present evidence of the chain of title, whether the dealer used, properly or not, a power of attorney or assignment form to control the transaction, retention of title through the use of dealer license plates, and continued coverage by the dealer’s insurance to demonstrate that the dealer had not transferred title to the consumer when the car was driven off the lot.

Truth in Lending: 4.5.7.2 Where More Than One Disclosure Is Uncertain

As with many other disclosure rules, creditors are given considerable flexibility in making estimated disclosures. According to the official interpretations, only the particular disclosure for which the exact information is unknown must be labeled as an estimate.583 It is quite possible, however, that the accuracy of other disclosures will also be affected by the estimated disclosure.