TRID and Error in Service Provider List

Issue/Inquiry

A charge for a service that the consumer was not allowed to shop for was disclosed in the Loan Estimate and the Closing Disclosure, but the service provider was not listed in the service provider list. Does the Bank have to send a corrected service provider list? Is the Bank responsible for the charge?

Response Summary

A creditor is not required to provide a list of service providers when a consumer is not permitted to shop for the provider of a required service. Such a list is relevant only if there is a question of whether the consumer had been permitted to shop. If the consumer was required to choose a provider from a list provided by the creditor, then the consumer would be deemed to not have been permitted to shop, and the charge for the service would be subject to the zero tolerance threshold. In determining whether an estimate for the cost of a service has been made in good faith, the comparison is made between the amount originally disclosed in the Loan Estimate and the cost paid at closing. In this case, if the Bank properly disclosed the service and its cost in the Loan Estimate, it has fulfilled its requirements under the TILA-RESPA Integrated Disclosure (“TRID”) rules. The failure to include the provider of the service in a list of service providers may be a technical violation, but it is not relevant to the good faith estimate requirement.

Response Detail

Under the TRID rules, the Loan Costs disclosed on the Loan Estimate are those costs paid by the consumer to the creditor and third-party providers of services that the creditor requires to be obtained by the consumer during the origination of the loan. 12 CFR §1026.37(f).

Loan Costs are broken down into three categories:

• Origination Charges
• Services You Cannot Shop For
• Services You Can Shop For

“Services You Cannot Shop For” are listed in Section B of Loan Costs on the Loan Estimate, and include fees paid to non-affiliated third parties for services that the creditor did not permit the consumer to shop for. The amount of each fee must be itemized and a subtotal must be provided. Such fees are subject to zero tolerance. 12 CFR §1026.19(e)(3)(ii)(C),(37(f)(2); Official Interpretations, 1026.19(e)(3)(i) – 1.iv.

“Services You Can Shop For” are provided by persons other than the creditor or mortgage broker, and are services that the consumer can shop for and will pay at settlement. 12 CFR §1026.37(f)(3). Such services are listed in Section C of Loan Costs on the Loan Estimate.

If the creditor permits the consumer to shop for a settlement service, it must provide the consumer with a written list (i.e., “Additional Details For Services You Can Shop For”) that identifies at least one available provider for that service. The settlement service providers listed must correspond to the settlement services for which the consumer may shop. A model form is provided by Regulation Z of such a list. Official Interpretations, 1026.19(e)(1)(vi) – 3; Appendix H – Closed-end Model Forms and Clauses, H-27(A) and (B).

In contrast, there is no requirement under the TRID rules for a creditor to provide the consumer with a list of service providers if the consumer is not permitted to shop for a service provider. With respect to the use of such a list, the official commentary simply states that, for the purposes of the TRID rules, a consumer is not permitted to shop if the creditor requires the consumer to choose a provider from a list provided by the creditor. Official Interpretations, 1026.19(e)(1)(vi) – 1.

In order to facilitate the disclosure of service providers that the creditor requires the consumer to use, the model forms of Regulation Z include a “Written List of Providers With Services You Cannot Shop For”. This is described as “a sample of the Written List of Providers with information about the providers selected by the credit for charges disclosed pursuant to §1026.37(f)(2)”. In this case, the forms utilized by the Bank and provided to the consumer conforms to the model forms.

When a consumer is allowed to shop for services, it means that the particular service is required by the creditor; however, the consumer is allowed to choose the provider of the service from either a provider on the list or another service provider. If an error or omission in the service provider list, such as failing to list at least one service provider for a required service, does not prevent the consumer from shopping for a service provider, and the charge paid at closing does not go to the creditor or an affiliate, the 10 percent aggregated tolerance for “Services You Can Shop For” still applies. If the error or omission prevents the consumer from shopping for a service provider, or the charge at closing is paid to the creditor or an affiliate, the zero tolerance threshold applies. Official Interpretations, 1026.19(e)(3)(i) – 1.iv;19(e)(3)(ii) – 6.

There are no similar provisions when a consumer is not permitted to shop for services. An estimated fee or charge is determined to have been made in good faith if the amount originally disclosed on the Loan Estimate corresponds to the amount paid at closing. If the amount paid by the consumer at closing exceeds the amount disclosed by more than the applicable tolerance threshold, the creditor must provide a corrected Closing Disclosure and a cure for the tolerance violation within 60 days of consummation. For charges subject to zero tolerance, any amount charged in excess of the amount disclosed on the Loan Estimate must be reimbursed to the consumer. 12 CFR §1026.19(e)(3)(i); Official Interpretations, 1026.19(f)(2)(v) – 1.

In this case, the question concerns a charge for a service that the consumer was not permitted to shop for, which was properly disclosed on the Loan Estimate, although the service provider was not described in “Additional Details For Services You Cannot Shop For”.

As noted, a list of service providers is relevant only to the question as to whether the consumer was permitted to shop. If the consumer was required to choose a provider from a list provided by the creditor, then it is deemed that the consumer was not permitted to shop, and the charge is subject to the zero tolerance threshold applicable to the services required by the creditor that the consumer was not permitted to shop for.

With respect to the zero tolerance threshold, the estimate of the amount of the charge on the Loan Estimate is compared to the charge paid by the consumer at closing. A list of service providers in such circumstances has no effect on the disclosure made in the Loan Estimate. The charge would be subject to zero tolerance whether or not a list of service providers was provided. If an estimate was made in good faith and within the applicable tolerance threshold, no correction or cure would be required.

Therefore, by properly disclosing the charge in the Loan Estimate, the Bank fulfilled its good faith estimate requirements under the TRID rules. While the failure to include a service provider for the charge on the service provider list may be a technical violation, such has no applicability to the good faith estimate requirement. In addition, since the Bank was not required to provide a list of service providers for services that the consumer was not permitted to shop for, a corrected list is not required.

 

This entry was posted on Monday, July 8th, 2019 at 6:00 am.