TRID Rule Compliance: Shopping for Service Providers | Wolters Kluwer Financial Services
  • Insights

  • TRID Rule Compliance: Shopping for Service Providers

    Sue Burt

    Sue Burt, Senior Compliance Consulting Specialist

    Published November 03, 2015

    When it comes to shopping for settlement service providers, the TILA-RESPA Integrated Disclosure (TRID) rule introduces new compliance requirements lenders should be aware of.

    What does it mean to “shop” for a service?

    In the loan cost section (on page two of the Loan Estimate), lenders must identify the settlement services that consumers may and may not shop for. Allowing a consumer to shop for a service provider means that the consumer is free to select the provider of their choice, subject to reasonable requirements established by the lender. An example of a reasonable requirement is ensuring that the provider is properly licensed. However, requiring that the provider use a certain type of software would not be a reasonable requirement. Think of reasonable requirements as more universal in nature and tied to the ability of that provider to perform the service in a competent manner.

    Are lenders required to allow service provider shopping?

    Generally, a lender is free to select all settlement service providers and not allow the consumer to shop. The decision to prohibit shopping can apply across the board or on a product-by-product basis. In other words, you have the discretion to allow for shopping on some types of products, but not others. It is important to ensure that your policies restricting the ability to shop are tied to business reasons and not something that could be interpreted as discriminatory in nature. Also, be sure to check your state law, as some states require that a borrower be able to select their own attorney, which would mean the borrower must be able to shop for that provider. And remember, services that may not be shopped for are included in the zero-fee tolerance category.

    What if there is only one provider for a particular service in our community?

    While the restricted availability of providers certainly limits the ability to “shop,” the law still requires lenders to make the determination as to whether or not that service may be shopped for. As discussed below, additional compliance requirements are triggered if shopping is allowed and there are fee tolerance issues to consider as well.

    What is the Written List of Service Providers?

    If the consumer is allowed to shop for a settlement service provider, the lender must also provide a Written List of Service Providers (Written List). The Written List is a separate, companion disclosure to the Loan Estimate. This Written List needs to identify at least one provider per service that may be shopped for and include detailed contact information for each provider. The providers listed on the Written List must track the service identified in the Loan Estimate in part C of the Loan Cost section. The Written List must also state that the consumer is not required to select the provider disclosed on the Written List. The TRID rule provides a model form, but creditors may create their own Written List as long as it tracks the model form.

    From a timing perspective, the Written List must also be given to the consumer within three business days of receipt of an application, but it does not need to be given with the Loan Estimate. Note also that lenders may include a statement that the lender is not endorsing any provider disclosed on the Written List. And remember, the Written List is only triggered if the lender allows for settlement service provider shopping. Finally, if the Written List is required, lenders have the discretion to also list services that may not be shopped for.

    What are the fee tolerances for services that may be shopped for?

    At the Loan Estimate stage, fees for services that may be shopped for are included in the 10 percent tolerance category. This tolerance may or may not shift at the Closing Disclosure stage, depending upon whether or not the consumer chooses a provider from the Written List.

    If the consumer selects a provider from the Written List, that fee remains in the 10 percent cumulative tolerance category. That being said, if a lender is only listing one provider for a particular service, it would make sense to list the provider with the highest fee. This will provide the greatest amount of cushion should the consumer select the listed provider for purposes of the good-faith analysis. If the consumer selects a provider that is not on the Written List, the consumer is considered to have actually shopped, and that fee now becomes a “no”- or “unlimited”-tolerance item. Because of the potential shift in tolerance, it will be important to monitor actual consumer behavior when it comes to settlement service providers that may be shopped for.

    Compliance considerations

    Failure to provide the Written List for services that may be shopped for will cause fees for those services to shift to the zero tolerance category. In addition, despite delivery of the Written List, the consumer presumably can still shop for services identified as those that may be shopped for on the Loan Estimate. And to top it off, failure to provide the Written List does create a compliance violation. The bottom line is that you must be sure that creation and delivery of the Written List is subject to policies and procedures and that staff is trained on this disclosure document.

  • Please take a moment and tell us what you think of our content.