The American Bankers Association and the Mortgage Bankers Association have sent a letter to the CFPB asking it to reconsider the applicability of the final Equal Credit Opportunity Act (ECOA) appraisal rule to business credit. The rule applies to loan applications received on or after January 18, 2014. It implements a Dodd-Frank amendment to the ECOA that requires creditors to provide to an applicant for a loan secured by a first lien on a residential structure containing one to four units a copy of all written appraisals and valuations developed in connection with the application.
The reasons offered by the ABA and MBA for their request include the following:
The rule will significantly impact lenders that provide financing to developers and home builders. Such lenders would be providing appraisals to commercial customers and not consumers, with hundreds of thousands of appraisals going to single business customers.
The rule’s timing requirements are unsuited to business credit. The rule requires lenders to provide a written disclosure within three business days of receiving an application. Because virtually all such loans are exempt from TILA and RESPA, lenders’ platforms for such loans are not designed to trigger TILA and RESPA disclosures based on the date the application is received. As a result, such platforms are not designed to establish the trigger date for mailing the appraisal rule disclosure. In addition, because a dwelling is typically offered as collateral for a business loan during the course of negotiations rather than at the time of application, it is difficult for lenders to establish a readily identifiable trigger date for mailing the disclosure.
The applicant in a business loan is typically a business entity but the dwelling that serves as collateral is typically owned by an individual who is guaranteeing the loan. The consumer protections underlying the rule are not served by providing a copy of an appraisal to a business entity.
The CFPB’s burden estimation methodology used in the final rule may be based on invalid assumptions for business credit.
In their letter, the ABA and MBA also assert that Dodd-Frank’s plain language does not specifically require the appraisal rule to cover business credit. They argue that, if necessary, the CFPB can exempt business credit from the appraisal rule by relying on its authority under Dodd-Frank Section 1022 to establish exemptions from provisions of Dodd-Frank or implementing rules for “any class of covered persons, service providers, or consumer financial products or services.”