On January 18, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule (the Appraisal Rule) implementing an amendment to the Equal Credit Opportunity Act (ECOA) that revises Regulation B’s provisions regarding appraisals in connection with a consumer’s application for a loan secured by a first lien on a dwelling. The amendment to ECOA was enacted as part of the Dodd-Frank Wall Street and Reform and Consumer Protection Act (Dodd-Frank). The Appraisal Rule will become effective January 18, 2014.

The Appraisal Rule amends Section 1002.14 of Regulation B to provide for the following in connection with applications for credit secured by a first lien on a dwelling:

• creditors must notify applicants within three business days of receiving an application of their right to receive a copy of any appraisals developed
• creditors must provide applicants a copy of each appraisal and other written valuations promptly upon their completion or three business days before the earlier of consummation of the transaction (for closed-end credit) or account opening (for open-end credit)
• applicants may waive the timing requirement for providing copies of appraisals and other written valuations, and
• creditors may not charge for the copies of appraisals and other written valuations, but they may charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise.

Pepper Points

1. Significant New Impact on Credit Unions. The current version of Regulation B contains an exemption for credit unions because credit unions are otherwise required to provide appraisals to loan applicants upon request pursuant to National Credit Union Administration (NCUA) regulations. But because the Appraisal Rule requires creditors to provide (i) all valuations and appraisals and (ii) provide them automatically, not upon request, both of which are greater than what is required under NCUA regulations, the Appraisal Rule eliminated the credit union exemption and so the revised Regulation B provisions to provide appraisals will apply to credit unions.
2. Free Appraisals? Although the Appraisal Rule prohibits creditors from charging applicants for providing “a copy” of an appraisal, it allows creditors to charge for the underlying appraisal services. So, the Appraisal Rule does not truly provide consumers with “free” appraisals.
3. Competing Appraisals. The Appraisal Rule provides that applicants may pay for additional appraisals for their own use at their own cost, but is silent as to how competing appraisals must be utilized by creditors. This silence could lead to problems between applicants and creditors.
4. Coordination with Title XIV Rulemakings. The CFPB is currently adopting several other final rules relating to mortgage credit to implement requirements of Title XIV of the Dodd-Frank Act (the Title XIV Rulemakings), including a final rule to implement Dodd-Frank’s requirements expanding protections for high-cost mortgages under the Homeownership and Equity Protection Act, which includes additional appraisal obligations. The CFPB has decided that most of the Title XIV Rulemakings will be effective January 10, 2014, and the Appraisal Rule will be effective shortly thereafter, on January 18, 2014. Although the CFPB notes that the interaction among many of the Title XIV Rulemakings, along with the Appraisal Rule, requires the rules to be implemented together, many commenters have expressed concern over the implementation of such a large set of new requirements at the same time.