WASHINGTON (12/1/14)--The Truth-in-Lending Act-Real Estate Settlement Procedures Act (TILA-RESPA) rule requires creditors to provide the Closing Disclosure three business days before consummation. Is consummation the same thing as closing or settlement?
The Credit Union National Association's CompBlog recently answered a question regarding the Consumer Financial Protection Bureau's Consumer Financial Protection Bureau's TILA-RESPA rule.
The recent entry from Mike McLain, CUNA's senior assistant general counsel for compliance, discussed the differences between loan consummation and loan closing or settlement.
McLain says that while consummation might occur at the same time as closing, it is an entirely different event.
"Consummation occurs when the borrower or consumer becomes contractually obligated to the creditor on the loan, not when the consumer becomes contractually obligated to a seller on a real estate transaction," McLain wrote. "The consumer becomes contractually obligated to the seller on a real estate transaction when the consumer signs a purchase agreement agreeing to purchase real estate from the seller. Closing or settlement is when ownership of the real estate is transferred from the seller to the buyer or consumer."
The entry goes on to say that when a consumer becomes contractually obligated to the creditor for the loan varies from state to state.
"In some states consummation occurs when the loan documents are signed, and in other states consummation occurs when the loan funds are disbursed," McLain wrote. "So creditors and settlement agents should determine when consummation will occur in their particular state and make sure the Closing Disclosure is provided to the borrower at least three business days prior to consummation."
The bureau's TILA-RESPA rule requires creditors to provide the closing disclosure three business days before consummation.
CUNA's CompBlog features the latest on credit union compliance issues from CUNA's compliance team. Regular features include best practices from compliance staff around the country, question-and-answer posts and updates on compliance regulations.