Nearly seven years after the inception of the Equal Credit Opportunity Act (ECOA) Valuations Rule, the Consumer Financial Protection Bureau (CFPB) issued factsheets for two of its major components: transaction coverage and delivery of appraisals. Read on for additional detail on the factsheets, which cover frequently asked questions and requirements, and context around potential impact to financial institutions.
What is the ECOA Valuations Rule?
The Valuations Rule requires creditors to provide applicants free copies of all appraisals and other written valuations developed in connection with an application secured by a first lien on a dwelling. Under the rule, creditors must notify applicants of their right to receive copies of appraisals within three business days of application. The rule applies to consumer and commercial credit.
Key points of ECOA Valuations Rule factsheets
The ECOA Valuation Rule factsheets address a number of topics, including:
- Determining if Loss Mitigation Program applications meet the regulatory definition of “application for credit.” In order to make this determination, CFPB expects each institution to review ECOA’s definitions of: application, extension of credit, credit and creditor. Subsequently, each institution must determine whether the application is secured by a first lien on a dwelling and if an appraisal/written valuation was prepared in connection with the application.
- Business purpose credit is covered under this rule, as well as ECOA in general since the definition of “credit” covers consumer and business purpose credit.
- Denied, incomplete or withdrawn applications are covered by the rule. In fact, CFPB specifically states that “the creditor is also required to provide the applicant written notice of the right to receive a copy of all written appraisals developed in connection with the credit application within three business days of receipt, even when the application is denied or withdrawn.” Offering a great point of clarity on this topic, CFPB notes that the initial disclosure requirement still applies even if credit is denied or withdrawn within three days of application.
- Delivery of the valuation is discussed and illustrated for three delivery methods: mail, hand delivery and email. CFPB further notes that electronic delivery of the valuation may only occur with E-Sign Act compliance. The factsheet highlights that consumers must have three business days from delivery to review the appraisal/valuation. Thus, settlement must be carefully scheduled in order to ensure this timing requirement is met.
How does this impact my institution?
While the guidance provided in the factsheets do not represent changes to ECOA, these clarifications may require modifications to an institution’s process to ensure compliance. All financial institutions should review the factsheets in detail and make enhancement to policies, procedures and processes as needed.
Need help evaluating your compliance with ECOA’s Valuations Rule? RKL’s Financial Services Industry Group includes a team of dedicated compliance experts with experience helping banks and credit unions maintain compliance with this and other regulatory requirements. Contact your RKL advisor or reach out through the form below.