TILA Compliance Requirements for Mortgage Lenders

The Truth in Lending Act (15 U.S.C. § 1601 et seq.) and its implementing regulation, Regulation Z (12 CFR Part 1026), require lenders to disclose credit terms accurately and consistently. For mortgage lenders, TILA/Reg Z creates specific obligations around Loan Estimates, Closing Disclosures, APR accuracy, right of rescission, and fee tolerances. Getting any of these wrong creates examination findings, consumer complaints, and potential enforcement exposure.

Key Takeaways:

• Loan Estimates must be delivered within 3 business days of application under 12 CFR § 1026.19(e)
• Closing Disclosures must be received by the consumer at least 3 business days before consummation
• APR accuracy tolerances are tight: 1/8th of 1% for regular transactions, 1/4 for irregular
• Right of rescission applies to refinances and home equity products for 3 business days after closing
• TILA-RESPA Integrated Disclosure (TRID) violations are among the most common consumer compliance findings

TRID Disclosure Timing: The Rules That Trip Up Lenders

The TILA-RESPA Integrated Disclosure (TRID) rule consolidated mortgage disclosures into two forms: the Loan Estimate (LE) and the Closing Disclosure (CD). Timing requirements for both are strict and frequently tested by examiners.

Loan Estimate Timing

Under 12 CFR § 1026.19(e)(1)(iii), the Loan Estimate must be delivered or placed in the mail no later than the third business day after receiving the consumer's application. An "application" under TRID requires six pieces of information:

1. Consumer's name
2. Consumer's income
3. Consumer's Social Security number (to obtain a credit report)
4. Property address
5. Estimated value of the property
6. Mortgage loan amount sought

Once you have all six, the 3-business-day clock starts. You cannot charge any fee other than a reasonable fee for the credit report until the consumer has received the Loan Estimate and indicated intent to proceed (12 CFR § 1026.19(e)(2)(i)(A)).

Common LE timing violations:

• Triggering application early. Collecting all six data points during a phone call but not delivering the LE for a week. If you have the six pieces, you've received an application.
• Charging fees before LE delivery. Appraisal fees, application fees, or other charges imposed before the consumer receives the LE and indicates intent to proceed.
• Failing to deliver within 3 days. Weekends and holidays don't count as business days under TRID, but the 3-day window is still tight for lenders processing high volumes.

Closing Disclosure Timing

The Closing Disclosure must be received by the consumer at least 3 business days before consummation (12 CFR § 1026.19(f)(1)(ii)). Note: this is 3 days before closing, not 3 days before delivery.

If delivered in person, the consumer is considered to have received it on the day of delivery. If mailed, there's a 3-day mailing presumption - meaning you'd need to mail it 6 business days before closing to meet the timing requirement.

Triggering events for revised Closing Disclosures:

Certain changes require a new 3-business-day waiting period (12 CFR § 1026.19(f)(2)):

• APR becomes inaccurate (increases beyond 1/8th of 1%)
• Loan product changes
• Prepayment penalty is added

Other changes can be disclosed on a corrected CD at or before consummation without restarting the waiting period.

APR Accuracy: The Tolerance Rules

The Annual Percentage Rate disclosed on the Closing Disclosure must be accurate within defined tolerances. Inaccurate APR disclosures are TILA violations.

Regular transactions (equal payments):

• Tolerance: 1/8th of 1% (0.125%) above or below the actual APR
• Example: If the actual APR is 6.500%, the disclosed APR must be between 6.375% and 6.625%

Irregular transactions (unequal payments, balloon, etc.):

• Tolerance: 1/4 of 1% (0.25%) above or below the actual APR
• Example: If the actual APR is 7.200%, the disclosed APR must be between 6.950% and 7.450%

What's included in the APR calculation (12 CFR § 1026.4):

The APR includes the interest rate plus certain fees spread over the loan term. Finance charges that must be included:

• Origination fees
• Discount points
• Mortgage broker fees
• Mortgage insurance premiums (for the period required by the creditor)
• Settlement agent charges retained by the creditor

Charges excluded from the APR:

• Title insurance
• Government recording fees
• Appraisal fees (for purchase transactions)
• Property taxes and homeowners insurance in escrow

Common APR calculation errors:

1. Including excluded fees. Adding title insurance or recording fees to the APR calculation inflates the disclosed APR. While an overstated APR is less problematic than understated, it still indicates calculation errors.
2. Omitting required fees. Private mortgage insurance premiums are commonly overlooked. If PMI is required as a condition of the loan, the premiums must be included in the APR for the period the creditor requires PMI.
3. Irregular payment schedule errors. Construction-to-permanent loans, interest-only periods, and ARM adjustments create irregular payment streams that complicate APR calculations.

Fee Tolerance Categories Under TRID

TRID classifies fees into three tolerance categories that govern how much fees can increase between the Loan Estimate and the Closing Disclosure.

Zero Tolerance (No Increase Allowed)

Fees in this category cannot increase from LE to CD unless a valid changed circumstance occurs:

• Fees paid to the creditor (origination charges, discount points)
• Fees paid to a mortgage broker
• Fees for services where the creditor did not allow the consumer to shop and the provider is an affiliate

If a zero-tolerance fee increases without a valid changed circumstance, you must cure the tolerance violation by refunding the excess to the consumer at closing or within 60 calendar days after consummation (12 CFR § 1026.19(f)(2)(v)).

10% Cumulative Tolerance

These fees can increase individually but the total increase across the category cannot exceed 10%:

• Recording fees
• Fees for third-party services where the consumer was allowed to shop but chose a provider from the creditor's list

No Tolerance Limit (Unlimited Increase)

These fees can increase without limit:

• Prepaid interest
• Property insurance premiums
• Fees for services the consumer shopped for and selected their own provider
• Fees paid to third parties not on the creditor's list

Tolerance cure requirements:

If tolerance limits are exceeded, you must cure by refunding the excess amount. The cure must happen no later than 60 calendar days after consummation. Failure to cure tolerance violations is a TILA violation that examiners actively test.

Right of Rescission: The 3-Day Window

For refinance transactions and home equity lines of credit, consumers have a 3-business-day right of rescission after the later of (12 CFR § 1026.23):

1. Consummation (closing)
2. Delivery of the notice of right to rescind
3. Delivery of material TILA disclosures

Rescission requirements:

• Two copies of the notice of right to rescind must be provided to each consumer whose primary residence secures the loan
• The rescission period runs until midnight of the third business day
• Saturdays count as business days for rescission purposes (unlike other TRID timing rules)
• No funds may be disbursed until the rescission period expires

Rescission does NOT apply to:

• Purchase money mortgages
• Refinances with the same creditor where no new money is advanced
• State agency loans (certain qualifying programs)

Extended rescission:

If proper rescission notices or material disclosures were not provided, the right of rescission extends to 3 years from consummation (15 U.S.C. § 1635(f)). This creates extended liability exposure for disclosure failures.

Common rescission errors:

• Disbursing funds before the rescission period expires
• Providing only one copy of the notice to married borrowers (each consumer with an ownership interest must receive two copies)
• Incorrectly calculating the rescission period (Saturday is a business day for rescission)
• Failing to provide rescission rights on HELOCs

What Examiners Look for in TILA/Reg Z Reviews

Consumer compliance examiners conduct TILA/Reg Z reviews by pulling loan file samples and testing against specific requirements. Common examination procedures:

Disclosure timing review:

• Date application received vs. date LE issued - was it within 3 business days?
• Date CD delivered/mailed vs. consummation date - was the 3-day receipt requirement met?
• Were any fees charged before LE delivery and consumer intent to proceed?

APR verification:

• Recalculate the APR from file data and compare to disclosed APR
• Verify finance charges included/excluded are correct under § 1026.4
• Check tolerances (1/8th for regular, 1/4 for irregular)

Fee tolerance testing:

• Compare Loan Estimate fees to Closing Disclosure fees
• Calculate tolerance violations by category (zero, 10% cumulative)
• Verify tolerance cures were applied within 60 days

Rescission compliance (refinances/HELOCs):

• Two copies of rescission notice provided per consumer
• Disbursement timing relative to rescission expiration
• Rescission period calculation accuracy

Examination tip: Examiners often pull 15-25 loan files and test each against the full TRID requirement set. A single error in one file is a finding. Multiple errors across files suggest systemic issues - a much more serious conclusion.

TILA Compliance Tracking for High-Volume Lenders

At loan volumes above 200 per month, manual TILA compliance tracking - spreadsheets for LE timing, manual APR recalculations, tolerance worksheets - introduces error rates that examiners will find.

The compliance activities that generate the most volume:

Each of these is individually manageable. At scale, they compound. A lender closing 500 loans per month generates 500 LE timing checks, 500 APR verification opportunities, 500 tolerance calculations, and potentially hundreds of rescission compliance checkpoints - every month.

Automating TILA Compliance Workflows

The recurring compliance work around TILA lends itself to automation because the rules are well-defined and the deadlines are firm.

Canarie maps TILA requirements into trackable workflows. Application receipt triggers LE delivery tracking with the 3-day deadline. Closing timelines calculate CD delivery dates with the receipt requirement built in. Fee tolerance checks compare LE to CD figures and flag violations for cure. Rescission period calculations account for the Saturday-counts-as-business-day rule.

When examiners pull loan files and ask for evidence of your TILA compliance process, the evidence is already captured: when applications were received, when LEs were delivered, when CDs were issued, and whether timing requirements were met.

See how lenders track TILA compliance at scale →

Frequently Asked Questions

What qualifies as a "changed circumstance" under TRID?

Changed circumstances that allow LE revisions include: information the creditor relied on was inaccurate, events the creditor did not anticipate (e.g., property value came in lower than expected), new information specific to the consumer or transaction, and consumer-requested changes. Each must be documented. General market changes or creditor errors do not qualify. See 12 CFR § 1026.19(e)(4)(i).

How does TRID apply to construction loans?

Construction-only loans are subject to full TRID requirements. Construction-to-permanent loans have special timing rules for the permanent phase. The LE must disclose terms for both phases. Regulation Z provides specific guidance for these transactions in the official commentary to § 1026.17(c)(6).

Are there TILA requirements beyond TRID for non-mortgage consumer loans?

Yes. Open-end credit (credit cards, HELOCs) has separate disclosure requirements under Subpart B of Reg Z. Closed-end non-mortgage credit has requirements under §§ 1026.17-18. Auto loans, personal loans, and student loans are subject to TILA disclosure requirements, though the TRID integrated forms only apply to most closed-end mortgage transactions.

What penalties apply for TILA violations?

Individual statutory damages of $200-$2,000 for closed-end credit (up to $1,000,000 in class actions under 15 U.S.C. § 1640(a)). Actual damages with no cap. Attorney fees and costs. For rescission violations, the consumer may exercise extended rescission rights for up to 3 years. Regulatory enforcement can include civil money penalties, cease and desist orders, and restitution requirements.

Do tolerance cures need to be disclosed to the consumer?

Tolerance cures must be refunded to the consumer, but there's no required disclosure format for the refund itself. However, you must disclose the cure on a corrected Closing Disclosure provided to the consumer within 30 calendar days of receiving information sufficient to determine a tolerance violation occurred, but no later than 60 days after consummation (12 CFR § 1026.19(f)(2)(v)).