For loans that require a Loan Estimate, which include most closed-end mortgage loans secured by real property) and that proceed to closing, creditors must provide a new Closing Disclosure reflecting the actual terms of the transaction.
The creditor is required to provide the consumer Closing Disclosure at least three business days before consummation. The CFPB says that “business day” for purposes of the Closing Disclosure is the rescission-based business day definition, and means all calendar days except Sundays and legal public holidays.
According to the CFPB, creditors may estimate fees using the best information reasonably available when the actual cost is not available at the time the Closing Disclosure must be delivered.
“However, creditors must act in good faith and use due diligence in obtaining the information,” the CFPB states in its examination procedure manual. “The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent.”
A corrected Closing Disclosure containing the actual terms of the transaction must be provided at or before consummation. If the creditor provides a corrected disclosure, it must provide the consumer with an additional three-business-day waiting period prior to consummation if:
- the annual percentage rate changes 1/8 of a percent
- the loan product changes
- a prepayment penalty is added to the transaction
The creditor is responsible for ensuring that the Closing Disclosure meets the content, delivery and timing requirements. If the Closing Disclosure is provided in person, it is considered received by the consumer on the day it is provided. If it is mailed or delivered electronically, the consumer is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail.
If the creditor mails the disclosure six business days prior to consummation, it can assume that it was received three business days after sending, and therefore three business days prior to consummation, according to the CFPB. Creditors may contract with settlement agents to provide the Closing Disclosure to consumers, provided the settlement agent complies with all relevant requirements.
The rule does not indicate that any specific proof is needed to show the Closing Disclosure was placed in the mail. Similar to contract law, if the sender places the Closing Disclosure in the mail, has it addressed to the consumer properly and has proper postage, it is assumed to be received by the consumer three business days later. The sender could always mail the Closing Disclosure certified or require a signature upon receipt if they wanted to have proof it was delivered properly, but that is not required by the rule. This highlights the importance of having documented policies and procedures. Title production systems should be able to create records of when the Closing Disclosure was generated. Having policies showing when a company places documents in the mail can go a long way to showing a strong pattern of compliance. Also, some postal services allow customers to generate postage (instead of stamps) and create a log of each envelope that is post marked.
Lastly, while the examples the CFPB provides in the rule all focus on physical delivery of the disclosure, electronic delivery is allowed in accordance with the E-SIGN or Uniform Electronic Transaction Act laws. The timing requirements are the same as for physical delivery and would require obtaining some evidence of receipt (i.e., an email confirmation, system log or other indicia) or complying with the mailbox rule for presuming receipt three days after placing the documents in the mail.
Creditors and settlement agents also may agree to divide responsibility with regard to completing the Closing Disclosure, with the settlement agent assuming responsibility to complete some or all the Closing Disclosure. In these situations, the creditor must maintain communication with the settlement agent to ensure that the Closing Disclosure and its delivery satisfy regulatory requirements, The creditor is legally responsible for any errors or defects.
In transactions involving a seller, the settlement agent is required to provide the seller with the Closing Disclosure reflecting the actual terms of the seller’s transaction no later than the day of consummation.
Multiple consumers
In transactions that are not rescindable, the Closing Disclosure may be provided to any consumer with primary liability on the obligation. In rescindable transactions, the creditor must provide the Closing Disclosure separately and meet the timing requirements for each consumer who has the right to rescind under TILA.
The consumer may waive the three-day period if there is a bona fide personal financial emergency. Bona-fide personal financial emergencies are extremely rare. Determining whether one exists is fact intensive. The only example provided by the Bureau is the imminent sale of the consumers home through foreclosure where the proceeds of the new mortgage can save the home from foreclosure.
The Australian Consumer Law (ACL) requires businesses to provide consumer guarantees for most consumer goods and services they sell.
Consumer guarantees are a set of rules that apply to goods and services purchased by consumers under the ACL.
These rules set out the circumstances under which a business is required to provide a consumer with a remedy.
The consumer guarantees automatically apply regardless of any voluntary or extended warranty given by a seller or manufacturer of goods and services, or if such a warranty has expired.
Who is a consumer?
A person – or a business – will be considered a consumer if:
- they purchase goods or services that cost less than $100,000
- the goods or services cost more than $100,000, but they are of a kind ordinarily acquired for domestic, household or personal use or consumption
- the goods are a commercial road vehicle or trailer used primarily to transport goods on public roads.
Who must comply with the consumer guarantees?
Businesses that provide goods – by selling, leasing or hiring – or services to consumers in Australia must comply with the consumer guarantees.
Manufacturers and importers must also comply with certain consumer guarantees.
Businesses that sell goods guarantee that those goods:
- are of acceptable quality – the goods must be safe, lasting, have no faults, look acceptable and do all the things someone would normally expect them to do
- are fit for any purpose that the consumer made known to the business before buying (either expressly or by implication), or the purpose for which the business said it would be fit for
- have been accurately described
- match any sample or demonstration model
- satisfy any express warranty
- have a clear title, unless you otherwise advise the consumer before the sale
- come with undisturbed possession, so no one has the right to take the goods away from or to prevent the consumer from using them
- are free from any hidden securities or charges
- have spare parts and repair facilities reasonably available for a reasonable period of time, unless the consumer is advised otherwise.
Manufacturers and importers guarantee that their goods:
- are of acceptable quality
- have been accurately described
- satisfy any manufacturer’s express warranty
- have spare parts and repair facilities reasonably available for a reasonable period of time, unless the consumer is advised otherwise.
What happens if these guarantees are not met?
If you sell a customer a product that fails to meet one or more of the consumer guarantees, they are entitled to a remedy – either a repair, replacement or refund and compensation for any consequential loss – depending on the circumstances.
Generally, if the problem is minor, the seller can choose whether to remedy the problem with a replacement, repair or refund. If you choose to repair and it takes too long, the consumer can get someone else to fix the problem and ask you to pay reasonable costs, or reject the good and get a full refund or replacement.
If the problem is major or cannot be fixed, the consumer can choose to:
- reject the goods and obtain a full refund or replacement, or
- keep the goods and seek compensation for the reduction in value of the goods.
A purchased item has a major problem when it:
- has a problem that would have stopped someone from buying it if they’d known about it
- has multiple minor problems that, when taken as a whole, would have stopped someone from buying it if they’d known about them
- is significantly different from the sample or description
- is substantially unfit for its common purpose and can’t easily be fixed within a reasonable time
- doesn’t do what the consumer asked for and can’t easily be fixed within a reasonable time; or
- is unsafe.
Gift recipients are entitled to the same rights as consumers who bought the goods directly.
The seller cannot refuse to provide a remedy if the product is not returned in its original packaging.
The seller also must not refuse to deal with a customer about the returned good and tell them to deal with the manufacturer instead.
Approaching the manufacturer directly
Consumers are entitled to approach manufacturers directly for a remedy. Consumers may take action against manufacturers to recover costs, which include an amount for reduction in the product’s value and in some cases compensation for damages or loss.
Businesses that supply services guarantee that those services will be:
- provided with due care and skill
- fit for any specified purpose (express or implied)
- provided within a reasonable time (when no time is set).
A contract or agreement for the supply of services usually states when the services will be provided and the date they will be completed. If not, the supplier guarantees to supply the service within a reasonable time. What is ‘reasonable’ will depend on the nature of the service and other relevant factors such as the weather, for example, if services are being performed in outdoor areas.
What happens if these guarantees are not met?
If you sell a customer a service that fails to meet one or more of the consumer guarantees, he/she is entitled to a remedy – for example, a refund, a further service to rectify the problem and in some circumstances compensation for consequential loss. The service provider must then provide the appropriate remedy.
If the problem is minor and can be fixed, you can choose how to fix the problem.
The consumer cannot cancel and demand a refund immediately. You must have an opportunity to fix the problem. If the repairs take too long, the consumer can get someone else to fix the problem and ask you to pay reasonable costs, or cancel the service and get a refund.
If the problem is major or cannot be fixed, the consumer can choose to:
- terminate the contract for services and obtain a full refund, or
- seek compensation for the difference between the value of the services provided compared to the price paid.
A purchased service has a major problem when it:
- has a problem that would have stopped someone from purchasing the service if they had known about it
- has multiple minor problems that, when taken as a whole, would have stopped someone from buying it if they’d known about them
- is substantially unfit for its common purpose, and can’t easily be fixed within a reasonable time
- does not meet the specific purpose the consumer asked for and can’t easily be fixed within a reasonable time
- creates an unsafe situation.
The consumer guarantees do not apply to goods or services costing more than $100,000 that are normally used for business purposes (for example, installing industrial air conditioning to a factory premises).
Additional exceptions apply in some circumstances. These include:
- goods bought from one-off sales by private sellers, such as a private garage sale or school fetes
- goods purchased at a traditional auction
- goods purchased to be resold or transformed into a product that is on-sold
- services for transportation or storage of business goods, or
- fitness for purpose of professional services provided by a qualified architect or engineer.
Different laws apply to:
For further information and types of exceptions, please refer to the Act.
Consumer obligations
Consumers’ rights are not limitless and the consumer guarantees do not require you to provide a remedy unless one of the guarantees has not been met.
For example, you may not be required to provide a remedy if a consumer:
- simply changes their mind, decides they do not like the purchase or has no use for it
- discovers they can buy the goods or services more cheaply elsewhere
- has damaged the goods by using them in a way that was unreasonable.
Your customers can seek compensation for damages and losses they have suffered due to a problem with a product or service (in addition to any other remedy provided) if you could have reasonably foreseen the problem. In other words, customers can also recover losses that would probably result from your failure to meet a guarantee.
Damages include the cost caused to the consumer as a result of the problem with the product or service. This is usually financial, such as costs of repairing damaged carpets as a result of a faulty leaking washing machine, inspection and transportation. It can also include lost time or productivity.
You do not have to pay for damages or losses that:
- are not caused by your business or the goods you supplied
- relate to something independent of your business and outside your control, after the goods left your control.
Some goods may fail to meet one or more of the consumer guarantees due to a manufacturing defect or issue that would otherwise be the manufacturers fault. The consumer can ask the seller to provide a remedy, and the seller is required by law to oblige.
In this situation the manufacturer must reimburse the seller. The reimbursement amount can include any compensation paid to the consumer for reasonably foreseeable consequential losses.
A supplier has three years to ask the manufacturer for reimbursement, from the earliest of the following dates:
- the day they fixed any problems with the consumer’s goods
- the day the consumer took legal action against the supplier.
Signs that state ‘No refunds’ are unlawful.
The following signs are also unlawful: