Still, meeting the Dodd-Frank clarity standards won’t be easy. And a Consumers Union official told American Banker newspaper that the designs “do a great job of laying out the essential information.” The prototypes are “clearer, more to the point, and … a substantial improvement” over the current disclosures, a chief lobbyist for the American Bankers Association told an industry publication. The CFPB’s mandate under Dodd-Frank is to test and develop model disclosures that are “understandable,” “clear,” and “effective.” The two prototypes unveiled yesterday appear to be real improvement over the two existing forms and have received positive responses. “To design a proposed form, and test it before rolling out a requirement to use it is both common sense and all too rare." “This is exactly the kind of data-driven process which government regulators should be doing more of, rather than prescribing solutions from on high,” said Rep. The redesigned forms were developed by Kleimann Communication Group, a D.C.-based firm that will also run the interviews and interpret their outcome. The 90-minute “cognitive testing” sessions with 79 participants in six cities including Baltimore, Birmingham, Chicago and Los Angeles, will complement online feedback the agency is soliciting through an interactive tool on its website and social media outlets like Facebook.Īmong the loan types under study are a 30-year fixed rate loan, an adjustable rate loan with a “teaser” introductory rate, an interest-only loan, and a negative amortization loan. These are the among the more than 60 scripted questions CFPB interviewers will use to determine whether consumers reading the newly designed disclaimer can understand the basic terms of a mortgage offer, and meaningfully distinguish between competing offers. “How much will you have to pay each month for your loan? Can the monthly payment change? Can the interest rate change? If yes, can you explain why or when it can change? How is APR different from the interest rate of your loan?” Congress has long considered combining the two documents, which have failed in consumer tests to communicate key information to ordinary people. Under the sweeping financial regulatory bill know as Dodd-Frank, the newly created CFPB must develop by July 2012 a model form that combines mandatory summaries of estimated loan costs given to mortgage shoppers under the Truth in Lending Act and the Real Estate Settlement Procedures Act. A GOP-led House oversight panel has summoned Warren to testify about the agency Tuesday afternoon at a hearing titled, “Who’s Watching the Watchmen? Oversight of the Consumer Financial Protection Bureau.”
“We will keep testing, adjusting, and retesting from the public and industry comments we receive until we get it right,” Warren, the unofficial acting director of the bureau, told reporters in a conference call last week. The plans are a welcome indication that the CFPB under Harvard Law professor Elizabeth Warren intends to hold both itself and the lenders it regulates to a far higher standard of disclosure than government typically requires-one that measures compliance not just by what consumers are told, but by whether they understand what’s being said. Internal plans submitted to the White House offer a glimpse into how the new consumer watchdog plans to test its new prototypes, which merge two disclaimers totaling five pages into one double-sided document.
That’s what the revamped disclosure forms are designed to do-and they’re about to get their first field test this summer. consumers actually understand the home loans they’re being sold, so they don’t get taken advantage of or unwittingly contribute to another financial crisis. Positive reaction last week from both bank lobbyists and consumer advocates to proposed new mortgage disclosures is a coup for the Consumer Financial Protection Bureau, the powerful new Washington agency under attack by Republicans who fought its creation as part of last year’s regulatory overhaul.īut even harder than getting the American Bankers Association and Consumer Federation of America on the same page is ensuring U.S.