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Posts from May 2011



Monday is Memorial Day. For many Americans, that means a three-day weekend, the start of the summer season, and a chance to hit the sales. When asked “What is Memorial Day?” schoolchildren might answer: “It’s the day the pools open.” But of course it’s so much more than that – it’s a day to remember and honor those military personnel who gave their lives in the line of duty.

Memorial Day was first proclaimed in May of 1868 as a way to honor those who had died in the Civil War. After World War I its scope expanded to include remembrance of those who died fighting in any of America’s wars. For many years it was a day when communities held parades, visited their cemeteries, and paid homage to those local citizens who had made the ultimate sacrifice for their country. But in recent years we seem to have moved the parades and the patriotism to the 4th of July, and Memorial Day has languished a bit.

I’d like to encourage everyone to spend at least part of Memorial Day thinking about the meaning of this special day. If you want to join in a specific moment with the whole country, set your alarm for 3 PM Eastern Standard Time. That’s when people across the United States will observe a National Moment of Remembrance. Major league baseball teams will halt play for a moment of silence, Amtrak trains will sound their whistles, and many Americans will stop and take a moment to remember those who gave everything in service to our country.

Here at the Office of Servicemember Affairs we will be remembering – and pledging that we will honor the memory of those heroes by doing our utmost to support and protect the military members and families who serve so faithfully for all of us.

Older Americans and the CFPB


May is Older Americans Month. In his proclamation for the month, President Obama spoke of honoring the contributions older Americans have made and will continue to make:

Having lived through many of our Nation’s most challenging times, older Americans have shaped the story of America and secured the promise of our future. We are privileged to recognize these treasured citizens during Older Americans Month, and honor both the impact they have made and their accomplishments yet to come.

Older Americans face wide-ranging circumstances that may be familiar to anyone. Some are at the height of their careers; some are retired. They may be paying for their children’s education, moving into new homes, or paying off debts.

However, it is important that we remember that older Americans also face some unique financial opportunities and challenges:

  • Many older Americans live on fixed incomes with limited savings to cover unexpected medical or other expenses. People need access to reliable and relevant information and advice to help make their savings stretch farther.
  • Unfortunately older Americans are often the targets of investment scams such as Ponzi schemes and illegal offshore investments. Knowing how to spot “fraudsters” can often be challenging, especially when they have been referred by a friend or family. The CFPB has been charged with helping to educate older Americans to avoid unfair and deceptive practices.
  • Americans aged 62 and older are eligible for reverse mortgages. If you are over 62 and own a home, you can borrow against the equity of that home in small amounts over time. Repayment is due when you no longer own the home or are absent for 365 days. This can help create a steady income during retirement, but it creates a large debt load. Reverse mortgage borrowers need to understand and be prepared for that risk.

The people just now reaching their sixties are part of America’s largest-ever generation of retirees. The CFPB is creating an Office of Financial Protection for Older Americans to ensure we serve this large community effectively.

This Office will connect seniors with what they need to guide themselves through their financial lives. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires this Office to be active by January 21, 2012. We are building it right alongside the rest of the consumer bureau, and in the coming weeks and months you’ll hear more from us about financial issues for seniors.

Here are some places you can go now for senior financial protection information:

The theme for this year’s month is “Older Americans: Connecting the Community.” To learn more, visit the Administration on Aging’s page dedicated to Older Americans Month.

Working to Give Consumers the Transparency They Deserve


Today, Professor Warren is testifying before Congress on our progress in building the consumer bureau. In her written testimony, she discusses our Know Before You Owe project:

At the CFPB, we believe that a simple and straightforward presentation of key credit terms is the best way to level the playing field between borrowers and lenders and to foster honest competition. Our goal is shorter, clearer forms for the most common credit products, the kind that consumers can read in a few minutes with high levels of understanding. The CFPB is working to give consumers the transparency they deserve to make the choices that work for themselves and their families, while easing unnecessary regulatory burdens for their lenders.

In my first week on the job, the Treasury Department sponsored a symposium that brought together lenders and consumer advocates to discuss how to simplify federal mortgage disclosures. Consumer groups explained that many consumers didn’t use current disclosures to assess costs or to compare alternatives because the forms are complicated and hard to use. The forms came under even more intense criticism from those who have to fill them out. Mortgage originators, particularly community banks and credit unions that work closely with their customers, described paperwork that was costly to complete, even as it produced little value for borrowers. Now, after months of consultation with borrower and lender representatives, we have developed prototype short mortgage shopping sheets that will be tested with actual consumers and, eventually, result in a simple, streamlined mortgage disclosure that will replace the two existing, complicated forms.

The new consumer bureau is making the early form drafts publicly available, long in advance of the formal process of notice-and-comment for official rule-making. We are seeking feedback early and often from consumers, lenders, brokers, and others now, and we will continue to do so as we refine the forms. We have posted draft forms online, while they are still in the design phase, and we have asked the public to weigh in. We will share the input we receive with our testers and designers, factoring it into our design process. We hope that these expanded procedures will permit us to engage a broader constituency, helping us deliver on the promise of this agency embodied in the Dodd-Frank Act.

Read the entire written testimony.

Know Before You Owe. Go!


We’ve just posted two draft designs for a single, simpler mortgage disclosure form on our Know Before You Owe page. Now, we need to hear from you!

The task is pretty simple: Consumers would receive a form similar to one of these versions within a few days of applying for a loan. Take a look, and tell us which one would do a better job of disclosing the necessary information.

What information should lenders and brokers share with consumers when they apply for a mortgage?
Know Before You Owe graphic that links to Feedback Tool
Right now, anyone who applies for a mortgage gets two disclosures that contain basic information about the mortgage: the Truth in Lending form and the Good Faith Estimate.

The feedback process we’re starting today is one of the first steps in combining the Truth in Lending form and the Good Faith Estimate into a single, simpler disclosure form. While you’re looking at one of the forms, think about these questions:

  • Would this form help consumers understand the true costs and risks of a mortgage?
  • Could lenders and brokers clearly and easily explain the form to their customers?
  • What would you like to see improved on the form? Is there some way to make things a little bit clearer?

At the heart of our work is the idea that the consumer financial product and services market should work for you. We think we should learn from you what you want to see. One of the best ways to do that is also the simplest: we’re asking.

This is the first step in a process that will last months. There will be more opportunities to weigh in as we move forward.

But if you want to help set the direction of a new mortgage disclosure form from the beginning, you should weigh in today.

Independent Research at the CFPB


The CFPB is building an Office of Research to support its commitment to evidence-based policymaking. The research office will produce new findings that deepen our understanding of the problems that consumers, firms, and markets encounter. It will also help the CFPB conduct rigorous policy evaluations, which in turn will help maximize our effectiveness in addressing these problems and minimize unintended consequences.

Today, the consumer bureau announced that Sendhil Mullainathan will serve as Assistant Director for Research and lead the work of the Office of Research. Mullainathan brings a wealth of relevant experience, including as Professor of Economics at Harvard University. Sendhil has received a MacArthur Foundation “genius award,” as well as numerous other grants and fellowships, including from the National Science Foundation, the Olin Foundation, the Sloan Foundation, and the Russell Sage Foundation.

Under Sendhil’s leadership, the Office of Research will conduct research on a variety of topics and, in many cases, publish findings under the consumer bureau’s name. Frequently, though, researchers will choose their own topics, data, and methodology themselves, draw their own conclusions, and publish in their own names.

Like other federal regulatory agencies, we encourage this kind of “self-directed” research because it promotes evidence-based, rather than myopic or narrow, policymaking. Self-directed research will help us remain true to the core values that underpin our policymaking: honest investigation, independent thinking, and open discussion.

By offering our research staff the opportunity to pursue original ideas, the CFPB will also be in a better position to attract the best-trained researchers with the skills to strengthen our understanding of the benefits and costs of potential policies. Under the CFPB’s research policy:

  • Researchers may elect to dedicate a substantial portion of their time to self-directed research. They may focus on household finance or behavior, consumer financial firms or markets, or other areas relevant to the mission of the consumer bureau. Other federal financial regulators also provide researchers time for independent research. For example, the portion of time provided at the CFPB will be comparable to that provided across the Federal Reserve System. Researchers who choose to conduct independent research will be evaluated based on research performance, such as their record of publications.
  • Researchers are also encouraged to publish or present their work in peer-reviewed journals and other scholarly venues. The CFPB will not review or censor findings of self-directed research presented externally for policy content, so long as the researcher includes a disclaimer that the work does not necessarily represent the views of the CFPB.

Encouraging original inquiry and independent conclusions will help us act wisely on behalf of the American people. Allowing researchers to publish their findings will increase transparency – and that will help the public to hold us accountable. We are excited to get started.

Raj Date is the Associate Director for Research, Markets, and Regulations.

Know Before You Owe: Designing a New Disclosure


This is the second in a series of blog posts about the Know Before You Owe project. To stay informed, sign up for e-mail updates.

If you were designing a better mortgage disclosure form, how would you do it and where would you start? Over the past several months, we have been hard at work thinking about these questions.

We started with the current disclosure forms, studying their strengths and weaknesses. We’ve also met with lots of different experts – from consumer advocates, regulators, and industry representatives to researchers and graphic designers — to get their thoughts. These people gave us a lot of ideas about what information matters most when choosing a mortgage loan and how to communicate it clearly.

But expert input isn’t enough because it leaves out an important set of voices. We also need to hear from consumers, who need the disclosure to be clear so they understand the loan terms they’re being offered – and can compare different offers easily. We need to hear from you.

So, over the next few months, we will share our draft designs with you, right here on this website. As we create and revise different versions of the mortgage disclosure form – remember, we’re combining two forms into one! – we will post them online and ask what you think.

Maybe the total cost of the loan should be clearer. Maybe some information would look better as a graph than as a list of numbers. Maybe there are some terms that make sense to technical experts but sound like gibberish to individual consumers. That’s the kind of input we need to design a better disclosure.

You can start right now by signing up on our Know Before You Owe page. Once you do, you’ll get an e-mail when it’s time to weigh in. We’re going to revise and repost the draft form repeatedly over the next several months, so getting quick feedback from you is especially helpful.

Also, use the “share” links on that page to spread the word. If you know anyone who is thinking about applying for a mortgage loan, or who has one and is struggling to understand it, we want to hear from him or her too. We want your help to get the word out.

As we ask for your comments online, we’ll also visit cities across the country to test the draft disclosure forms. During our visits, we will interview consumers, lenders, and brokers about what they find helpful or confusing in our draft designs.

After five rounds of this testing, in six cities and with your input online, we expect the revised form to be a lot better than the old ones. Then, after consulting with other regulators and small businesses, we will issue a proposed rule and give the public a chance to submit written comments on the revised form. It’s one more chance to weigh in on our proposed final design. After that, we will go through the comments, make any needed changes, possibly do one last test, and come out with a final rule unveiling the final version of the form.

We hope our continued outreach will allow us to make the disclosure better and better, learning what works and what doesn’t, until we have a product that makes a real difference for consumers. So visit this site often, and remember to sign up so that you know when it’s time to have your say. Share your opinions freely! Down the road, the disclosure we design together may be the one that you or someone you care about will use when applying for a mortgage loan. So, it has to work for you. That’s the bottom line.