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Posts from July 2012

Explainer: Why did it take 1,099 pages to propose a three-page mortgage disclosure?

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Dear CFPB,

Recently, I saw your notice of proposed rulemaking to combine and simplify existing mortgage disclosures. It’s 1,099 pages long! Why does it take so many pages to create something that’s supposed to be easy to use and understand?

Sincerely,
Interested in your regulations

Dear Interested,

This is a great question, one you’re not alone in asking — 1,099 is a lot of pages, as those of us who were involved in writing them can attest.

Let’s start with some background. Currently, two federal laws – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) – mandate that consumers receive disclosures of certain information about mortgage loans. The Dodd-Frank Act required the CFPB to propose a rule to combine the TILA and RESPA disclosures.

If you want to see the new combined disclosures, combine and simplify existing mortgage disclosures check them out here. If you want to see what the proposal means for you, we’ve provided summaries, one on what it would mean for consumers and one with more technical detail.

You said “propose a rule to combine the disclosures” instead of just “propose combined disclosures.” Why?
It’s an important distinction. The rule explains how we would expect industry to use the disclosures: when to issue them, how they apply to different loans, what various terms mean, etc.

And that proposed rule is 1,099 pages?
Actually, no. We are not proposing 1,099 pages of new regulations. That page count is for the notice of the proposed rule, not the rule. Like notices of proposed rulemaking issued by other agencies (particularly the Federal Reserve Board), our proposal consists of three basic parts: (1) the preamble explaining the proposal; (2) the text of the proposed regulations; and (3) guidance on how to comply with those regulations.

In terms of pages, the new regulations are only a small part. Most of the pages explain what we are doing and why we are doing it. As required by law, we analyze the costs and benefits of the proposal for consumers and industry. We also provide thorough guidance on how to comply including samples of completed forms, which the industry requested during our outreach and Small Business Review Panel process. Because of the variability of mortgage loan and real estate transactions, industry wanted specific guidance for many different potential scenarios. This added to the page count.

Here’s how the notice breaks down:

Content Pages
Preamble
  • Directions on how to submit comments
  • Summary of the proposed rule
  • Overview of the mortgage market and the mortgage shopping process
  • Summary of 43 years of TILA and RESPA mortgage disclosure regulation
  • Summary of the Dodd-Frank Act provisions requiring the Bureau to combine the TILA and RESPA mortgage disclosures and related Dodd-Frank Act mortgage rulemakings
  • Summary of the Bureau’s outreach, disclosure testing, and Small Business Review Panel
  • Statement of the Bureau’s legal authority
  • Detailed explanations of the reasons for each aspect of the proposed rule and requests for comment
  • Analyses of the costs and benefits of the proposed rule for consumers and industry, as required by the Dodd-Frank Act, the Regulatory Flexibility Act (as amended by the Small Business Regulatory Enforcement Fairness Act), and the Paperwork Reduction Act
684
Proposed amendments to regulations
  • New rules
  • Technical and conforming amendments to existing rules
209
Proposed guidance regarding compliance with the amended regulations
205
Signature page
1
TOTAL
1,099

The preamble is long.
It is. The preamble provides context for the proposed forms and regulatory changes. The mortgage market is big, and mortgage disclosure regulation has 43 years of history. Also, before writing the rule, we spent a lot of time talking to industry and consumers and analyzing costs and benefits. That’s a lot of context, and that means a long preamble.

Why bother with all this context?
First, some of it is required by law. Second, we believe that part of our commitment to open government is providing more rather than less information about our work. Finally, we want your comments to help us understand the market better, and providing context can lead to more informative comments. Explaining what we considered in writing the proposal makes it easier to craft specific responses or to draw our attention to something you think we’ve missed. Comments that provide new insight or information can be the ones that have the greatest impact on what we do next.

That leaves 415 pages. Only part of that is new rules, though. What else is left?
The technical and conforming amendments make sure the new rules don’t conflict with existing rules, that they make the right cross-references, etc. This actually accounts for more than half of the proposed regulatory language.

The proposed guidance explains what certain regulatory language means in context. For example, the phrase “within three business days” appears a lot in this notice, as in: a creditor must deliver the loan estimate disclosure “within three business days” of application. But what counts as a business day? If a bank is closed the Friday before an Independence Day that falls on Saturday, does that Friday count as a business day? (Answer for purposes of delivery of this disclosure: yes.) Providing guidance that clarifies issues like these can save time, energy, and costs for both industry and regulators.

And the signature gets its own page?
Yes. We don’t expect a lot of comments on that page.

So where can I comment on this notice of proposed rulemaking?
First, we hope you’ll take a look at the Know Before You Owe project that helped us develop the proposed disclosures. Then, review the rule and submit your comments at Regulations.gov.

Meet Greg from Michigan

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Since we launched on July 21st 2011, we’ve heard directly from consumers about the challenges they face in the marketplace, brought their concerns to the attention of financial institutions, and helped address their complaints. Accepting, resolving, and analyzing consumer complaints is an integral part of our work.

This week, we’ll be featuring stories from consumers who we have helped, and who have agreed to let the CFPB make their stories public.

Greg, a 39-year-old insurance adjuster from Michigan, whose credit rating was damaged after a bank failed to tell him that an account with which he was associated was in arrears.

Greg added his name to his 71-year-old mother’s checking account after he helped her move into an assisted living facility. Six months passed without Greg getting any statements or hearing from the bank. Little did he know, however, that his mother had written a check and the account was racking up big fees because its balance had fallen below zero. He found out about it when he checked his credit report and saw that he owed a collection agency $469.

Greg paid the bill but his credit was harmed and he says the bank wouldn’t help. After the CFPB got involved, the bank apologized for their error, called off the debt collector, and had Greg’s negative credit record removed.

Learn more

To see more about how we handle consumer complaints, read our Consumer Response Snapshot and to see all credit card complaints, visit our consumer complaint database.

Meet Ronald from Georgia and Nelda from California

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Since we launched on July 21st 2011, we’ve heard directly from consumers about the challenges they face in the marketplace, brought their concerns to the attention of financial institutions, and helped address their complaints. Accepting, resolving, and analyzing consumer complaints is an integral part of our work.

This week, we’ll be featuring stories from consumers who we have helped, and who have agreed to let the CFPB make their stories public.

Ronald, a 77-year-old Army veteran and retired businessman from Georgia believed he had paid off his mortgage but found his mortgage servicer said he still owed money.

Ronald, who bought his home in 1979 for $38,000, was blind and had trouble finding the paperwork to prove he owned his home free and clear. So he continued to hand over $100 each month to the lender. After the CFPB got involved at the end of 2011, the bank determined that Ronald had in fact paid off his mortgage in 2007 before the current servicer took over the loan. The bank refunded Ronald’s money at 3 percent interest and sent him a check for $30,000.

Nelda, a 67-year-old data entry clerk from California, received a $2,000 charge on her credit card for purchases she never made.

She says she contacted the card issuer to report the mistake and found out the charges were systematically accrued on one day by someone withdrawing $200 at a time. She told the issuer it was fraud. But she says the issuer said she was still on the hook for the money because it was her card. The charges set off a cascade of bad events for Nelda that lasted nearly a year. Eventually, the debt was sold to a collection agency that took Nelda to court.

After the CFPB got involved, the card issuer accepted that the charges were fraudulent and agreed that Nelda was not responsible.

Learn more

To see more about how we handle consumer complaints, read our Consumer Response Snapshot and to see all credit card complaints, visit our consumer complaint database.

Falling behind on your student loans? Know your options.

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At the Consumer Financial Protection Bureau, we are working to understand the impact of the recession on young consumers and to learn more about what increasing levels of student debt mean for the economy as a whole. But we also know that millions of borrowers are struggling and need help now.

Today, the Consumer Financial Protection Bureau has partnered with the U.S. Department of Education to release a new web tool for borrowers who have fallen behind on their student loan payments. Our tool should help borrowers understand their options, communicate effectively with their servicer or debt collector, and work to bring their loans out of default or delinquency. Addressing the problems of delinquency and default – problems too often ignored – provides these borrowers with opportunities to rebuild their credit, go back to school, or buy a home.

Check out the Student Loan Debt Collection Assistant.

Delinquency and default are an often-overlooked, but quickly growing, segment of the student loan market. Over a quarter of all student loan borrowers are at least one monthly payment behind. Millions of federal student loan borrowers have defaulted on their loans.

These borrowers, like so many other young Americans, were hit hard by the recession. The unemployment rate among young college graduates is more than twice the rate of their older counterparts. Of those who have found work, more than a third of college graduates under age 25 have taken jobs that do not require a college degree. These young adults will feel the impact of graduating into a recession for a decade or more – it will take 10 to 15 years for their salaries to catch up to those who had the benefit of graduating into a healthy job market.

Over the past decade, student debt has grown to an average of over $22,000 for graduates of public colleges and universities and over $28,000 for private school grads. That’s a 20% increase. A growing number of borrowers – greater than one in eight – have debts of $50,000 or more. For too many, this grim economic reality makes making each loan payment in-full and on-time a monthly struggle.

The consequences are serious and the stakes are high. Default can result in thousands of dollars in penalties and fees, damaged credit and can even get you hauled into court. This is a concern for young student loan borrowers, because, unlike virtually all other types of consumer debt, student loans generally cannot be discharged in bankruptcy. That can make a fresh start all but impossible.

For millions of federal student loan borrowers, curing default has an added benefit. A loan in default cannot qualify for income-based repayment, an alternative payment plan that can have a monthly “payment” as low as $0 for extremely low-income borrowers.

If you’ve fallen behind on your loans, check out our new web tool, available here on ConsumerFinance.gov and at the new StudentAid.gov, launched by the U.S. Department of Education earlier this week.

The CFPB is working on a number of fronts to help make the student loan market work better for consumers. Working with the Department of Education, the CFPB launched a Know Before You Owe project to solicit input on a “financial aid shopping sheet.” The initiative should help students understand the debt implications of their college choice. And the CFPB set up a student loan complaint system to help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter.

Repaying student debt can be challenging; but, for millions of young Americans, college remains a great investment and the surest path to future financial security. By knowing your rights and options, you can take control of your student loans and get back on track – it may be easier than you think.

Pushing forward on the CFPB’s financial aid comparison tool

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This past year, we’ve been working with the Department of Education on a project to help colleges provide clear and comparable financial aid information. Over the course of that project, we learned that more standard information could spur the innovation of apps and digital tools to allow students to better understand their decision to take on all forms of debt, whether it’s a federal student loan, private student loan, credit card, or other financial product.

A few months ago, we took a crack at a first version of what a financial aid comparison tool could look like. The beta test of our Financial Aid Comparison Shopper was a success, and we are working hard to launch the full version in the next school year.

Our early prototype was designed to help students and families make smarter choices about financing college, and we asked students, parents, high school counselors, and college financial aid officers to give us their feedback on how to improve the tool.

A survey conducted by an association representing high school counselors found that over 80 percent of their members said the tool was “useful” and that nearly half would recommend the tool to students/families without a single modification. But we think we still have more work to do to build the best tool for students and parents.

For example, we designed the tool for students and families with financial aid offer letters in hand. Based on the feedback we received, some users were trying out the tool to take a guess about what certain colleges might cost them before they’d even applied. Going forward we will need to make sure that users understand the purpose of the financial aid comparison tool and that it complements existing tools offered by others.

A key feature in the beta test that received positive feedback was the “military benefits calculator.” This is an important element for veterans and active-duty servicemembers, and we will be thinking carefully about how to improve it further.

During our beta test we also got some very specific feedback that was especially helpful. For example, some of you told us to include geography if we have a school search, since some colleges have the same name. Others said we should add more “hover overs” to explain more detail about some terms. And perhaps your most common suggestion dealt with how we tried to make the estimated monthly student loan payment relevant to the user. (We converted the amount into “textbooks” as a placeholder, which generated some strong opinions! We now have more ideas on what we might replace it with!)

Here are some next steps for this project:

  • Design: We’re pouring over web analytics about how users interacted with the tool. This will help us figure out what worked well, what was confusing, or what didn’t work.
  • Data: We need to refine what information would be most useful to students and parents in their decision making process. We plan to consult further with some of the higher education data gurus to figure out what would be most helpful.
  • Integration: We also want to figure out how this might interact with existing tools and initiatives offered by government agencies and the private sector. For example, we’ll want to make sure it complements other work, like the financial aid shopping sheet and the proposed college scorecard.

Going forward, we’ll definitely want to share updated designs and functionality to get further feedback. If you’re interested in participating further, please email us at students@cfpb.gov with the subject line “Comparison tool feedback.”

We’ll be sure to include you on our project update list. There will be more opportunities to provide feedback throughout this process, particularly in the areas of design, data, and integration.

Thanks to all of you that have participated in the project so far, and, with your help, we look forward to creating an even better version of the financial-aid comparison tool over the coming months.

How to stop mystery credit card fees

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When you’re activating a new credit card, watch for “the pitch.”

When you call to activate a new credit card, you may be routed to representatives who try to sell you things like “credit protection” or “identity monitoring” to add to your account. These services, or “add-on products,” are additional, optional services that will cost you money. You don’t have to buy anything extra from the credit card company to activate your credit card. In some cases, the sales tactics may be high-pressure and confusing.

Some things to ask yourself when you’re deciding whether you want add-on products:

  • Do you have enough information about the service to buy it?
  • Is the cost worth the possible benefit?
  • Do you understand whether you’d be eligible for the benefits of the service?
When you’re checking your monthly statement, watch for unfamiliar terms or fees.

Even if you don’t recall signing up to buy an extra service, be vigilant about checking your credit card statement for anything unfamiliar, including “add-on,” optional, fee-based products.

If you want to cancel these services

Call your credit card provider by using the number on the back of your card and ask to cancel them. You are not required to buy these optional services from your credit card provider.

What to do if this happens to you

If you find unfamiliar fees on your credit card statement, here’s what you should do:

  • Call your credit card company using the phone number on the back of your card to try to resolve the problem. Tell the card company if you did not authorize the charge.
  • Tell your story so that we can track what’s happening in the marketplace
  • If you’re unable to resolve the issue, file a complaint with the CFPB
  • Ask CFPB if you have more questions about credit cards.