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Rulemaking

The Know Before You Owe mortgage rule will take effect October 3, 2015

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Know Before You Owe mortgage disclosure forms

Today, we’re issuing a final rule delaying the effective date for the Know Before You Owe mortgage disclosure rule to October 3, 2015. The Know Before You Owe rule will improve the way you’ll receive information about mortgage loans, both when applying for a loan and when you’re getting ready to close.

We’ve been talking about the Know Before You Owe mortgage disclosure rule for a while, and we’ve also been hard at work to provide helpful information for the mortgage industry to understand what the requirements are, including how to fill out the disclosure forms.

You can check out more information about the project that got us here and what the Know Before You Owe rule means for consumers like you.

We want it to be easier for you to shop effectively for mortgages and to make the decisions that work for you and your family. We want consumers to be confident in the information they receive, the lenders they work with, and their ability to make good comparisons. The Know Before You Owe mortgage disclosure rule is a key part of that effort, so we’ve spent a lot of time testing the new disclosure forms with consumers. We’re confident that the new disclosures will make information clearer and easier to use, and we look forward to their implementation starting October 3.

To learn more about the effective date, including why there was a delay, read our press release.

Explainer: How small businesses play a role in the rulemaking process

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We often hear many questions about how the rulemaking process works. We decided to write a series of posts that explain some key parts of the rulemaking process. We’ll add to the series in the coming weeks and months.

Before we propose a rule, we’re sometimes required to organize a Small Business Review Panel so that we can hear from small businesses about the potential impacts of the rule. We’re one of three federal regulators required to include the small business review process. Small businesses provide us with valuable feedback as we write regulations to help consumer financial products and services work for Americans.

How we work with small businesses

We’re a data-driven, evidence-based agency with a philosophy of issuing regulations only where there’s a strong justification for doing so. The Dodd-Frank Act, the law that created the CFPB, requires us to organize a Small Business Review Panel when we’re working on a rule that could have significant economic impacts on small entities. Small entities include small businesses, organizations, and small government bodies

Each Small Business Review Panel consists of representatives from the CFPB, Small Business Administration, and the Office of Management and Budget’s Office of Information and Regulatory Affairs. The panel holds an outreach meeting with a representative group of small businesses to discuss the potential rules we’re considering. We’ll use that feedback to inform the rulemaking process.

The panel decides which small businesses participate

First, we determine which types of small entities the proposed rule under consideration could directly affect. Then, we coordinate with the Small Business Administration to select individuals to represent these small entities. About 15 to 20 small business representatives usually participate in the process.

How the panel works

Before the outreach meeting, the panel will distribute materials to each participant, including general background, an overview of the proposals being considered, and a list of issues and questions we’ll discuss with the participants. We post these materials on our web site simultaneously so our rulemaking plans are transparent.

Small business representatives are given time to study the materials and we follow up with them to see if they have questions. Then, during the meeting, the panel hears from the representatives about the regulatory proposals. Representatives typically discuss the anticipated compliance requirements and potential costs of the proposed rule. In addition to providing verbal feedback during the meeting, the small business representatives may submit written comments.

Panel meetings

The panel’s meetings aren’t public, but we’ll publish meeting materials on our website. We want a free and open discussion with the small business representatives, and we think the best way to do that is to keep the meetings small. We’ll summarize our discussions in the panel report.

What happens next

Within 60 days of meeting, the panel will complete a report on the input we received from the small business representatives. The report may include any significant alternatives that would minimize economic impacts. We’ll publish the panel’s report along with a proposed rule, which is the next step in the rulemaking process. We’ll keep seeking feedback from consumers, consumer advocates, other regulators, and industry representatives that were not part of the panel process as we develop a proposed rule.

Fall 2014 rulemaking agenda

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Today, we’re posting a semi-annual update of our rulemaking agenda in conjunction with a broader initiative led by the Office of Management and Budget (OMB) to publish a Unified Agenda of Regulatory and Deregulatory Actions across the federal government. Portions of the Unified Agenda will be published in the Federal Register, and the full set of materials is now available online.

Under the Regulatory Flexibility Act, federal agencies are required to publish regulatory agendas twice a year. We’ve been doing this for a couple of years now by voluntarily participating in the Unified Agenda. Our regulatory agenda includes rulemaking actions in the following stages: pre-rule, proposed rule, final rule, long term actions, and completed actions.

Mortgages

Our agenda includes certain mortgage rulemakings mandated by the Dodd-Frank Act. For example, in July 2014 we released a proposal to amend Regulation C, which implements the Home Mortgage Disclosure Act (HMDA) in accordance with the Dodd-Frank Act’s amendments to HMDA, and to help align the law with existing industry standards for collecting data on mortgage loans and applications. Additionally, the proposal would revise Regulation C to improve the effectiveness of HMDA, including changes to institutional and transactional coverage, modifications of reporting requirements, and clarifications of existing regulatory provisions.

We’re also focused intensely on supporting the implementation process for our recent rulemaking (TRID Final Rule) to implement a Dodd-Frank Act directive to consolidate and streamline federal mortgage disclosures required under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act. For example, in October 2014 we released a proposal to provide for technical corrections to the rule text and commentary in the TRID Final Rule; allow for the placement of certain language related to new construction loans to be added to the Loan Estimate form; and relax the timing requirement that creditors provide revised disclosures on the same day that a consumer’s rate is locked. We’re also continuing work with stakeholders to address questions that have arisen with regard to the 2013 mortgage rules, including issuing additional clarifications and amendments as warranted. For example, we just released a proposal this week that would amend various aspects of the 2013 mortgage servicing rules, including disclosures, early intervention, and loss mitigation. The proposal also addresses proper compliance with the rules when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act (FDCPA).

Prepaid cards

We released a proposal last week to create comprehensive consumer protections for prepaid financial products such as general purpose reloadable prepaid cards (GPR cards) and certain digital and mobile wallets. Under the proposal, consumers acquiring such products would receive a number of Regulation E protections, such as getting disclosures about fees before they acquire a prepaid cards and error resolution rights. Their liability would also be capped for unauthorized use of their prepaid card under certain conditions.

Additionally, prepaid products that access overdraft services or credit features for a fee would generally be credit cards subject to TILA and Regulation Z, including Regulation Z’s credit card rules. These rules include ability-to-repay requirements and fee limits during the first year of account opening. Consumers that choose to access overdraft services or credit features would be given at least 21 days to repay the debt incurred in connection with using such services or features. Incoming funds would not automatically be debited to pay the debt whenever the funds are loaded.

Payday loans

The Bureau is considering what rules may be appropriate for addressing the sustained use of short-term, high-cost credit products. We published research on payday lending and so-called deposit advance products in an April 2013 white paper and a March 2014 data point. In addition to conducting additional research, we are evaluating what types of rules would be appropriate and warranted under CFPB authorities. Rulemaking might include disclosures or address acts or practices in connection with these products.

Defining larger participants

We’re continuing rulemakings to implement our supervisory program for certain nonbank entities by defining “larger participants” in various markets for consumer financial products and services. For example, we released a proposal to identify “larger participants” in the market for auto lending and defining certain automobile leasing activity as a financial product or service. We also finalized a rule defining larger participants in the international money transfer market. So far, we’ve defined larger participants in the consumer debt collection, credit reporting, and student loan servicing markets.

Debt collection

We received more than 23,000 comments earlier this year in response to our advanced notice of proposed rulemaking released in November 2013. We are considering whether rules governing the collection of debts are warranted under the FDCPA or other CFPB authorities, and, if so, what types of rules would be appropriate. Rulemaking might include disclosures or address acts or practices in connection with debt collection activities. We are developing a survey to obtain information from consumers about their experiences with debt collectors and are engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.

Our 2014 Report on the FDCPA reported that we received more than 30,000 consumer complaints in this area from July 2013 through December 2013. Since January 2014 to now, we have received more than 79,000 consumer complaints.

Overdraft

We’re continuing to research overdraft services and considering whether rules governing overdraft and related services are warranted and what such rules may be. A possible rulemaking might include disclosures or address specific acts or practices. In July 2014, we released a report, based on data from sources we used in our June 2013 white paper of our initial analysis of overdraft practices. The July 2014 report provided additional information about the outcomes of consumers who do and do not opt in to overdraft coverage for ATM and one-time debit card transactions. The report also explored the transactions that overdraw consumer accounts.

Privacy disclosures

In the Spring 2014 Unified Agenda, we stated that we expected to issue a proposal regarding the notices that consumers receive each year from their financial institutions to explain the companies’ information sharing practices, as part of our regulatory streamlining efforts. We released the final rule in October 2014. It provides that financial institutions that restrict their information sharing practices and meet other requirements may post their annual privacy notices to customers under the Gramm-Leach-Bliley Act online, rather than delivering them individually.

We’re continuing research, analysis, and outreach on a number of other consumer financial services markets, and will update our next semi-annual agenda to reflect the results of further prioritization and planning.

Spring 2014 rulemaking agenda

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Today, we’re posting a semi-annual update of our rulemaking agenda in conjunction with a broader initiative led by the Office of Management and Budget (OMB) to publish a Unified Agenda of Regulatory and Deregulatory Actions across the federal government. Portions of the Unified Agenda are published in the Federal Register, and the full set of materials is also available.

Under the Regulatory Flexibility Act, federal agencies are required to publish regulatory agendas twice a year. We’ve been doing this for a couple of years now by voluntarily participating in the Unified Agenda. Our regulatory agenda includes rulemaking actions in the following stages: pre-rule, proposed rule, final rule, long term actions, and completed actions.

Mortgages

Our agenda includes a number of rulemakings mandated by the Dodd-Frank Act. For example, we recently convened a small business review (SBREFA) panel to discuss potential amendments to the Home Mortgage Disclosure Act, some of which were mandated by Section 1094 of the Dodd-Frank Act. We’re also focusing intensely on supporting the implementation process for our recent rulemaking to implement a Dodd-Frank Act directive to consolidate and streamline federal mortgage disclosures required under the Truth in Lending Act and Real Estate Settlement Procedures Act. We’re also continuing work with stakeholders to address questions that have arisen with regard to the 2013 mortgage rules, including issuing additional clarifications and amendments as warranted.

Defining larger participants

We’re also continuing rulemakings to implement our supervisory program for certain nonbank entities by defining “larger participants” in various markets for consumer financial products and services. For example, we’re developing a proposal to identify “larger participants” in the market for auto lending. We’ve previously defined larger participants in the consumer debt collection, credit reporting, and student loan servicing markets and are now in the process of finalizing a rule defining larger participants in the international money transfer market.

Debt collection

We’ve been doing research and outreach to assess issues in various other markets for consumer financial products and services over many months. In November 2013, we issued an advance notice of proposed rulemaking seeking comment, data, and information from the public about debt collection, which is the single biggest source of complaints to the federal government. We received more than 23,000 comments in response to the notice, and in our 2014 annual report on Fair Debt Collection Practices Act, reported that we received more than 30,000 consumer complaints in this area.

Payday loans and prepaid cards

We’re researching and considering whether rulemaking is warranted in the areas of payday and deposit advance products, as well as consumer overdraft products. We held a field hearing in March 2014 in Nashville, Tennessee, and also released a report that analyzed payday lending and found that four out of five payday loans are rolled over or renewed within 14 days. We’re also expecting to build on an Advance Notice of Proposed Rulemaking that we published in 2012 concerning prepaid cards by issuing a proposed rule to strengthen federal consumer protections for these products. We’ve been testing potential disclosures that we may propose to be used on the packaging of prepaid cards.

Privacy disclosures

We’re returning to a topic that had been raised as part of an earlier initiative to seek comment on ways to streamline and modernize regulations that we had inherited from other agencies. Specifically, we are expecting to issue a proposal regarding the notices that consumers receive each year from their financial institutions to explain the companies’ information sharing practices. A number of commenters had suggested that eliminating the annual privacy notices where there has been no change in policies would reduce unwanted paperwork for consumers and unnecessary regulatory burdens, at least where a financial institution limits the sharing of information with third parties.

We’re continuing research, analysis, and outreach on a number of other consumer financial services markets, and will update our next semi-annual agenda to reflect the results of further prioritization and planning.

Fall 2013 rulemaking agenda

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Today, we are posting a semi-annual update to our rulemaking agenda. This is in conjunction with a broader initiative led by the Office of Management and Budget (OMB) to publish a Unified Agenda of federal regulatory and deregulatory actions across the federal government. Portions of the Unified Agenda are published in the Federal Register, and the full set of materials is available online.

Federal agencies typically release regulatory agendas twice a year. Each spring and fall, OMB and the Regulatory Information Service Center (RISC), work with federal agencies to compile a list that outlines most of the rulemaking activities of the agencies for the coming twelve months. It also includes recently-completed rulemakings. As an independent agency, we are required to publish certain items in the Federal Register by law. We voluntarily participate in the broader Unified Agenda process.

The fall 2013 agenda reflects that we are both continuing to work on rulemakings mandated by the Dodd-Frank Act and turning our attention to significant issues in other major markets for consumer financial products and services.

In the past year, for example, we have issued rules to implement Dodd-Frank Act requirements and other significant reforms concerning mortgage originations, servicing, and most recently, the federal disclosures that consumers receive shortly after application and shortly before closing. As reflected in the agenda, in 2014 we expect to begin work on some follow-up mortgage issues, such as how to apply certain exemptions under the Dodd-Frank Act that are designed to preserve credit in “rural or underserved” areas. We will also work on a proposed rule to implement Dodd-Frank Act changes to the Home Mortgage Disclosure Act, which will improve the mortgage data that is available to monitor the market and assess fair lending practices.

In addition, the agenda reflects that we are planning to move forward with a proposed rule with respect to prepaid card products. It also reflects that we are actively assessing the need for regulations in other markets for consumer financial products and services, particularly debt collection, payday loans and deposit advance products, and bank overdraft programs. The Bureau has been gathering significant information on these topics through previous white papers and other research, requests for comment and advanced notices of proposed rulemaking (including a current request for comment on debt collection practices), and other outreach. We will intensify work on these projects in 2014, for instance by testing consumer disclosures in connection with prepaid products and debt collection.

We also are returning to a topic that had been raised as part of an earlier initiative to seek comment on ways to streamline and modernize regulations that we had inherited from other agencies. Specifically, we expect to issue a proposal regarding the notices that consumers receive each year from their financial institutions to explain the companies’ information sharing practices. A number of commenters had suggested that it would be helpful to reduce unwanted paperwork for consumers and unnecessary regulatory burdens, at least where a financial institution limits the sharing of information with third-parties and has not changed policies.

We are continuing research, analysis, and outreach on a number of other consumer financial services markets, and will update our next semi-annual agenda to reflect the results of further prioritization and planning. So stay tuned in this space for further updates as we look ahead to 2014.

Know Before You Owe: preparing to finalize the new mortgage disclosure forms

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Two and a half years ago, we began a line of work we call Know Before You Owe. The work that we did as part of that project helped lead us to the TILA-RESPA final rule we issued Wednesday. Among other things, that rule requires new mortgage disclosures: a Loan Estimate the consumer gets when applying for a mortgage, and a Closing Disclosure when the consumer is ready to close on the mortgage. Today we’re looking back at the project that helped get us here.

What is Know Before You Owe?

When you buy a financial product or service, you should understand the terms you’re offered before you sign on the dotted line. You should be able to compare different products effectively and make the right choices for yourself and your family. And the information you use to make those decisions should be clear and easy to understand.

This information is usually presented in writing, in forms like disclosures, contracts, and offer letters. We believe that the best way to make sure this information is clear is for the people who actually have to use the information to help us design them. So that’s exactly what we asked people to do. We call this project Know Before You Owe.

How does it apply to mortgages?

We started Know Before You Owe in May 2011 with mortgage disclosures. In the Dodd-Frank Act, Congress directed us to combine the existing disclosures you get when you apply for and close on a mortgage: the Truth in Lending disclosures, the Good Faith Estimate, and the HUD-1 Settlement Statement. These disclosures contain some of the basic facts about home loans, and they should help you pick the right mortgage product for you. But they have overlapping information and complicated terms, and they can be just plain difficult to understand.

The idea is to create a single, simpler set of forms so that when you shop for a mortgage, and then again when you close on one, you can understand the basic information you need to pick the right mortgage loan for you.

Over the course of about a year, we qualitatively tested the forms with consumers, lenders, and settlement agents across the country to see how people would use the forms. We saw how they understood different types of mortgages, different terms, and different versions of the forms. We supplemented this this qualitative testing by posting the forms here on consumerfinance.gov and asking people to weigh in. Over the course of the project, we received more than 27,000 comments that helped us improve the disclosures we proposed.

What’s the final rule all about?

In July of last year, we proposed the rule that would require the new forms. As expected, we got a lot more comments: more than 2,800 of them. Since the proposal, we’ve been reviewing these comments to improve the rule. We’ve also conducted a quantitative validation study with about 850 consumers in 20 locations across the country. The study compared our new forms against the existing forms. We conducted additional qualitative testing. And we reviewed what information you told us we should add to the rule to make compliance easier.

The last big milestone in getting to a final rule was … issuing the rule, which we did last Thursday. The rule we submitted to the Federal Register had a lot of information and instruction about the new disclosures: what needs to be in them; what kinds of loans and which lenders need to use them; when to start using the new forms; and more. Along with the new rule, the notice contains information about the testing, analysis, and other work we did to develop the rule. And we posted a number of other things to help people understand the rule: what it means for consumers and for industry, additional testing results, and more.