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Rulemaking

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.

A final rule that makes mortgage disclosure better for consumers

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Today, we’re issuing the TILA-RESPA final rule. This rule improves the way consumers receive information about mortgage loans, both when they apply and when they’re getting ready to close. Alongside the rule, we’re publishing information to help industry understand what the requirements are, such as how to fill out the disclosure forms. Helping with that understanding will be an ongoing process. We’re also publishing information about the project that got us here and what the new rule means for consumers.

We want it to be easier for consumers to shop effectively for mortgages and to make the decisions that work for them. We want consumers who are confident in the information they receive, the lenders they work with, and their ability to make good comparisons. This rule is a key part of that effort, so we’ve spent a lot of time testing the new disclosures with consumers who will them as well as industry who will have to explain them to consumers. The results of that testing show that our new disclosures make information clearer and easier to use.

What does the rule do?

The final rule contains new rules and forms for two disclosure forms consumers receive in the process of getting a mortgage loan: the Loan Estimate, which comes three business days after application, and the Closing Disclosure, which comes three business days before closing on the loan. These disclosures are required by the Truth in Lending Act and the Real Estate Settlement Procedures Act. The new forms integrate existing disclosures and implement some new disclosure requirements from the Dodd-Frank Act.

The rule also offers some more protections for consumers. For example, consumers must receive their Closing Disclosure three business days before closing on the loan so they have time to review it. The final rule also limits the circumstances in which consumers will have to pay more for settlement services than the estimate they received.

These disclosures and requirements will be effective August 1, 2015.

What’s new about the disclosures?

For most homebuyers, a home is the biggest purchase they’ll ever make. It’s also the most complicated financially, with a lot of paperwork to review and understand. The new forms simplify and clarify a lot of information. Essentially, our forms work to allow consumers to compare loans and make better informed decisions.

The new forms are shorter than the forms under current law. Our Loan Estimate is three pages long; the existing federal disclosures it replaces run at least seven pages. Our Closing Disclosure is five pages long and combines five pages of old forms, plus new disclosures required by the Dodd-Frank Act. This is only some of the information consumers get; lenders, investors, other agencies, and states require other documents. We are working with these other parties to figure out how to reduce the paperwork burden further.

But length isn’t the only factor. The documents need to be easy to understand and use. If we reduced page count but increased confusion, we did the wrong thing. We adopted a user-centered design process in creating these forms that made us confident we could clarify as we streamlined. It turns out we were right: the public made us better at our work.

How do we know they work better?

After we proposed the rule that would have required the new forms, we worked with Kleimann Communication Group to conduct additional qualitative testing as well as a quantitative validation study to measure how well the forms work. Before beginning the study, based on the comments we received on that proposal, we made a few changes to make the forms even better for consumers. These modified versions were the ones tested in the study. Today, we’ve published a report on the study, including its methodology, but what wowed us, and what we want to share here, is the results, which are striking.

We asked participants to answer questions on a written test about a sample mortgage. Those who used our new forms provided more correct answers than those who reviewed the current forms, an improvement of 28.8 percent. The margin of error was plus or minus 4.7 percentage points. Put another way, our new forms performed significantly better than the current forms.

These results are consistent when we break down the questions by different variables in the study, such as identifying numbers from one loan or comparing two loans, experienced or inexperienced mortgage consumers, reviewing a fixed rate or an interest-only adjustable rate loan, or focusing on interest rates or on payments. Which is to say: we are confident we didn’t end up with proposed disclosures that work well for one kind of mortgage loan experience but are confusing for others.

The testing showed that it’s not just that people could understand the new disclosures; they could talk about them, too. People who used the new forms could explain why they made choices they did and offered more comments about their choices than people who used the existing forms. This suggests the new forms may help people articulate their thoughts more clearly. That could mean better discussions with spouses, financial advisers, realtors, and others who help consumers in the process. It may mean more than just better financial results; it may mean a better shopping experience.

What comes next

The next step on the TILA-RESPA rule is developing an implementation support effort. We’re already working on this. Look for information soon that helps industry understand how to comply with the new rules, what they need to do to prepare, and more.

In January, the Title XIV rules become effective. Those rules codified many lending and servicing practices that help consumers and prohibited many practices that tend to get them in trouble. We’re also beginning to develop tools focused on consumers that can help them shop for their homes.

These three areas of work – requiring good information, requiring good practices, and offering useful tools – create the foundation for a better homebuying experience, one in which consumers understand prices and risks and have the clarity they need to make the best decisions for themselves and their families.

Making regulations easier to use

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We write rules to protect consumers, but what actually protects consumers is people: advocates knowing what rights people have, government agencies’ supervision and enforcement staff having a clear view of what potential violations to look out for; and responsible industry employees following the rules.

Today, we’re releasing a new open source tool we built, eRegulations, to help make regulations easier to understand. Check it out: consumerfinance.gov/eregulations

One thing that’s become clear during our two years as an agency is that federal regulations can be difficult to navigate. Finding answers to questions about a regulation is hard. Frequently, it means connecting information from different places, spread throughout a regulation, often separated by dozens or even hundreds of pages. As a result, we found people were trying to understand regulations by using paper editions, several different online tools to piece together the relevant information, or even paid subscription services that still don’t make things easy, and are expensive.

“Right now I’m stuck using a combination of paper, e-CFR, online FR, and commercially available tools . . . “

This is a common complaint, and one that we were excited to take a crack at. The above quote came from one of our regulations attorneys. That attorney went on to say:

“…but only (the) eRegulations tool combines it all in one place, and also puts it in a useful, usable, and readable format.”

So, how does eRegulations make using regulations easier?

The public, industry, and the government, including CFPB, all benefit from regulations that are easier to use. With that goal in mind, we set out to build a tool with the following features:

  • Easy to search and navigate.
  • Key terms are defined throughout.
  • Official interpretations are available throughout.
  • Include certain sections of the “Federal Register preambles” to help explain the background to any particular paragraph.
  • Ability to see previous, current, and future versions.

We loved talking to regulators, from CFPB and elsewhere, to prototype, test and improve ideas – it’s how we created the tool that accomplishes these goals. Ideally, using eRegulations will lead to better compliance, more efficient supervision, and improved accessibility.

Here’s hoping that even more people who work with regulations will have the same reaction as this member of our bank supervision team:

 “The eRegulations site has been very helpful to my work. It has become my go-to resource on Reg. E and the Official Interpretations. I use it several times a week in the course of completing regulatory compliance evaluations. My prior preference was to use the printed book or e-CFR, but I’ve found the eRegulations (tool) to be easier to read, search, and navigate than the printed book, and more efficient than the e-CFR because of the way eRegs incorporates the commentary.”

New rules about international money transfers – also called “remittances” –  in Regulation E will take effect on October 28, 2013, and you can now use the eRegulations tool to check out the regulation.

We need your help

There are two ways we’d love your help with our work to make regulations easier to use. First, the tool is a work in progress.  If you have comments or suggestions, please write to us at CFPB_eRegs_Team@cfpb.gov. We read every message and would love to hear what you think.

Second, the tool is open source, so we’d love for other agencies, developers, or groups to use it and adapt it. And remember, the first time a citizen developer suggested a change to our open source software, it was to fix a typo (thanks again, by the way!), so no contribution is too small.

A note from our lawyers

Please note, eRegulations is not an official legal edition of the Code of Federal Regulations or the Federal Register, and it does not replace the official versions of those publications.