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Rulemaking

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.

Updates to remittance transfer rule resources and a correction to the rule

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We strive to make financial markets work for both consumers and the entities we regulate. Critical to that goal is making sure that businesses – both small and large – have what they need to understand and comply with our new regulations, which are designed both to help consumers and make a fair playing field for companies that play by the rules.

Today, we’re releasing an update of our small business guide for our international electronic money transfers rule (also known as the remittance rule). This updated guide reflects the most recent changes to the rule and will make it easier to understand the requirements, which will take effect on October 28, 2013. Although the guide is not a substitute for the rule, it highlights issues that businesses, in particular small businesses and those that work with them, should consider while implementing the new requirements.

Along with the guide, we are releasing a video that gives an overview of the rule, the recent changes, and our responses to questions raised regarding interpretation and implementation of the rule.

These versions of the guide and video replace those versions released in late 2012 and which are now out-of-date.

We are also making a technical correction to the remittance rule to make a clarification and correct an error to the May 22, 2013 amendments.

More compliance resources

We have some more information to help industry understand and comply with the new requirements, including:

Rulemaking agenda

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Today, we are 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 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 12-month cycle. It also includes recently-completed rulemakings. As an independent agency, we are required to publish certain items in the Federal Register by law and voluntarily participate in the broader Unified Agenda process.

Our agenda includes a number of rulemakings mandated by the Dodd-Frank Act. For example, we recently issued several mortgage-related rules, most of which will take effect in January 2014. We are now focusing intensely on supporting the implementation process for those rules, and have proposed some clarifications and amendments to the rules to address questions raised by stakeholders. We are also working to complete a rule to integrate and streamline federal mortgage disclosures. Pending the results of additional testing, we expect to issue the final rule this fall, although we would not expect any implementation work to begin until after the January 2014 effective date for the earlier mortgage rules.

We are also continuing rulemakings to implement our supervisory program for certain nonbank entities. For example, in March 2013, we issued a proposed rule which, if finalized, would bring nonbank larger participants in the student loan servicing market within our supervisory authority. In June 2013, we issued a final rule establishing procedures to implement our authority to supervise certain nonbanks that we have a reasonable cause to determine are engaging, or have engaged, in activity that poses risks to consumers in connection with offering or providing consumer financial products or services. These procedures address issuing a notice to a nonbank that we may have “reasonable cause,” and providing the nonbank with an opportunity to respond.

The agenda also reflects that we have been conducting outreach and research to assess issues in various other markets for consumer financial products and services over many months. As a result of this work, we are now beginning to consider whether regulations may be appropriate to address concerns raised about debt collection, which is the single biggest source of complaints to the federal government , and payday and deposit advance products, which were the focus of a recent report. We are also expecting to build on an Advance Notice of Proposed Rulemaking that we published last year concerning prepaid cards, by developing a proposed rule to strengthen federal consumer protections for these products.

We are also 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 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.