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Revisiting Disclosures of the Cost of Credit

After more than a quarter century of disclosing the costs of credit, there is movement toward re-evaluating the methods used to disclose costs in the Truth in Lending and Real Estate Settlement Procedures Acts.

HUD is reviewing whether to devise a way to reflect the cost of certain fees in the HUD-1 disclosure. HUD's concern is that payment fees between business entities in the transaction that are never seen by the customer may result in a higher cost that is paid by the customer. HUD is considering whether it is feasible (and possible) to calculate and disclose this cost.

Just in case you think that HUD's idea sounds like it belongs in Truth in Lending, the Federal Reserve is looking again at the techniques used to disclose the cost of credit under Truth in Lending. The FRB will scrutinize any new ideas for two tests: more effective and understandable information to consumers and less burden on creditors.

Ideas on the table include treatment of all costs as finance charges (which would increase the total finance charge but eliminate those training sessions on what is or isn't a finance charge), and disclosing the total cost of credit in lieu of APRs.

As you work with TIL and RESPA disclosures in your bank, keep your mind open to different and hopefully better ways to communicate the cost of credit to the customer. Be ready to share your ideas when the agencies ask for public comment.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 5, 3/96

First published on 03/01/1996

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