What is the Consumer Advisory Council?
Buried in the Equal Credit Opportunity title of the Consumer Credit Protection Act, sits a provision which requires the Federal Reserve Board to establish a Consumer Advisory Council ("CAC") to advise the Board on matters relating to the Consumer Credit Protection Act and other consumer concerns. The Council is comprised of representatives of the credit industry, consumer organizations, and academics and researchers in the general field of consumer credit. The Council is divided into committees which address specific topics which are then discussed by the full Council. The CAC, which meets two or three times a year, last met on October 24,1996.
The CRA committee devoted most of its time to the FRB's proposal to amend Regulation Y to streamline the processing of certain applications. The consumer groups are strongly opposed to any procedural changes that would limit the ability of a consumer group to file comments, protest, or negotiate solutions with banks.
What became very clear in this discussion was that consumer groups want the CRA process to remain focused on the application and protest process. Protesting an application enables a consumer group to assert more force and gain more concessions than does participation with a bank on an ongoing basis. Consumer advocacy groups will clearly fight any change to CRA or to application processing that reduces their power in the application process.
Home Mortgage Closing Documents
It is practically a tradition to blame the extensive documentation at a home mortgage loan closing on regulatory burden, a.k.a. compliance. The CAC took a close look at the closing documents to identify ways the burden could be reduced and I came up with some surprising findings.
The CAC identified 54 documents typically required for loan closings. Of these 54, 42 are required not by federal regulations but for purposes of selling the loan on the secondary market. In other words, practically 80% of the documents are for purposes other than regulatory compliance.
This left the committee with 12 documents to consider. They recommended changes that would reduce the number from 12 to five. Recommendations included one disclosure form based on good faith estimates which would be updated at closing, and a consolidated document outlining borrowers' rights and containing necessary warnings (such as the fact that the borrower is putting his or her home on the line.) The beauty of these ideas is that several of the disclosures are not situation specific and could be pre-printed.
They also suggested a consumer educational piece in plain language that outlines the typical documents in a home mortgage loan. Finally, they recommended that the FRB study whether information overload is a concern to consumers and whether disclosures earlier in the loan process would be more useful.
Stored Value Cards
The CAC also discussed the FRB's recent proposal on whether and how to regulate smart cards. Generally, the industry representatives on the Council support minimal regulation to avoid impeding development and uses of new technology.
Consumers have a different point of view and support regulations that would contain at a minimum disclosures of fees and procedures for error resolution. Consumer advocates also raised concerns about the possibility of misleading advertising for smart cards and suggested that marketing of smart cards be regulated.
Fundamentally, the debate centers around a developing technology and, as one banker on the CAC pointed out, it is difficult to regulate what you don't know.
ComplianceAction thanks Rob Rowe for his help with this article.
Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 16, 10/96
First published on 10/01/1996