The Comptroller of the Currency has put forward a revolutionary idea: consumer disclosures that are easy to prepare and understandable to consumers. What a novel concept. Not only does the Comptroller think that disclosures could be made easier to understand. He also thinks that, at least in the long run, we could save money by designing them.
It is a tempting idea. The Comptroller's challenge opens the door to more than one type of change. Not only could each disclosure by itself be simplified. The scheme of disclosures could be redesigned.
For example, Truth in Lending and RESPA have labored side by side for more than a quarter of a century. They serve different purposes. TILA is designed to disclose the cost of credit. It does this by pulling together all of the costs of credit - fees, points, and other charges - and rolling them into a Total Finance Charge which is then used to calculate the Annual Percentage Rate. Almost as an aside, TILA also discloses certain features of the credit contract itself, such as whether there is a security interest and whether the loan is assumable.
Meanwhile, RESPA attempts to tell customers how much it will cost to go to settlement on a dwelling-secured loan. Needing some connection to reach transactions, the regulation hooks on to the credit relationship through the federally related mortgage loan.
HUD, never having clearly understood its mission under RESPA and now not willing to recognize its limitations, has labored over the past several years to turn RESPA into a credit regulation instead of a settlement regulation. As a result, "It's beginning to look a lot like TILA," sung to the tune, "It's beginning to look a lot like Christmas." In fact, in its most recent proposal to revise the GFE, HUD simply stole language from Regulation Z. Fortunately for HUD, it isn't illegal plagiarism to steal language from another government agency.
Now we look at two very different disclosures, given to the customer at the same time, giving similar information in different ways, and using up lots of paper. While an environmental impact study might be one approach, it really is time to take a hard look at these disclosures and consider what they actually do, what they were supposed to do, and what they could do - better.
In the regulatory process, the road not taken is the view of the consumer. In spite of the fact that the consumer is the ultimate user of the disclosure or protection, we ignore the consumer's perspective, interests, and skills.
Instead, we first decide on the problem. In the halls of Congress, we look at the problem from all sides. If the problem is considered bad enough, Congress decides to do something about it. Unfortunately for all concerned, Congressional action has all the teaching impact of a parent who says "stop that right now!" What is needed is to show how whatever it is can or should be done.
When Congress is finished with a compliance law, there is a major prohibition, a penalty for not obeying the prohibition, and often a mandate to produce information to the customer. We are so focused on the prohibitions and mandates that we never stop to look at the effectiveness of the approach. We simply march on to the next concern.
Right now, the next concern is predatory lending - lenders taking advantage of gullible and uninformed consumers. Just exactly why - after all these disclosures - are consumer uninformed? Is it possible?Rather than jump-starting the same regulatory vehicle and running endless laps in a losing race to stop predatory lending, it is time to look at giving consumers the information they need in a way that they can understand it and at a time when they can use it.
Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 3, 2/03
First published on 02/01/2003