the new cfpb, new simplified disclosures & how your credit union will be affected (credit union...

National Association of Federal Credit Unions l www.nafcu.org

The New CFPB, New Simplified Disclosures and

How Your Credit Union Will Be Affected

Presented by

Ted Dreyer, Wolters Kluwer Financial Services

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Establishment of New BCFP

Independent agency of the Executive Branch

housed within the Federal Reserve but not subject to the Federal Reserve

Single director appointed by the president for a 5 year term.

Funding from earnings of the Federal Reserve.

Council of regulators, the Financial Stability Oversight Council, that can set aside Bureau regulations


Key Definition

Consumer Financial Product or Service Included are consumer purpose products and

services like extending credit, servicing loans, leasing real or personal property, real estate settlement services, deposit-taking activities, transmitting or exchanging funds, stored value transactions, check cashing, check collection or check guaranty services, payment processing, financial advisory services, collecting, analyzing maintaining or providing consumer report information, and debt collection.


The Bureau begins July 21, 2011. An ombudsman for the Bureau must be

established by January 17, 2012 Will act as a liaison between the Bureau and

any person that has a problem with regulatory activities of the Bureau.

The ombudsman is also supposed to make sure that complainants are encouraged to come forward and to preserve their confidentiality.


General Rule on Disclosures

Bureau can issue rules so that: the features of a consumer financial product

or service,

both initially and over the term of the product or service,

are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the associated costs, benefits, and risks


Power to produce model disclosures

Format must be Clear and Conspicuous,

use plain language comprehensible to consumers;

contain a clear format and design, such as an easily readable type font; and

succinctly explain the information that must be communicated


Simplified Disclosures

The term “simplified” refers to disclosures being simplified for the benefit of consumers, not for the institutions that give them

More rigid content and format requirements Change always requires effort

Errors may be more visible

More separate versions of forms may to required to accommodate choices


How Did We Get Here?

Gramm-Leach-Bliley Privacy Disclosures The existing privacy disclosures were often being

discarded by consumers, and they were not easily understood when consumers did read them.

So, it was believed that a new model form might help in those areas.

In addition, Congress believed that standardizing them would make it easier to compare privacy practices.

Consumer testing done


The new form was required to have the following characteristics: to be comprehensible to consumers, with a clear

format and design;

to provide clear and conspicuous disclosures;

to enable consumers easily to identify the sharing practices of a financial institution so that they can compare privacy practices among financial institutions; and

to be succinct, and use an easily readable type font.


Combined TIL/RESPA form

Required by Dodd-Frank

New form required by July 21, 2012

“Know Before You Owe”

Prototype forms released

Comments solicited


“What should we drive toward? Short agreements that can be read in very little time with very high levels of understanding. Certain basic information would have to be made available and each lender would set the terms of its deal: the interest rate, the penalty terms, the free gifts or rewards that come with the card, and any other terms. For consumers, this would mean products that are easy to understand and easy to compare. For lenders, this means regulatory compliance costs could be reduced.”

-Elizabeth Warren, Speech to Financial Services Roundtable September 29, 2010


Consumer Rights to Information

Consumer customers will have legal rights to get information regarding financial products and services they have obtained.

Information must be available in standard formats prescribed by the Bureau including an electronic form usable by consumers.


Use of consumer reports

Institutions will have to provide the

consumer’s credit score on adverse action notices and risk-based pricing notices based in whole or in part on a consumer report.

They will also have to provide the information now given on credit score disclosures, that is, the range of scores, key factors, date of the score, and person creating the score


Unlawful to provide non-compliant product or service, engage in unfair, deceptive or abusive act or practice or provide records – includes service providers who provide substantial assistance

Enforcement potential


Funds Availability amendments

Next day availability amount increased from $100 to $200 and dollar amounts adjusted for inflation every five years

Truth in Lending Exemption

Increases the TILA dollar amount for exempting credit transactions or leases from $25,000 to $50,000 and

Future indexing for inflation


Small business data collection Information Gathering

Record of Responses

Customer Right to Refuse

No Access to Data by Underwriters

Itemization of information required

Personally Identifiable Information not included

Data to be Submitted to Bureau

Definition of Terms


Duty of Care Regulations required for procedures to assure and

monitor compliance with Title XIV and SAFE Act, Includes Identifier

Prohibition on Steering Incentives Regulations issued required to keep mortgage

originators from steering consumers to loans they can’t repay or have predatory characteristics or other abusive practices Effective April 1, 2011 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf




Regulations for Abusive Practices

Regulations are authorized to prohibit or condition terms, acts or practices if they are abusive, unfair, deceptive, predatory or to prevent evasion.

Ability to Repay

Documentation will be required for ability to repay, including verification of income. Proposed rule issued with comments accepted until 7/22/11. http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110419b1.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110419b1.pdf

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110419b1.pdf


Consumer Disclosures

Adds additional disclosures for TILA including maximum initial payments, initial escrow amount, aggregate settlement charges, various fees, and total interest that will be paid over life of loan

Monthly Statements

Establishes new requirements and model form for monthly statements on consumer mortgages


Escrows

Requires escrows in certain cases and establishes new disclosure requirements

Final rules at http://edocket.access.gpo.gov/2011/pdf/2011-4384.pdf

Proposed rules: http://edocket.access.gpo.gov/2011/pdf/2011-4385.pdf

Disclosures for non-escrowed loans

Requires new disclosures when no escrow established








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