CFPB Announces Know Before You Owe Project Simplifying Mortgage Disclosure Forms
On May 18, 2011, the Consumer Financial Protection Bureau (CFPB) announced the launching of its Know Before You Owe effort relating to mortgage disclosures. This project is one of the first steps by the CFPB under its new authority to regulate consumer financial transactions and represents a wholesale change in the disclosure methods under two key federal regulatory requirements affecting residential mortgage transactions – the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). In addition, it is an important indication regarding the process that the CFPB may use prospectively to adopt significant changes in consumer disclosures. Finally, this Know Before You Owe effort is a significant departure from the traditional notice and comment procedures for adopting rules and regulations for the many federal laws and programs that are becoming the responsibility of the CFPB.
The CFPB posted two sample designs for a streamlined mortgage disclosure form on its website. These prototypes aim to provide consumers with a single, simpler disclosure form regarding the information that lenders and brokers should share with consumers when they apply for a residential mortgage. Currently, federal law requires residential mortgage disclosures on two forms within three days of a consumer applying for a mortgage: (1) a two-page TILA form; and (2) a three-page RESPA Good Faith Estimate. Critics have complained that these forms are too complicated or difficult to understand by consumers.
The CFPB is seeking input from consumers on several questions relating to the sample forms:
- Would this form help consumers understand the true costs and risks of a mortgage?
- Could lenders and brokers clearly and easily explain the form to their customers?
- What would you like to see improved on the form? Is there some way to make things a little bit clearer?
The CFPB plans five rounds of evaluation of possible forms. The Bureau also will visit six cities (Albuquerque, New Mexico; Baltimore, Maryland; Birmingham, Alabama; Chicago, Illinois; Los Angeles, California; and Springfield, Massachusetts) to test the draft disclosure forms and gather comments. The CFPB then will incorporate the suggestions that it receives with online input before finalizing the form. The Dodd-Frank Act requires the CFPB to propose forms and regulations for notice and comment by July 2012.
The U.S. Department of Treasury’s announcement contains additional information about the Know Before You Owe project.
Troutman Sanders’s CFPB Team monitors the development and activities of the CFPB and advises clients on CFPB issues. Ongoing analysis and updates regarding the CFPB are available at our blog, CFPBReport.