Public Policy & Consumer Testing


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At the 2012 Face of Finance Conference, at Bentley University, in Waltham, MA, Susan Kleimann (Center for Plain Language) and Richard Horn (Consumer Financial Protection Bureau) presented "Public Policy & Consumer Testing".

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  • Each of is speaking for ourselves; none of us is speaking for CFPB.The views we express are our own; they do not represent the views of CFPB.
  • Generally, TILA covers the loan transaction and REPSA covers the real estate transactionHowever, TILA figures depend on settlement costs and RESPA disclosures currently contain loan informationThese statutes are mandated at two points in the process: (1) at the loan application and (2) at the closing. We’re focused on the application disclosures.
  • The Truth in Lending Initial Disclosure was revised over the years as Congress continued to add new requirements. This form complies with the newest requirements which became effective Feb 1, 2011.
  • HUD implemented a new Good Faith Estimate in 2008, which lenders were required to use beginning in 2010. These new forms were designed to encourage shopping and ensure consumers understand when brokers received yield spread premiums as part of their compensation. Implementation has been quite difficult. HUD has issued over 300 Qs and As since the rule was finalized.
  • This is even before the Plain Writing Act
  • What we mean by “improve understanding is: “aid understanding by utilizing readily understandable language to simplify the technical nature of the disclosures.”
  • Foreclosures in US--as of Friday May 18, 2012
  • Other constraints: No color, 8 ½” x 11”, plain language: some technical terms, but make key features accessible
  • 5 sites for LE2 sites for CD3 sites for bothBaltimore first and lastNeed to mention that things were also posted on the web site with over 12,000 comments on the first round.
  • Loan details are the tricks and traps—where factors change
  • Lots of debate about the choices. The 2010 form (which we’re not showing) used a lump sum based on the research that said consumers were overwhelmed by large quantities of numbers. Industry hated the lump sum and wanted detailed; advocates wanted lump sum.Bias, if any, was to go with the lump sum. Round 2 (CA) –preferred the detail; ask more questions with detailRound 3 (IL) - preferred the detail; ask more questions with detailRound 3 (IL) -preferred the detail; ask more questions with detailRound 4 (MA) same thingRound 5 (NM): Went with detail
  • Industry wanted Closing Cost Details of the CD to remain like the current HUD-1. Saw the details of HUD-1 as a distribution of funds record; not intended for consumers to use.
  • First round of testing on the Closing Disclosure.
  • Round 7 AlabamaRound 8 PennsylvaniaRound 9 TexasRound 10 Maryland
  • Sometimes it’s the little things that drive you crazyConsumers thought it meant they would never be able to refinance and was part of the loan terms
  • Consumers thought it meant they would never be able to refinance and was part of the loan terms
  • Policy & testing EntwinedFragile relationship with consumersResponsible to meet mandates of requirements & performance (make it clear)Responsive to consumersIntelligent saves redo of work AFTER the policy is final.
  • Public Policy & Consumer Testing

    1. 1. PUBLIC POLICY & CONSUMER TESTINGFACE OF FINANCE OCTOBER 24, 2012 1 Face of Finance October 24, 2012
    2. 2. PRESENTERS• Richard Horn • Susan Kleimann,• Senior Counsel, Ph.D. Consumer Financial • President, Kleimann Protection Bureau, Communication Office of Group Regulations Face of Finance October 24, 2012 2
    3. 3. WHAT WE’LL COVER• Where we started • Current disclosures • Mandate • Purpose • Beginning policy• Examples • Policy informs design & consumer testing • Consumer testing informs design & policy development• Importance of consumer testing Face of Finance October 24, 2012 3
    4. 4. WHERE WE STARTED• Current disclosures • 2 statutes • 2 different disclosures • 1 transaction • Truth in Lending Act • Real Estate Settlement Procedures Act Face of Finance October 24, 2012 4
    5. 5. CURRENT TRUTH IN LENDING Face of Finance October 24, 2012 5
    6. 6. CURRENT GOOD FAITH ESTIMATE Face of Finance October 24, 2012 6
    7. 7. WHERE WE STARTED• Mandate • The Bureau shall propose…model disclosures that combine the disclosures required under [TILA] and [RESPA] into a single, integrated disclosure for mortgage loan transactions covered by those laws. • Dodd Frank Act §1032(f) Face of Finance October 24, 2012 7
    8. 8. WHERE WE STARTED• Purpose • 2 goals for combined forms: 1. To improve consumer understanding of mortgage loan transactions; and 2. To facilitate industry compliance with TILA and RESPA Dodd-Frank Act §§1098, 1100A Face of Finance October 24, 2012 8
    9. 9. WHERE WE STARTED• Purpose• “consumers are provided with timely and understandable information to make responsible decisions about financial transactions.” Dodd-Frank Act § 1021(b)• “prescribe rules to ensure [consumer financial products are]…disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks ….” Dodd-Frank Act § 1032(a Face of Finance October 24, 2012 9
    10. 10. SO WHAT?Face of Finance October 24, 2012 10
    11. 11. WHERE POLICY  DESIGN & TESTING• A graphic design • Use as few words as possible • Reduce Information overload • Show relationships • Highlight key information • Use plain language Face of Finance October 24, 2012 11
    12. 12. WHERE POLICY  DESIGN & TESTING• Information, not education • Mortgage shopping sheet • Summary & detail • System of other sources Face of Finance October 24, 2012 12
    13. 13. POLICY  DESIGN & TESTING• Content requirements • RESPA • TILA • Dodd-Frank Act Face of Finance October 24, 2012 13
    14. 14. WHERE POLICY  DESIGN & TESTING• Chose to test with consumers• Ensure disclosures work• Hire specialists - Kleimann Communication Group Face of Finance October 24, 2012 14
    15. 15. WHAT WE DID• User-centered design Context• Usability/cognitive test - think alouds Formative• Performance, not preference Usability• 10 testing rounds• Posted designs for Validation public comment Face of Finance October 24, 2012 15
    16. 16. THE RESULT• Page 1 – summary shopping sheet• 2 types of information→ Loan details→ Affordability Face of Finance October 24, 2012 16
    17. 17. THE RESULT• Page 2 – details• 4 types of details • Specific loan fees • Specific closing fees • Calculating cash to close • Rate & payment details Face of Finance October 24, 2012 17
    18. 18. WHERE TESTING  DESIGN & POLICY #1• What level of detail helps consumers? Face of Finance October 24, 2012 18
    19. 19. WHERE TESTING  DESIGN & POLICY #2• Can consumers identify changes between the Loan Estimate and Closing Disclosure ? Face of Finance October 24, 2012 19
    20. 20. WHERE TESTING  DESIGN & POLICY #2• Round 6 (IA) results • “Honestly this is so much writing. I’m • Trouble tracking skimming over it and • See changes at high not really reading this level thing. I don’t know • Relatively passive what to look for, to tell you the truth. I guess I could look at the very bottom and see what that says. I don’t know. This is a bit much.” (IA-002) Face of Finance October 24, 2012 20
    21. 21. WHERE TESTING  DESIGN & POLICY #2 Face of Finance October 24, 2012 21
    22. 22. WHERE TESTING  DESIGN & POLICY #2• Rounds 7-10 results • “Because they did it on the [Loan Estimate], • Improved tracking keep the order the • Noticed differences same here [Closing • Actively asked Disclosure], it makes it a questions lot easier, just the • Go back to lender comparison to try to match up, so just keep • Consider not closing the order same.” (PA-005 NE) Face of Finance October 24, 2012 22
    23. 23. WHERE TESTING  DESIGN & POLICY #3• TILA §128(b)(2)(C)(ii) • “…are they saying definitely cannot • You may not be able or are you saying to refinance your you may or may loan to lower your not?” interest rate and (AL-005) payments in the future with us or with another lender. Face of Finance October 24, 2012 23
    24. 24. WHERE TESTING  DESIGN & POLICY #3• Refinancing this • Yeah, you can try loan will depend on to refinance the loan. That doesn’t your future financial mean youre going situation, the to get it, but you property value, and can try.” market conditions. (PA-006-NE) You may not be able to refinance this loan. Face of Finance October 24, 2012 24
    25. 25. WHY TEST?• Sort statutory • Move from requirements vs. preference to the information performance consumers need • Team• Sort what we • Consumers want to say from what they need• Focus on task, not information Face of Finance October 24, 2012 25
    26. 26. WHY TEST?Face of Finance October 24, 2012 26
    27. 27. WHY TEST?Consumers say . . . • Everything is there.• The strong points are laid They’re not really hiding right out in front of you. anything. So it’s pretty You know how much your straightforward. monthly payments are (TX-003- NE) going to be…how much you need to bring at • I can actually say 5; it’s closing…your interest rate the best form I’ve ever right up here. seen. (TX-006- NE) (TX-009-E) Face of Finance October 24, 2012 27
    28. 28. WHY TEST?Industry says . . . • I’m seeing everything I• It’s very easy to follow, need to know. My very easy to read and payments, how much I’m friendly to the eye escrowing, and how instead of having to flip much I’m bringing to the through many different table for closing contracts and purposes…. So yes, as far paperwork. as a summary sheet, I (TX-Lender-001) think this is superior to• It is the best mortgage what we’ve got. related form I have ever (TX-Settlement Agent-004) seen. (TX-Lender-006) Face of Finance October 24, 2012 28
    29. 29. FACE OF FINANCE Face of Finance October 24, 2012 29