The New CFPB, New Simplified Disclosures & How Your Credit Union Will Be Affected (Credit Union Conference Presentation)

The New CFPB, New
Simplified Disclosures and
How Your Credit Union Will
Be Affected

Presented by
Ted Dreyer, Wolters Kluwer
Financial Services
Insert Your
Logo Here

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

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


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

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


Questions?


The New CFPB, New Simplified Disclosures & How Your Credit Union Will Be Affected (Credit Union Conference Presentation)

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