the new cfpb, new simplified disclosures & how your credit union will be affected (credit union...
DESCRIPTION
On July 21, 2011, the Dodd-Frank Act’s Consumer Financial Protection Bureau assumed its oversight and enforcement powers over the nation’s financial institutions. Changes include new and revised compliance disclosures, which will have a significant impact on credit unions. In this 2011 NAFCU Annual Conference session discover how your credit union can overcome these and other challenges, including those related to the new Privacy and Risk-based pricing notice requirements that took effect on January 1, 2011. Plus, be prepared for the new trend of simplified disclosure requirements that is likely to follow. Presented by Ted Dreyer, Senior Attorney, Wolters Kluwer Financial Services More info at http://www.nafcu.org/wkfsTRANSCRIPT
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
Insert Your
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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
National Association of Federal Credit Unions l www.nafcu.org
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.
National Association of Federal Credit Unions l www.nafcu.org
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.
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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.
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
Combined TIL/RESPA form
Required by Dodd-Frank
New form required by July 21, 2012
“Know Before You Owe”
Prototype forms released
Comments solicited
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
National Association of Federal Credit Unions l www.nafcu.org
“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
National Association of Federal Credit Unions l www.nafcu.org
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.
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
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
National Association of Federal Credit Unions l www.nafcu.org
Questions?