March 6, 2013
Bureau of Consumer Financial Protection
Attn: Darrin King, PRA Office
1700 G Street, NW
Washington, D.C. 20552
RE: Quantitative Testing on Integrated Mortgage Loan Disclosure Forms
Dear Mr. King:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing to you regarding the Consumer Financial Protection Bureau’s (CFPB) “Quantitative Testing on Integrated Mortgage Loan Disclosures.” 78 Fed. Reg. 8113 (February 5, 2013). As indicated in the Federal Register notice, the CFPB is proposing to conduct quantitative testing in FY 2013 and FY 2014, and the testing will involve a comparison of the performance of the current disclosures with those that the CFPB proposed in its combined mortgage disclosure rulemaking. See 77 Fed. Reg. 51116 (August 23, 2012).
NAFCU has long advocated for the simplification and integration of the mortgage disclosure forms required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), even before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Further, as the CFPB knows, we regularly provided feedback on each stage of the agency’s Know Before You Owe project. Thus, NAFCU is very interested in ensuring that the integrated mortgage disclosures are both useful for consumers and impose minimal burden on credit unions.
As we indicated in our November 6, 2012 comment letter to the CFPB in the combined mortgage disclosures rulemaking, we have serious concerns about numerous aspects of the integrated forms and underlying regulations. In particular, we remain greatly concerned about the proposed changes to the definitions of “finance charge” and “annual percentage rate” (APR). Simply put, the proposal’s inclusion of most up-front costs in the definition of finance charge, we believe, will provide little benefit to consumers while greatly increasing costs and burden on credit unions. Similarly, with respect to the APR, we remain skeptical that the figure, although familiar to consumers, is useful for consumers. As the Federal Reserve Board stated following consumer testing the APR, if the APR “is not understood by consumers or does not fully represent what it purports to represent, the usefulness of that figure is undermined. Consumer testing shows that most consumers do not understand the APR, and many believe the APR is the interest rate.” See 74 Fed. Reg. 43,232 at 43,243 (August 26, 2009). The proposed expansion of the definition of APR will do little or nothing to ameliorate this lack of usefulness.
NAFCU further believes that the comparison testing between the current and proposed disclosures will have questionable utility with respect to how these proposed forms will be used for construction-only loans, vacant land loans and loans on property of 25 acres or more, which are currently not within the scope of Regulation X’s mortgage disclosure requirements. These loans present such unique characteristics that regulators have long excluded them from the scope of Regulation X disclosure requirements. Regardless of the outcome of the comparison testing as it relates to these loans, the fundamental characteristics of these loans have not changed and it remains that it is inappropriate to apply the disclosure requirements and underlying regulations to these loans.
Lastly, and importantly, the Federal Register notice indicates that the quantitative testing will take place in FY 2013 and FY 2014. However, the CFPB has publicly indicated, including in its semi-annual unified agenda that it intends to issue final rules on the proposed combined disclosures in September of this year. Simply, the timelines do not conform to one another. If the CFPB intends to take the results of the quantitative testing seriously, it should delay the finalization of the rule to at least the first quarter of 2014.
NAFCU appreciates the opportunity to comment. If you have any questions or concerns, please feel free to contact me (703) 842-2268.
Sincerely,
Tessema Tefferi
Senior Regulatory Affairs Counsel