Written by Steve Van Beek
Drop the APR Proposal. On Monday, NAFCU - along with 15 other trade associations - sent a joint comment letter to the CFPB urging it to drop its proposed change to the definition of finance charge. The letter argues the CFPB has not shown the change in the finance charge, and the corresponding change to the annual percentage rate, would help improve consumer understanding.
"As the CFPB and other agencies have documented and industry can attest, the current APR is of little value to consumers. It neither enhances a borrower’s understanding of the obligation they are undertaking, nor serves as an accurate shopping tool. The Bureau’s own research indicates that consumers confuse the APR with the note rate; this confusion has nothing to do with what is in or out of the APR calculation. Simply adding additional fees to an unhelpful formulation that consumers do not use or understand will add significant costs and complications to the rulemaking effort, with no measurable benefit to the borrower."
Additionally, the comment letter points out that the proposed change is not required by Dodd-Frank and making this change at the same time as other wholesale changes to Regulation Z will increase confusion and uncertainty.
You can view the full letter, including a listing of all 16 trade associations, here.
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Where is the Full Proposed Reg Z? One aspect that needs attention is that there are numerous proposals to change Regulation Z. And, the proposals often cross-reference changes that are proposed in other, simultaneous, rulemakings. In fact, the CFPB themselves encourage commenters to view all the proposed rules together. Here is from the CFPB's High-Cost Mortgage proposal:
"The Bureau regards the foregoing rulemakings as components of a larger undertaking; many of them intersect with one or more of the others....In addition, each of them may include other provisions the Bureau considers necessary or appropriate to ensure that the overall undertaking is accomplished efficiently and that it ultimately yields a comprehensive regulatory scheme for mortgage credit that achieves the statutory purposes set forth by Congress, while avoiding unnecessary burdens on industry....For efficiency's sake, however, the Bureau is publishing and soliciting comment on proposed answers to certain issues raised by two or more of its mortgage rulemakings in whichever rulemaking is most appropriate, in the Bureau's judgment, for addressing each specific issue. Accordingly, the Bureau urges the public to review this and the other mortgage proposals identified above, including those previously published by the Board, together. Such a review will ensure a more complete understanding of the Bureau's overall approach and will foster more comprehensive and informed public comment on the Bureau's several proposals, including provisions that may have some relation to more than one rulemaking but are being proposed for comment in only one of them."
Thus, the CFPB is urging credit unions and others to view all of the mortgage proposals together in order to understand the CFPB's approach for "a comprehensive regulatory scheme for mortgage credit."
The response in the joint letter is to strongly request that the CFPB publish a complete version of Regulation Z (i.e., as the regulation would be if all the proposals were adopted):
"Finally, there are several outstanding proposed rules making changes to Regulation Z. These proposals cross-reference provisions in each other, making it difficult to tell what each references and what Regulation Z would look like if all of these proposals are finalized. In addition, there are conflicts among the proposals. For example, the proposed Ability to Repay rule would remove § 1026.35 because Dodd-Frank made it obsolete, but the proposed HOEPA rule would retain it. We respectfully request that the CFPB publish a single version of Regulation Z as it would be amended by all of the pending rulemakings as soon as possible. This would improve our ability to provide input that CFPB will need before the comment periods close."
I don't think it is too much to ask that the CFPB provide a complete version of the proposed Regulation Z. Only with a complete version will credit unions be able to analyze and review the all the proposed changes together and provide substantive comments to the CFPB about how the proposals will impact their mortgage operations.
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Have a great weekend!
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