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Consumer Financial Protection Bureau

Small Business Panel to Review Impact of New Disclosures

February 21, 2012

The Consumer Financial Protection Bureau (CFPB) has formed a Small Business Review Panel as part of its initiative to integrate the mortgage disclosure forms that borrowers receive when applying for and closing on a loan. On March 6, the review panel will solicit feedback from small businesses that make mortgage loans and conduct mortgage closings.

The CFPB began its Know Before You Owe initiative to combine mortgage loan disclosure forms in May 2011. The project is attempting to integrate two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clearer for borrowers.

For more than 35 years, two federal laws (the Truth in Lending Act or TILA, and the Real Estate Settlement Procedures Act or RESPA) have required lenders and settlement agents to give consumers who take out a mortgage loan different but overlapping disclosure forms regarding the loan’s terms and costs. The CFPB said this duplication has long been recognized as inefficient and confusing for consumers and industry. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is responsible for combining the disclosures.

The CFPB is convening the Small Business Review Panel to help with proposals the CFPB is considering. Examples of these include:

  • Consumers need to know what information they can rely on. Three days after application, consumers will receive an integrated loan estimate that clearly discloses the terms and costs of the mortgage loan. However, many lenders and mortgage brokers provide consumers with preliminary estimates of loan terms and costs earlier in the process. These estimates are not required by TILA or RESPA. The CFPB is considering whether to require that these preliminary estimates carry a disclaimer informing the consumer that the preliminary estimate is not the Loan Estimate required by law. This is intended to help consumers avoid relying on estimates that may not be reliable.
  • Consumers need to be able to rely on their loan estimate. Under current rules, when a lender provides the consumer with an estimate of the cost of its own services under RESPA, the actual cost cannot be higher than the estimate unless there is a valid change of circumstances. The CFPB is considering a proposal to apply the same limitation when the lender estimates the cost of services provided by its affiliates or by companies the lender requires the consumer to use. This is intended to make the Loan Estimate more reliable for consumers.
  • Consumers need to know the final terms and costs before they sit down at the closing table. Under current rules, consumers typically receive a disclosure with some of their final loan terms and costs three business days before closing on the loan, but other costs are not finalized until the day of closing. As a result, consumers sometimes do not know how much they will owe until it is too late. The CFPB is considering a proposal that would generally require delivery of the integrated settlement disclosure stating the consumer’s final loan terms and costs at least three business days before closing to reduce the risk that consumers will face unexpectedly higher closing costs at the last minute.
In developing new forms, the CFPB said it will continue to engage with consumers and industry before proposing its regulation. The CFPB has conducted one-on-one testing of the forms in nine cities and and received more than 27,000 comments from the public, including industry.

The CFPB will share these documents with the Small Business Review Panel: In this process, the CFPB is following the requirements of the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996. Generally, unless a proposed rule will not have a significant economic impact on a substantial number of small entities, the CFPB will seek input directly from small entities about potential costs of a proposed rule and potentially less-burdensome alternatives before issuing the proposal for public comment.

Under this law, representatives from the CFPB, the Chief Counsel for Advocacy of the Small Business Administration (SBA), and the Office of Management and Budget’s Office of Information and Regulatory Affairs will form a review panel. The panel meets with a group of representatives of small financial service providers selected by the CFPB, in consultation with the SBA. The representatives will provide the panel with feedback on the benefits and burdens of complying with the proposals the CFPB is considering. The representatives may also suggest alternatives that would minimize those burdens.

Within 60 days of convening, the review panel completes a report on the input received from small providers during the panel process. The report also contains the panel’s findings on the potential effects of the proposed regulation on small providers and any significant alternatives that accomplish the objectives of the proposed rule while minimizing such impacts. The CFPB then considers the panel’s report and the comments and advice provided by small providers as it prepares the proposed rule. The CFPB plans to formally release a proposed rule for comment in July.

Alison Gareffa, a member of ALTA’s RESPA Task Force, and ALTA staff earlier this month met with staff from the CFPB, the Small Business Administration's Office of Advocacy and the House Committee on Small Business to learn about the SBREFA process, what types of information ALTA should provide to the panelists, how ALTA can prepare the industry representatives that will work with the panel and whether the CFPB must follow the recommendations of the panel.



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