Last November, the Consumer Financial Protection Bureau issued a long-anticipated new rule standardizing two mortgage forms. The new rule will go into effect August 1, 2015. Small lenders, which will have no exemptions from the new requirements, are expressing concerns that the new rule will stifle their businesses.
The new rule, formally known as Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act and the Truth in Lending Act, is the culmination of a two-year effort by the CFPB to standardize what it calls the "mortgage shopping sheet."
Small lenders had long sought an exemption from the rule. Camden Fine, president of the Independent Community Bankers of America, told Bloomberg.com that his group and others had "been all over CFPB," citing the regulatory burden the rule would impose on smaller lenders. "Community banks were not responsible for the mortgage crisis," he said. The U.S. House of Representatives also petitioned the CFPB to either exempt small lenders or delay implementation of the rule. There were three main concerns.
First, small lenders argued that since they are so much closer to the consumers they serve, there was no need to require a costly change in practice. For instance, the new rule requires that information such as interest rate, total monthly payments and total closing costs be printed using bold-face type and listed in a uniform way. Small lenders argued that such information was already of primary interest to their customers and was not difficult to locate or discuss. The new rule, they say, will simply mean less efficient service.
Also, the standardized format may tend to limit innovation in the mortgage marketplace. Community banks have a significantly different risk profile than the large banks that are the main target of CFPB regulation. One example is adjustable rate loans, the details of which will be difficult to present under the new rule's requirements since some data must of necessity change over the life of the loan. The CFPB rule offers few guidelines for how to represent an adjustable rate loan. Balloon payment mortgages are not addressed by the rule at all, but may become impossible for rural lenders to offer.
Finally, the burden of compliance with the new rule will be significant. Forms will have to be reissued and new policies implemented, as well as any informational or promotional materials. The rule will require new or updated software and compliance systems, as well as associated costs for training employees or outside vendors.
Inspector General criticizes CFPB's poficy on attorneys
On December 16th, the Office of Inspector General issued a report critical of the CFPB's policy of regularly sending enforcement attorneys to participate in meetings with the entities under their oversight. The OIG report cited several concerns.
The OIG urged the CFPB to set a specific and detailed policy for the integration of enforcement attorneys into their oversight procedures. Though the CFPB previously issued a policy discussing the general principles of attorney involvement, the OIG reported that the policy "did not sufficiently detail how the approach should be implemented." The OIG felt that the presence of enforcement attorneys even in initial meetings could have the effect of inhibiting free and open communications between the CFPB and supervised entities.
In addition to an insufficient policy, the OIG noted that the policy in place "was not uniformly distributed to CFPB supervision and enforcement staff." As a result, the understanding and execution of the policy by CFPB personnel varied considerably.
The CFPB issued a statement in November, just prior to release of the OIG report, indicating that it was discontinuing the practice of regularly sending enforcement attorneys to meetings. It further stated that it is "addressing the concerns raised in this recommendation through its new poficy on enforcement attorney integration into examinations." The OIG responded that it would "follow up on the CFPB's actions to ensure that the recommendations are fully addressed."