Disclosure trends increase compliance risks
One of the unmistakable trends is the prescriptive nature of new disclosure requirements. As regulators – especially the Consumer Financial Protection Bureau (CFPB) – establish new (or amended) disclosure requirements, they are not leaving credit unions flexibility. Gone are the days when the regulation mandated a particular disclosure. Now, that mandate includes details on spacing, font size, bolding and which page the disclosure must be printed on – all of which increase compliance risk for credit unions.
The fast-approaching changes to the mortgage regulations clearly demonstrate this trend. New disclosures for adjustable-rate mortgages and periodic statements (for certain credit unions) are laden with specific, detailed requirements. While the requirements usually come with helpful model forms, credit unions still spend numerous hours programming and testing their notices (or working with their third-party forms providers). This approach puts credit unions at a disadvantage compared to larger financial institutions that can afford to create and test the complicated and expensive disclosures.
Further complicating matters, the CFPB has taken a new approach when designing disclosures. Their “Know Before You Owe” campaign for new mortgage disclosures that will (soon) combine the Truth-in-Lending and RESPA disclosure forms is a prime example. The CFPB conducted numerous rounds of consumer testing to determine which disclosures were best understood by consumers and, then, took the step of writing the proposed regulations. This “forms first, regulations second” approach means that there is often confusion between the model form and the underlying regulatory requirement. Not to mention, an increased use of the dreaded regulatory cross-reference that pains every credit union compliance officer.
And, this trend is moving to other products as well. The CFPB – with the helpful nudge of consumer groups – is looking at requiring new checking account disclosures that would cross multiple regulations (Truth in Savings, Regulation E and Regulation CC, to name a few). Similarly, expect future changes to your home equity lines of credit (HELOC) disclosures – including your periodic statements.
The trend of tabular format disclosures (i.e., the “Schumer Box” for credit cards) is only going to continue – meaning credit union flexibility will decline. From the CFPB’s perspective, they want a consumer to receive the exact same disclosure at your credit union that they would receive at Wells Fargo or Bank of America. And, from an examination or audit perspective – it means errors or mistakes are easier to identify as your disclosures will differ from your competitors.
And, don’t forget about the cost of training your staff (and your members) on the new disclosures. In short, this continued trend will require you to pay close attention to the nitty-gritty details of font size and bold type requirements to ensure your disclosures perfectly match the consumer-approved model disclosures. Once you’ve finalized the disclosures – you’ll be ready to work on getting the disclosure timing requirements under control…(a topic for another article).
