Explainer

Dear CFPB,

Recently, I saw your notice of proposed rulemaking to combine and simplify existing mortgage disclosures. It’s 1,099 pages long! Why does it take so many pages to create something that’s supposed to be easy to use and understand?

Sincerely,
Interested in your regulations

Dear Interested,

This is a great question, one you’re not alone in asking — 1,099 is a lot of pages, as those of us who were involved in writing them can attest.

Let’s start with some background. Currently, two federal laws – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) – mandate that consumers receive disclosures of certain information about mortgage loans. The Dodd-Frank Act required the CFPB to propose a rule to combine the TILA and RESPA disclosures.

If you want to see the new combined disclosures, combine and simplify existing mortgage disclosures check them out here. If you want to see what the proposal means for you, we’ve provided summaries, one on what it would mean for consumers and one with more technical detail.

You said “propose a rule to combine the disclosures” instead of just “propose combined disclosures.” Why?
It’s an important distinction. The rule explains how we would expect industry to use the disclosures: when to issue them, how they apply to different loans, what various terms mean, etc.

And that proposed rule is 1,099 pages?
Actually, no. We are not proposing 1,099 pages of new regulations. That page count is for the notice of the proposed rule, not the rule. Like notices of proposed rulemaking issued by other agencies (particularly the Federal Reserve Board), our proposal consists of three basic parts: (1) the preamble explaining the proposal; (2) the text of the proposed regulations; and (3) guidance on how to comply with those regulations.

In terms of pages, the new regulations are only a small part. Most of the pages explain what we are doing and why we are doing it. As required by law, we analyze the costs and benefits of the proposal for consumers and industry. We also provide thorough guidance on how to comply including samples of completed forms, which the industry requested during our outreach and Small Business Review Panel process. Because of the variability of mortgage loan and real estate transactions, industry wanted specific guidance for many different potential scenarios. This added to the page count.

Here’s how the notice breaks down:

Content	Pages
Preamble Directions on how to submit comments Summary of the proposed rule Overview of the mortgage market and the mortgage shopping process Summary of 43 years of TILA and RESPA mortgage disclosure regulation Summary of the Dodd-Frank Act provisions requiring the Bureau to combine the TILA and RESPA mortgage disclosures and related Dodd-Frank Act mortgage rulemakings Summary of the Bureau’s outreach, disclosure testing, and Small Business Review Panel Statement of the Bureau’s legal authority Detailed explanations of the reasons for each aspect of the proposed rule and requests for comment Analyses of the costs and benefits of the proposed rule for consumers and industry, as required by the Dodd-Frank Act, the Regulatory Flexibility Act (as amended by the Small Business Regulatory Enforcement Fairness Act), and the Paperwork Reduction Act	684
Proposed amendments to regulations New rules Technical and conforming amendments to existing rules	209
Proposed guidance regarding compliance with the amended regulations	205
Signature page	1
TOTAL	1,099

The preamble is long.
It is. The preamble provides context for the proposed forms and regulatory changes. The mortgage market is big, and mortgage disclosure regulation has 43 years of history. Also, before writing the rule, we spent a lot of time talking to industry and consumers and analyzing costs and benefits. That’s a lot of context, and that means a long preamble.

Why bother with all this context?
First, some of it is required by law. Second, we believe that part of our commitment to open government is providing more rather than less information about our work. Finally, we want your comments to help us understand the market better, and providing context can lead to more informative comments. Explaining what we considered in writing the proposal makes it easier to craft specific responses or to draw our attention to something you think we’ve missed. Comments that provide new insight or information can be the ones that have the greatest impact on what we do next.

That leaves 415 pages. Only part of that is new rules, though. What else is left?
The technical and conforming amendments make sure the new rules don’t conflict with existing rules, that they make the right cross-references, etc. This actually accounts for more than half of the proposed regulatory language.

The proposed guidance explains what certain regulatory language means in context. For example, the phrase “within three business days” appears a lot in this notice, as in: a creditor must deliver the loan estimate disclosure “within three business days” of application. But what counts as a business day? If a bank is closed the Friday before an Independence Day that falls on Saturday, does that Friday count as a business day? (Answer for purposes of delivery of this disclosure: yes.) Providing guidance that clarifies issues like these can save time, energy, and costs for both industry and regulators.

And the signature gets its own page?
Yes. We don’t expect a lot of comments on that page.

So where can I comment on this notice of proposed rulemaking?
First, we hope you’ll take a look at the Know Before You Owe project that helped us develop the proposed disclosures. Then, review the rule and submit your comments at Regulations.gov.

Dear CFPB,

I noticed you posted a request for public comments on “larger participants” for your “nonbank supervision” program. I don’t understand what this is about. I know what a bank is – I walk past one every day on my way to work – but what is a nonbank? And larger than what, anyway?

Sincerely,
Consumer

Dear Consumer,

Those are great questions. You’re not the first person to read the phrase “nonbank” and lapse into a state of confusion. “What is a nonbank?” you ask yourself. Worry no more! The CFPB Web Team is on the case, with help from our Nonbank Supervision team. Here’s the lowdown:

The Dodd-Frank Act – the law that created the CFPB – gave us the job of supervising large banks, thrifts, and credit unions, and other financial institutions. Supervision, as we’ve explained previously, involves observing financial institutions — for example, by asking for information about their practices or conducting examinations. In our case, we do this mainly to make sure they comply with federal laws that protect consumers.

Bank supervision isn’t new. What is new is that, for the first time, under the Dodd-Frank Act, many nonbank financial companies will also be subject to federal supervision.

So what IS a nonbank? For our purposes, a nonbank is a company that offers consumer financial products or services, but does not have a bank, thrift, or credit union charter and does not take deposits.

Huh? Today, there are thousands of companies that offer financial products that are not banks, and consumers interact with them on a regular basis. If you’ve taken out a payday loan, received a call from a debt collector, or accessed your credit report, you probably have interacted with one, too. Other kinds of nonbanks include finance companies or companies that wire or send money for you.

Products from nonbanks form a significant chunk of the overall consumer financial marketplace. The number of nonbank companies that provide consumer financial products and services has grown over the last few decades. Under Dodd-Frank, many of these nonbanks will be subject to a federal supervision program for the first time.

What’s a “larger participant”? Our nonbank supervision program may look at all sizes of nonbank mortgage companies, payday lenders, and private student lenders. But Dodd-Frank says that in other markets, the Bureau’s supervision program generally covers only institutions that are “larger participant[s] of a market for other consumer financial products or services.”

“Larger”? Larger than what? Well, that’s what the CFPB has to figure out. Congress did not set the thresholds for inclusion in this supervision program for these other markets. Congress required that we define what these size thresholds should be, so we can lay the foundation to start this part of our nonbank supervision program. In other words, it’s our job to figure out exactly how large “larger” really is.

How do you do that? We start by asking the public for input. We’ve posted a Notice and Request for Comment on some important questions that need answers, like how to set thresholds and criteria for defining larger participants, and what markets we should cover in our initial rule. We’ll also conduct our own analysis to determine what threshold works best, but since this decision affects millions of consumers – including you – we are asking for input from everyone who wants to give it.

Can you end this blog post with a clever segue? We can! Now that you know what a nonbank is and why they matter, please take a moment to look at the Notice and file comments as indicated there. We want your input.