TILA, RESPA, and Simplification?

The FRB has published a request for public comment of possible legislative changes to the Truth in Lending Act.

This request for comment is the result of the FRB's work with HUD to review Regulation Z and Regulation X requirements and design combined disclosure formats for both TIL and RESPA. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (ERGRPA) directed HUD and the FRB to develop a single disclosure for home mortgage transactions subject to TILA and RESPA. The agencies have determined that the two laws are sufficiently different in both purpose and content that the type of restructuring directed by Congress cannot be achieved without legislative change. This means that both laws may be open for significant redesign.

Without legislative change, the agencies can only produce minor changes that would result in a patchwork of change without significant burden relief.

The FRB points out recent changes to each regulation that were designed to make the two regulations more consistent. For example, the FRB recently published the position that the good faith estimate and the HUD-1 fulfill the Regulation Z requirement to provide the applicant with an itemization of the amount financed. ?226.18(c).

The two regulations also use similar (but not identical) definitions for key terms, including "assumption," "refinance," and "business day."

In spite of the decision not to make immediate changes to the regulations, the FRB is taking several steps to research ways that the purposes of both TILA and RESPA can be carried out but with less burden on the industry and more clarity for consumers. This includes a commissioning a consumer survey, and holding hearings on finance charge.

Fees and finance charges
An important debate revolves around the many fees charged for loans secured by real estate. Some of the fees are charged by the lender, but many are charged by settlement service providers including brokers, attorneys, title companies and the like.

Much of the regulatory burden of Regulation Z is the result of correctly identifying which charges are finance charges. Thus, the FRB has opened for question whether it would be easier to include all fees in the finance charge. It would increase the finance charge and the APR, but would presumably ease compliance as long as identifying the fees is not difficult.

Meanwhile, HUD has shown signs of requiring disclosure of more than settlement costs. For example, HUD has suggested developing a method to calculate and disclose the cost to the consumer of the sale of loans on the secondary market.

Regulatory improvement
The FRB is combining these efforts to merge disclosure requirements of RESPA with other work to improve Regulation Z. The review of Regulation Z will include looking at ways to improve and simplify disclosures for adjustable rate mortgages, determining what costs and fees should be included in the finance charge, and how to provide information and products electronically.

To support the review effort and to obtain as much information as possible, the FRB has reopened the comment period for an additional three months. The agency is specifically soliciting comment on legislative changes to the Truth in Lending Act that would support the effort to reduce burden and merge disclosures with those required by RESPA.

Commenting
In spite of persistent complaints about the burdens of compliance with RESPA and Regulation Z, only 80 members of the public submitted comments. Most of the commenters were creditors.

In a far-reaching review such as this, the result depends heavily on the information the agencies have to work with. Commenting is therefore essential to improve the regulations and relieve regulatory burden. Every idea counts and your participation is critical. Consider sharing your ideas with the FRB on some of the following questions listed on this page.

The answers to these and questions you may think of would be valuable to the FRB as they work on this project.

ACTION STEPS

Would training and compliance be easier if all regulations used the same set of definitions? Could this be done without undermining the purpose of specific laws?
What information from all the disclosures do consumers understand and what do they ask questions about or need help in understanding?
What information do customers care about and find valuable?
When do customers need the information and when is it easiest for banks to provide it?
What calculations and disclosures can be automated and what work must be done manually?
What disclosures or calculations cause your bank staff the most difficulty?
What information really tells customers how much the loan costs and helps them to shop for and negotiate the best deal?