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FTC staff comments on CFPB’s integrated TILA/RESPA mortgage disclosures proposal

Posted in CFPB Rulemaking, Mortgages

Federal Trade CommissionIn July, the CFPB released its long-awaited nearly 1,100-page proposal consolidating the application and closing disclosures required by TILA and RESPA for mortgage loan transactions. Comments on the proposed integrated disclosures are due by November 6. 

On September 25, the staff of the Federal Trade Commission’s Bureau of Consumer Protection, Bureau of Economics and Office of Policy Planning submitted its comments on the CFPB’s proposal.  The FTC staff states that the proposed disclosures “will likely improve the information that consumers receive under current federal regulations” because they “are generally simpler and less technical.” However, the staff encourages the CFPB “to conduct controlled quantitative testing of the proposed disclosures prior to finalizing a rule to help ensure that the proposed disclosures effectively convey key mortgage terms to consumers, are not misinterpreted or misunderstood, and offer significant benefits over the currently mandated disclosures.” In its July proposal, the CFPB indicated that it might conduct such testing. 

According to the FTC staff, the CFPB engaged in qualitative testing before issuing the proposal using a sample of 92 consumers and, while the CFPB also obtained thousands of comments and e-mails about the proposals through its website, that process did not involve quantitative testing and did not test specific consumer understanding of the disclosures. The staff’s comments describe the differences between qualitative and quantitative testing.  Qualitative testing is described as “typically limited to the examination of small, non-representative samples of consumers,” which means “the results cannot be projected to the larger population of interest, and statistical findings and comparisons are not possible.”   In contrast, quantitative testing “typically involves larger, representative samples of consumers, in a controlled, experimental setting” that does yield “statistically valid results that can be projected to the larger population of interest.”    

The FTC staff recommends that, in conducting quantitative testing, the CFPB should “focus on the actual performance of the disclosures in conveying the desired information to consumers, rather than the consumers opinions about the disclosures, their preference for alternative designs, or whether they believe they understand the information.”   The staff also wants the CFPB to include a control group of persons using the current disclosures, with the current and proposed disclosure groups viewing disclosures based on the same loans and responding to the same questions.   According to the staff, by including such a control group in its testing, the CFPB could confirm that the proposed disclosures represent a substantial improvement over the current disclosures or it might find instead that the proposed disclosures add little benefit because, while understood by nearly all consumers, the same is true for the current disclosures.