Protecting Home Loan Consumers Starts with Simplifying Disclosures

Elizabeth Warren, Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau (CFPB), told a House subcommittee yesterday that "A simple, straightforward and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders - and among different types of lenders - and foster honest competition."   

Warren updated the Subcommittee on Financial Institutions and Consumer Credit on the progress of the new bureau which she will be directing but without the title of director.  In lengthy testimony she covered the staffing, budget, and outreach already conducted to explain the Bureau to military families, faith-based groups, and state attorneys general. 

Many people, Warren said, assumed the Bureau would seek to accomplish its goals by issuing waves of new regulation there is a better way. "Putting down rules here and there can be like putting down fence posts on the prairie:  They can be too easy to run around."  The lawyers soon show everyone how to jog around the fence posts, she said, so the regulator responds with more rules.  Pretty soon there are so many that newcomers are scared off before they start and small competitors can't afford an army of lawyers which puts them at a competitive disadvantage. 

Warren envisions the agency as providing a level playing field, one that gives consumers the information they need to chose between two products and encourages personal responsibility and rewards smart choices.  One lesson of the past five years is that we all lose when consumers cannot readily determine whether they can afford to pay back their loans and when lenders sell credit in ways that make it hard to see the risks and costs.  "A simple, straightforward, and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders - and among different types of lenders - and foster honest competition," she said.  Clear and simple presentations of terms benefit not only customers but lenders who want to compete fairly and investors who want to be assured that industry profits are never again based on crazy products that no one can understand.

Government regulation has also played a role in making credit products more opaque with mandated disclosures in obscure language and produced in small type that have often imposed a burden on lenders while providing no benefit to consumers.  "It should be the job of the consumer bureau to revise and update outdated regulations and useless disclosures as aggressively as it monitors the fine print layered on by lenders."

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Source: http://www.mortgagenewsdaily.com/03162011_elizabeth_warren_cfpb.asp

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