Sept. 11, 2012 – NAFCU was one of 16 trade groups that signed on to a letter Monday asking the Consumer Financial Protection Bureau to drop its annual percentage rate proposal, which “has the potential to impose enormous confusion and cost to both industry and consumers.”
The CFPB’s proposed “All In” APR change, part of the bureau’s effort to combine disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act, would revise what is currently included in the APR calculation lenders must disclose to consumers. Such a change is unwarranted, the groups write, since it will only “add significant costs and complications to the rulemaking effort, with no measurable benefit to the borrower.”
To illustrate this point, the groups note that the CFPB’s own research has concluded that consumers already “confuse the APR with the note rate” and that this confusion “has nothing to do with what is in or out of the APR calculation.”
The CFPB’s APR proposal would have far-reaching implications, the groups note. The APR is “embedded in numerous other mortgage finance rules as a trigger for additional compliance requirements, many of which are associated with steep legal, compliance and reputational risks.” The CFPB has yet to make clear how the APR proposal would impact these other rules, which include the yet-to-be finalized ability-to-repay/qualified mortgage rule and the Home Ownership and Equity Protection Act rule.
The CFPB is also proposing to implement a separate transaction coverage rate, which would “require yet another new calculation and additional burdens for industry and costs that are passed on to consumers,” the groups said.
Importantly, the Dodd-Frank Act does not require wholesale changes to the APR, they noted, but instead “relies on this figure by using it as a measurement for a number of new provisions.”
The groups said all parties would be better served if the CFPB took a simpler approach and focused “only on those elements that are truly needed to implement Dodd-Frank requirements” and promote consumer understanding. To that end, they also urged the bureau to ensure there are no conflicts among its various mortgage proposals.
NAFCU will submit additional comments about this proposal on its own soon.