CFPB readies simplified mortgage forms / Image: TheTruthAbout/Flickr/CC BY-SA

The Consumer Financial Protection Bureau, the Obama administration’s agency being set up by adviser Elizabeth Warren, plans to bring greater transparency to the credit industry by requiring the use of a simpler, more straightforward shopping sheet for mortgage lending. On Wednesday the agency website released two possible versions of a simpler mortgage disclosure form for public scrutiny.  Reactions have been mixed from industry and consumer sources.

Current forms confuse consumers

The CFPB claims that hidden charges and unreasonable terms are often hidden within the confusing language of the forms currently being used by lenders.  Currently, two mortgage disclosures are required: the federal Truth in Lending Act (TILA) mortgage disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate.  The new form will combine the two, reducing the the current five pages down to a one-page (front and back) form. The CFPB is calling it the “know before you owe” project.

Two different prototypes offered

Both versions of the new form contain the same information, but it is presented in different ways. Both show the interest rate, monthly loan payment, closing costs and taxes.  At a glance, one can see monthly payments and how those payments might change during the life of the loan.  The forms will also warn of possible penalties and other non-transparent charges.

Confusion can be costly

“Getting stuck with the wrong home loan can cost tens of thousands of dollars over the life of the loan,” Warren said Wednesday.  “[This] is a clear, simple form so consumers can get better answers to two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?”

Mixed reactions on both sides

Industry and consumer reactions have been mixed.  Industry groups say the changes may limit innovation and variety in lending, while consumer groups are concerned that the changes may limit the ability to stop a foreclosure with court action.

No change at this time

The new forms will not soon be available by any bank, however.  The Consumer Financial Protection Bureau, created by the Dodd-Frank Act, will officially begin work on July 21.  The CFPB will then conduct five rounds of testing in six different cities before introducing an official form in September. The bureau will then have until July 2012 to propose rules relating to the form’s implementation.

Sources

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Notifications of increases in interest rates are at issue in front of the Supreme Court. Image: Flickr / epicharmus / CC-BY

The U.S. Supreme court has announced that it will consider a case involving credit cards. McCoy v. Chase Manhattan Bank, USA, will be heard by the Supreme Court during its next session, which begins in October. The case is a class-action suit that alleges credit card companies cannot retroactively increase the interest rate on a card without notification. Chase bank claims that because the increase is in the initial cardholder agreement, the rate increase did come with notification.

The case of the credit card holder

In McCoy v. Chase Manhattan Bank, James A. McCoy is claiming that Chase Manhattan violated the law when it raised his credit card interest rate. McCoy was late with his payment on the credit card, and Chase retroactively increased his interest rate on all transactions for the month. Though McCoy had agreed to this interest rate increase when signing the cardholder agreement, the bank did not notify him before the rate increase went into effect. McCoy claims that this modification was illegal under the new Truth in Lending Act.

The case of the credit card issuer

Chase Manhattan Bank, who appealed this case to the Supreme Court, claims the company complied with the Truth in Lending Act. The TILA does require that these short term lenders deliver written notice of changes in the interest rates on cards. Chase bank points to one provision that excepts items previously agreed to in the cardholder agreement. In short, the debate comes down to the “natural” interpretation of the Truth in Lending Act provision versus the ambiguity of the language in the law.

Late payments on credit cards

The initial event that led to the McCoy v. Chase Manhattan Bank case was, in the end, in response to a late payment on a credit card. The Truth in Lending Act aims to make the unsecured loan companies that offer credit cards more transparent in what they are charging consumers. Many Americans are relying on credit cards and short term loans to make ends meet. The agreements for these credit cards are often very extensive and difficult to understand. So what do you think: Should credit card companies be required to notify the card holders of every change they have already agreed to, or is the responsibility to read the agreement on the cardholder?

Sen. Kay Hagan (NC-D) - Have John Paulson and the CRL done anything for YOU lately?

The Center for Responsible Lending recently worked hand-in-hand with North Carolina Senator Kay Hagan (D) to “help craft” the Payday Lending Limitation Act of 2010, reports the Payday Loan Industry Blog. The major purpose of this new bill, it would seem, is to change the parameters of the Truth in Lending Act (TILA). While the specifics of the bill text will not be available to the general public until it is presented to the Senate in the upcoming weeks, it appears that the Payday Lending Limitation Act of 2010 is ostensibly another attempt to blame America’s financial crisis on the payday loans industry. The bill would empower the federal government to replace state-by-state consumer lending regulation with their own highly stringent rules.

Payday Lending Limitation Act of 2010: Another CRL manifesto

The Center for Responsible Lending (CRL) is allegedly responsible for the thrust of the Payday Lending Limitation Act of 2010. For those unfamiliar, the CRL plays consumer advocacy group before the cameras and bright lights, but when it’s time to wipe of the grease paint, their truth hurts. Not only were they founded largely by Herb and Marion Sandler, who made a fortune in the sub-prime mortgage market that was largely responsible for bringing America’s economy to the brink of destruction, but there are other damning ties. Numerous connections exist between the Sandlers, the CRL, Self-Help, Inc. and affiliate Self-Help Credit Union (the latter two founded by Martin Eakes, who is also the chairman of the CRL).

In essence, affirmative action initiatives were used to strong-arm banks into writing adjustable-rate mortgages for people who were unlikely to be able to afford them. At the same time, groups like Goldman Sachs were contributing to the mortgage mess, claiming those sub-prime mortgages were a good investment to fool investors while betting against the success of those investments behind the scenes. And guess what? Hedge fund billionaire John Paulson, who is intimately involved in the recent mortgage investment scandal, was a major financial contributor to Goldman Sachs AND was one of the major founders of the Center for Responsible Lending! How credible are the Center for Responsible Lending’s claims that they want to protect the little man, in light of those heavy connections?

Skip the Payday Lending Limitation Act of 2010, Congress

Instead, investigate the Center for Responsible Lending at the same time that you go after Paulson, Goldman Sachs and everyone else associated with this greedy mortgage investment game. There is at a bare minimum suspicion by association, and there is a documented money trail. Payday lending, when used properly, is a useful venture for short-term consumer funding. Adjustable rate mortgages and unscrupulous investment companies that are betting on deceived investors to fill their coffers have no proper place in a legal, functional economy. Their avarice is a blight, and Sen. Hagan would have been better-served if she’d asked Scrooge McDuck to write the Payday Lending Limitation Act of 2010. He has more heart and care for the common man.

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