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Improving CFPB Compliance Through Better Guidance
Following the Great Recession, the United States has undergone a dramatic change in consumer behavior with the rise of the renter.
According to a 2017 Pew Research Center study, more people are renting today than at any time in the last 50 years. The increase in households renting coincides with an almost 5 percent drop in the rate of homeownership since 2006. That drop has been felt the hardest in the West, where the homeownership rate stands just under 60 percent, according to the U.S. Census Bureau.
More renters does not mean fewer people want to buy. Indeed, the desire to own a home — a staple of the American dream — is just as strong now as it’s ever been. According to Fannie Mae, 82 percent of renters intend to someday buy a house, including a staggering 95 percent of renters aged 25-34. But few renters can afford it.
Given the decline in U.S. homeownership, one might think that the government would seek to remove unnecessary barriers, thereby helping more Americans become homeowners. Instead, the Consumer Financial Protection Bureau has pushed that dream further out of reach by issuing the TILA-RESPA Integrated Disclosure Rule.
The CFPB is supposed to “protect consumers from unfair, deceptive, or abusive practices” through rules and regulations. But many of these rules do more harm than good. The TRID rule is but one example. This rule, which has been in effect since 2015, is one of 68 final rules the CFPB has issued since 2010. Many of these rules are incredibly complex—and the CFPB has made matters all the more confusing by failing to provide adequate guidance on rule implementation. The TRID Rule is a case in point.
The mortgage industry continues to struggle with understanding how and when to update mortgage disclosures for consumers when costs increase or decrease. Unclear rules make it hard to know when an update is required or just merely allowed. It seems reasonable that consumers would want the most up-to-date information about how much they are going to pay. However, when selling a loan to Fannie Mae and Freddie Mac, it is these extra disclosures that can cause a compliance red flag. This delays those sales and reduces the amount lenders receive to make new loans to consumers.
What does confusion surrounding the TRID rule mean for the average home buyer? The American Bankers Association estimates that the TRID rule has increased closing costs by up to $1,000. As if closing on a home wasn’t stressful enough, the ABA estimates that TRID will add up to 20 more days to the closing period.
No matter which party controls the White House, the CFPB will continue to issue rules and regulations that impact the financial services industry and its customers. Unless there is a meaningful change at the bureau on guidance, these regulations will continue to cause confusion and increase costs.
The Giving Useful Information to Define Effective Compliance Act, or GUIDE Compliance Act, would bring much-needed clarity to the housing industry. Introduced by Sens. Orrin Hatch and James Lankford in the Senate (S. 3443) and Reps. Sean Duffy and Ed Perlmutter in the House of Representatives (H.R. 5534), the GUIDE Compliance Act would require the CFPB to issue guidance that can be relied upon in good faith by business and consumers.
The GUIDE Compliance Act establishes a transparent and consistent process for the CFPB to issue guidance. The legislation responsibly reduces liability for acts that were consistent with guidance when they occurred, and also requires the CFPB to publish guidelines for determining the size of any civil money penalties.
By providing clear and concise guidance, the CFPB will more effectively drive compliance with the rules and regulations it sets forth. That will help the CFPB better protect consumers, which is in line with the bureau’s mission.
If the CFPB replaces its existing “regulation through enforcement” approach with a “clear rules of the road” approach, then everybody — consumers, businesses, and the bureau itself — stands to gain. Had the CFPB taken this approach with TRID, more Americans would have been able to fulfill their dream of buying a home.
Congress should act now and pass the GUIDE Compliance Act.Content originally published by the Morning Consult on November 2, 2018.