Two credit unions – Pentagon Federal Credit Union ($15.1B, Alexandria, VA) and State Employees’ Credit Union ($24.8B, Raleigh, NC) – that are involved in developing new disclosure forms the Consumer Financial Protection Bureau plans to use say the new language will help consumers.
It’s been slightly more than two years since President Obama signed the Dodd-Frank financial reform overhaul into law in July 2010. One of the more hotly debated aspects of Dodd-Frank was the creation of the CFPB. What will it do? What will its priorities be? Will it help? These were the questions on the minds of consumers, financial institutions, and financial experts.
In its first six months, the CFPB laid the groundwork for reform, hiring more than 750 employees and opening offices dedicated to specific issues. In the next six months, the bureau planned to focus on policy to “make consumer financial markets work better,” according to its January 2012 report. One of the first ways it’s done that is by clarifying the language of consumer financial disclosures and agreements for credit cards and checking accounts.
“Complicated disclosures have long been a thorn in the side of the industry as well as consumers,” said Steve Bartlett, CEO of the Financial Services Roundtable, in a December 2011 blog. “Nothing tears down the walls of misunderstanding and confusion faster than plain language.”
PenFed, which has more than one million members and 350,000 credit cardholders, has been working with the CFPB since the end of 2011, crafting clear, concise credit card disclosures that it plans to start testing on its members in the fourth quarter.
“We wanted to standardize the format for the agreement … so every creditor will issue a legal agreement that has the same info in the same place using similar language,” says Phyllis Mariam, vice president of compliance at PenFed. “The idea is to make it less of a document written by lawyers and more of a disclosure that in clear terms lays out expectations of the borrower and creditor. It will be less wordy and have certain formatting so information about rate and interest calculation can be found in the same place across institutions.”
Financial institutions and consumers can see a prototype of the revamped disclosures and send comments to the CFPB on the bureau’s website, consumerfinance.gov. Many credit union executives are concerned that overregulation, including requiring credit union staff to sift through the CFPB's 1,100-page document on directives for compliance, would limit their ability to lend by taxing a credit union’s resources. But CFPB director Richard Cordray has maintained that new disclosure policies will ultimately be good for the credit union in the long-term because they’ll make borrowing easier on the consumer.
One of the most notable changes in the CFPB’s credit card disclosure prototype is that standardized definitions won’t change across institutions.
PenFed’s disclosures for its credit card products are less than three pages, a welcome respite from the booklet that typically accompanies financial products.
“We have member-friendly products,” Mariam says. “Our credit card products are simple and straightforward. We don’t charge a lot of fees, and we don’t have a lot of terms and conditions.”
Whittling down its current disclosures to the two-page, bulleted, tabular-style supported by the CFPB wasn’t a significant challenge, but Mariam acknowledges that institutions with more complex credit card programs may have a harder time siphoning down all the information they need.
The CFPB’s work on the credit card disclosures embodies the intent of the checking account disclosures endorsed by the Pew Charitable Trusts. In a letter dated Sep. 21, 2011, Pew and eight other institutions, including North Carolina State Employees’ Credit Union, urged the CFPB roll out clear disclosures for checking accounts to protect consumers and improve clarity.
“SECU, and credit unions in general, had already been doing the things Pew recommended as the standard for financial institutions,” says Jennifer Hamrick, senior vice president of support services at SECU. “But we had not had a concise one-pager before. We put it out in early November 2011 and we had positive member feedback.”
One major revision SECU had to make in order to comply with Pew’s standards involved clarifying certain fees. SECU doesn’t have an overdraft penalty plan, so it had to specifically note on the disclosures: SECU does not offer an Overdraft Penalty Plan or fee. [Click here to view SECU’s checking disclosures; also available in Spanish.
The CFPB comment period for the checking account disclosures ended June 29, 2012, and to date the bureau has not yet made the new disclosures mandatory. Still, financial institutions of all sizes are implementing the format.
“It’s nice to see banks like JP Morgan and TD Bank adopting the disclosures,” Hamrick says. Even Bank of America has even stated it will adopt the new format this year. Both Mariam and Hamrick say such consistency across organizations is good for consumers.
“The goal is for the consumer to be able to walk into different institutions, ask for the disclosures, line them up, and make a well-informed decision based on what fee structure and product fits what they are looking for,” Hamrick says.
Although paring down and clarifying disclosures might not be an easy process, both women say the changes are in the best interest of the consumer.
“I hope this trend continues,” Mariam says. “It is good for credit unions. We’re focused on providing the best possible products for our members. There is no conflict for us.”