The Federal Reserve Board (the "Board") recently announced that it will not seek to finalize mortgage disclosure rules proposed in August 2009 and September 2010. The Board's decision recognizes the forthcoming transfer of Truth in Lending Act ("TILA") and Real Estate Settlement Procedures Act ("RESPA") rulemaking authority to the Consumer Financial Protection Bureau ("CFPB") pursuant to the Dodd-Frank Act. Indeed, the Board considered the likelihood that CFPB would seek advance notice of proposed rulemaking on similar issues. Now that the CFPB's launch is approximately five months away, the Board's move could foreshadow a rulemaking quiet period for those agencies that will lose rulemaking authority to the CFPB.
The Proposed Rules
The proposed rules focused primarily on new, more expansive disclosures to consumers prior to assuming home-secured loan obligations. Two of the proposed rules, released contemporaneously in August 2009, expanded the required disclosures for home equity lines of credit and closed-end mortgages, respectively. The rules would have required more disclosures on "potentially risky loan features" such as adjustable interest rates, amortization, and payment schedules. The third proposed rule, released in September 2010, changed disclosures on a mortgagee's right to rescind and the rescission procedure.
Receiving the most attention from consumer advocacy groups was the proposed rule modifying the rescission process for borrowers who did not receive mandated disclosures. The proposed rule would have required borrowers to pay their principal balance prior to rescission. This proposal would have altered current procedure in certain jurisdictions, requiring a creditor to release its security interest before the borrower is obligated to repay the loan (enabling the borrower to obtain another mortgage or negotiate a loan modification). Among the comments of the consumer advocacy groups was a request to postpone rulemaking until the CFPB's plans for a combined TILA-RESPA disclosure rule could be considered.
In a statement released on February 1, 2011, the Board acknowledged that "a combined TILA-RESPA disclosure rule could well be proposed by the CFPB before any new disclosure requirements issued by the Board could be fully implemented." In fact, the U.S. Treasury Department—the agency charged with establishing the CFPB—is considering advance notice of proposed rulemaking "as a means of gathering information and input, before the transfer date." Given the timetable to promulgate disclosure rules, the Treasury may seek advance comment on this very issue.
Continued Rulemaking Comes Into Question
With the transfer of rulemaking authority on the horizon, uncertainty exists for rules still under consideration by agencies that will eventually cede authority to the CFPB. For instance, the CFPB will take over all rulemaking authority for consumer protection under RESPA. In November 2010, however, HUD announced its plans to release "guidance under RESPA to address possible changes in warehouse lending and other financing mechanisms used to fund federally related mortgage loans." The National Association of Consumer Advocates and National Consumer Law Center have asked HUD to reconsider issuing such guidance because the CFPB "is charged with ... rulemaking under RESPA." The Board's decision may provide HUD with sufficient precedent to delay its guidance.
The Board's decision to yield to the CFPB on mortgage disclosure rules is the first outward sign of rulemaking deference to the nascent CFPB. With only approximately five months remaining before the CFPB's July 2011 launch and the likelihood that Treasury will seek advance comment on CFPB issues, the Board's decision may foreshadow a quiet period for rulemaking by agencies that will eventually cede rulemaking authority to the CFPB.