The Dodd-Frank Act requires the Consumer Financial Protection Bureau (CFPB) to propose rules and model disclosures that combine the disclosures required under the Truth in Lending Act and Sections 4 and 5 of the Real Estate Settlement Procedures Act. The model disclosure is required to use plain language comprehensible to consumers, contain clear format and design, and effectively communicate information to the consumer.
The CFPB, on November 23, 2010, quietly released a Request for Quote soliciting a contractor to assist with the design of model disclosure form.
The core objectives of the project are first, to identify what information consumers need to make better decisions about appropriate mortgage products and terms; and next, conduct outreach to obtain feedback from industry, consumer advocates, individuals, and others on the content and form of the disclosures.
The contractor is required to develop elements for the integrated disclosure, based on the contractor’s experience and review of existing research. As part of this process the contractor must deliver to the government proposed disclosure elements and a written justification supporting selection of these elements.
The government will receive input throughout the process through formal and informal meetings and communications with industry members and the public on the content, process, testing, and design of the disclosure form.
Based on the input the government and contractor have received, the contractor will then create sample disclosures that convey information to consumers in a manner and format that are understandable.
The disclosure form is required to convey accurate information about a range of loan products, including a fixed rate product, an adjustable rate product, an interest-only product, which then becomes fully amortized, and up to two additional products that the government will identify prior to the commencement of sample disclosure creation.
The contractor is required to develop a test plan—identifying the methodology it determines is necessary—to evaluate the effectiveness of the disclosure. The test plan is required to take into account the need to conduct testing in different geographical regions throughout the United States among a diverse group of consumers with respect to age, education, race, ethnicity, mortgage loan experiences, and other relevant factors.
It is anticipated that testing will identify areas of the design or content of the disclosure forms that are not effective and require improvements to the disclosure that will then require additional testing. The contractor shall propose the number of iterations needed based on prior experience with consumer form testing and standards in the industry.
The contractor is required to deliver a single final disclosure form to the government the earlier of 12 months from the effective date of the contract’s issuance or January 15, 2012.