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Public Policy & Consumer Testing

BentleyDUC
BentleyDUC

At the 2012 Face of Finance Conference, at Bentley University, in Waltham, MA, Susan Kleimann (Center for Plain Language) and Richard Horn (Consumer Financial Protection Bureau) presented "Public Policy & Consumer Testing".

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PUBLIC POLICY & CONSUMER TESTING FACE OF FINANCE OCTOBER 24, 2012 1 Face of Finance October 24, 2012
PRESENTERS Richard Horn Susan Kleimann, Senior Counsel, Ph.D. Consumer Financial President, Kleimann Protection Bureau, Communication Office of Group Regulations Face of Finance October 24, 2012 2
WHAT WELL COVER Where we started Current disclosures Mandate Purpose Beginning policy Examples Policy informs design & consumer testing Consumer testing informs design & policy development Importance of consumer testing Face of Finance October 24, 2012 3
WHERE WE STARTED Current disclosures 2 statutes 2 different disclosures 1 transaction Truth in Lending Act Real Estate Settlement Procedures Act Face of Finance October 24, 2012 4
CURRENT TRUTH IN LENDING Face of Finance October 24, 2012 5
CURRENT GOOD FAITH ESTIMATE Face of Finance October 24, 2012 6
WHERE WE STARTED Mandate The Bureau shall proposemodel disclosures that combine the disclosures required under [TILA] and [RESPA] into a single, integrated disclosure for mortgage loan transactions covered by those laws. Dodd Frank Act 則1032(f) Face of Finance October 24, 2012 7
WHERE WE STARTED Purpose 2 goals for combined forms: 1. To improve consumer understanding of mortgage loan transactions; and 2. To facilitate industry compliance with TILA and RESPA Dodd-Frank Act 則則1098, 1100A Face of Finance October 24, 2012 8
WHERE WE STARTED Purpose consumers are provided with timely and understandable information to make responsible decisions about financial transactions. Dodd-Frank Act 則 1021(b) prescribe rules to ensure [consumer financial products are]disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks . Dodd-Frank Act 則 1032(a Face of Finance October 24, 2012 9
SO WHAT? Face of Finance October 24, 2012 10
WHERE POLICY DESIGN & TESTING A graphic design Use as few words as possible Reduce Information overload Show relationships Highlight key information Use plain language Face of Finance October 24, 2012 11
WHERE POLICY DESIGN & TESTING Information, not education Mortgage shopping sheet Summary & detail System of other sources Face of Finance October 24, 2012 12
POLICY DESIGN & TESTING Content requirements RESPA TILA Dodd-Frank Act Face of Finance October 24, 2012 13
WHERE POLICY DESIGN & TESTING Chose to test with consumers Ensure disclosures work Hire specialists - Kleimann Communication Group Face of Finance October 24, 2012 14
WHAT WE DID User-centered design Context Usability/cognitive test - think alouds Formative Performance, not preference Usability 10 testing rounds Posted designs for Validation public comment Face of Finance October 24, 2012 15
THE RESULT Page 1 summary shopping sheet 2 types of information Loan details Affordability Face of Finance October 24, 2012 16
THE RESULT Page 2 details 4 types of details Specific loan fees Specific closing fees Calculating cash to close Rate & payment details Face of Finance October 24, 2012 17
WHERE TESTING DESIGN & POLICY #1 What level of detail helps consumers? Face of Finance October 24, 2012 18
WHERE TESTING DESIGN & POLICY #2 Can consumers identify changes between the Loan Estimate and Closing Disclosure ? Face of Finance October 24, 2012 19
WHERE TESTING DESIGN & POLICY #2 Round 6 (IA) results Honestly this is so much writing. Im Trouble tracking skimming over it and See changes at high not really reading this level thing. I dont know Relatively passive what to look for, to tell you the truth. I guess I could look at the very bottom and see what that says. I dont know. This is a bit much. (IA-002) Face of Finance October 24, 2012 20
WHERE TESTING DESIGN & POLICY #2 Face of Finance October 24, 2012 21
WHERE TESTING DESIGN & POLICY #2 Rounds 7-10 results Because they did it on the [Loan Estimate], Improved tracking keep the order the Noticed differences same here [Closing Actively asked Disclosure], it makes it a questions lot easier, just the Go back to lender comparison to try to match up, so just keep Consider not closing the order same. (PA-005 NE) Face of Finance October 24, 2012 22
WHERE TESTING DESIGN & POLICY #3 TILA 則128(b)(2)(C)(ii) are they saying definitely cannot You may not be able or are you saying to refinance your you may or may loan to lower your not? interest rate and (AL-005) payments in the future with us or with another lender. Face of Finance October 24, 2012 23
WHERE TESTING DESIGN & POLICY #3 Refinancing this Yeah, you can try loan will depend on to refinance the loan. That doesnt your future financial mean you're going situation, the to get it, but you property value, and can try. market conditions. (PA-006-NE) You may not be able to refinance this loan. Face of Finance October 24, 2012 24
WHY TEST? Sort statutory Move from requirements vs. preference to the information performance consumers need Team Sort what we Consumers want to say from what they need Focus on task, not information Face of Finance October 24, 2012 25
WHY TEST? Face of Finance October 24, 2012 26
WHY TEST? Consumers say . . . Everything is there. The strong points are laid Theyre not really hiding right out in front of you. anything. So its pretty You know how much your straightforward. monthly payments are (TX-003- NE) going to behow much you need to bring at I can actually say 5; its closingyour interest rate the best form Ive ever right up here. seen. (TX-006- NE) (TX-009-E) Face of Finance October 24, 2012 27
WHY TEST? Industry says . . . Im seeing everything I Its very easy to follow, need to know. My very easy to read and payments, how much Im friendly to the eye escrowing, and how instead of having to flip much Im bringing to the through many different table for closing contracts and purposes. So yes, as far paperwork. as a summary sheet, I (TX-Lender-001) think this is superior to It is the best mortgage what weve got. related form I have ever (TX-Settlement Agent-004) seen. (TX-Lender-006) Face of Finance October 24, 2012 28
FACE OF FINANCE Face of Finance October 24, 2012 29

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Public Policy & Consumer Testing

  • 1. PUBLIC POLICY & CONSUMER TESTING FACE OF FINANCE OCTOBER 24, 2012 1 Face of Finance October 24, 2012
  • 2. PRESENTERS Richard Horn Susan Kleimann, Senior Counsel, Ph.D. Consumer Financial President, Kleimann Protection Bureau, Communication Office of Group Regulations Face of Finance October 24, 2012 2
  • 3. WHAT WELL COVER Where we started Current disclosures Mandate Purpose Beginning policy Examples Policy informs design & consumer testing Consumer testing informs design & policy development Importance of consumer testing Face of Finance October 24, 2012 3
  • 4. WHERE WE STARTED Current disclosures 2 statutes 2 different disclosures 1 transaction Truth in Lending Act Real Estate Settlement Procedures Act Face of Finance October 24, 2012 4
  • 5. CURRENT TRUTH IN LENDING Face of Finance October 24, 2012 5
  • 6. CURRENT GOOD FAITH ESTIMATE Face of Finance October 24, 2012 6
  • 7. WHERE WE STARTED Mandate The Bureau shall proposemodel disclosures that combine the disclosures required under [TILA] and [RESPA] into a single, integrated disclosure for mortgage loan transactions covered by those laws. Dodd Frank Act 則1032(f) Face of Finance October 24, 2012 7
  • 8. WHERE WE STARTED Purpose 2 goals for combined forms: 1. To improve consumer understanding of mortgage loan transactions; and 2. To facilitate industry compliance with TILA and RESPA Dodd-Frank Act 則則1098, 1100A Face of Finance October 24, 2012 8
  • 9. WHERE WE STARTED Purpose consumers are provided with timely and understandable information to make responsible decisions about financial transactions. Dodd-Frank Act 則 1021(b) prescribe rules to ensure [consumer financial products are]disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks . Dodd-Frank Act 則 1032(a Face of Finance October 24, 2012 9
  • 10. SO WHAT? Face of Finance October 24, 2012 10
  • 11. WHERE POLICY DESIGN & TESTING A graphic design Use as few words as possible Reduce Information overload Show relationships Highlight key information Use plain language Face of Finance October 24, 2012 11
  • 12. WHERE POLICY DESIGN & TESTING Information, not education Mortgage shopping sheet Summary & detail System of other sources Face of Finance October 24, 2012 12
  • 13. POLICY DESIGN & TESTING Content requirements RESPA TILA Dodd-Frank Act Face of Finance October 24, 2012 13
  • 14. WHERE POLICY DESIGN & TESTING Chose to test with consumers Ensure disclosures work Hire specialists - Kleimann Communication Group Face of Finance October 24, 2012 14
  • 15. WHAT WE DID User-centered design Context Usability/cognitive test - think alouds Formative Performance, not preference Usability 10 testing rounds Posted designs for Validation public comment Face of Finance October 24, 2012 15
  • 16. THE RESULT Page 1 summary shopping sheet 2 types of information Loan details Affordability Face of Finance October 24, 2012 16
  • 17. THE RESULT Page 2 details 4 types of details Specific loan fees Specific closing fees Calculating cash to close Rate & payment details Face of Finance October 24, 2012 17
  • 18. WHERE TESTING DESIGN & POLICY #1 What level of detail helps consumers? Face of Finance October 24, 2012 18
  • 19. WHERE TESTING DESIGN & POLICY #2 Can consumers identify changes between the Loan Estimate and Closing Disclosure ? Face of Finance October 24, 2012 19
  • 20. WHERE TESTING DESIGN & POLICY #2 Round 6 (IA) results Honestly this is so much writing. Im Trouble tracking skimming over it and See changes at high not really reading this level thing. I dont know Relatively passive what to look for, to tell you the truth. I guess I could look at the very bottom and see what that says. I dont know. This is a bit much. (IA-002) Face of Finance October 24, 2012 20
  • 21. WHERE TESTING DESIGN & POLICY #2 Face of Finance October 24, 2012 21
  • 22. WHERE TESTING DESIGN & POLICY #2 Rounds 7-10 results Because they did it on the [Loan Estimate], Improved tracking keep the order the Noticed differences same here [Closing Actively asked Disclosure], it makes it a questions lot easier, just the Go back to lender comparison to try to match up, so just keep Consider not closing the order same. (PA-005 NE) Face of Finance October 24, 2012 22
  • 23. WHERE TESTING DESIGN & POLICY #3 TILA 則128(b)(2)(C)(ii) are they saying definitely cannot You may not be able or are you saying to refinance your you may or may loan to lower your not? interest rate and (AL-005) payments in the future with us or with another lender. Face of Finance October 24, 2012 23
  • 24. WHERE TESTING DESIGN & POLICY #3 Refinancing this Yeah, you can try loan will depend on to refinance the loan. That doesnt your future financial mean you're going situation, the to get it, but you property value, and can try. market conditions. (PA-006-NE) You may not be able to refinance this loan. Face of Finance October 24, 2012 24
  • 25. WHY TEST? Sort statutory Move from requirements vs. preference to the information performance consumers need Team Sort what we Consumers want to say from what they need Focus on task, not information Face of Finance October 24, 2012 25
  • 26. WHY TEST? Face of Finance October 24, 2012 26
  • 27. WHY TEST? Consumers say . . . Everything is there. The strong points are laid Theyre not really hiding right out in front of you. anything. So its pretty You know how much your straightforward. monthly payments are (TX-003- NE) going to behow much you need to bring at I can actually say 5; its closingyour interest rate the best form Ive ever right up here. seen. (TX-006- NE) (TX-009-E) Face of Finance October 24, 2012 27
  • 28. WHY TEST? Industry says . . . Im seeing everything I Its very easy to follow, need to know. My very easy to read and payments, how much Im friendly to the eye escrowing, and how instead of having to flip much Im bringing to the through many different table for closing contracts and purposes. So yes, as far paperwork. as a summary sheet, I (TX-Lender-001) think this is superior to It is the best mortgage what weve got. related form I have ever (TX-Settlement Agent-004) seen. (TX-Lender-006) Face of Finance October 24, 2012 28
  • 29. FACE OF FINANCE Face of Finance October 24, 2012 29

Editor's Notes

  • #3: Each of is speaking for ourselves; none of us is speaking for CFPB.The views we express are our own; they do not represent the views of CFPB.
  • #5: Generally, TILA covers the loan transaction and REPSA covers the real estate transactionHowever, TILA figures depend on settlement costs and RESPA disclosures currently contain loan informationThese statutes are mandated at two points in the process: (1) at the loan application and (2) at the closing. Were focused on the application disclosures.
  • #6: The Truth in Lending Initial Disclosure was revised over the years as Congress continued to add new requirements. This form complies with the newest requirements which became effective Feb 1, 2011.
  • #7: HUD implemented a new Good Faith Estimate in 2008, which lenders were required to use beginning in 2010. These new forms were designed to encourage shopping and ensure consumers understand when brokers received yield spread premiums as part of their compensation. Implementation has been quite difficult. HUD has issued over 300 Qs and As since the rule was finalized.
  • #8: This is even before the Plain Writing Act
  • #9: What we mean by improve understanding is: aid understanding by utilizing readily understandable language to simplify the technical nature of the disclosures.
  • #11: Foreclosures in US--as of Friday May 18, 2012
  • #12: Other constraints: No color, 8 遜 x 11, plain language: some technical terms, but make key features accessible
  • #16: 5 sites for LE2 sites for CD3 sites for bothBaltimore first and lastNeed to mention that things were also posted on the web site with over 12,000 comments on the first round.
  • #17: Loan details are the tricks and trapswhere factors change
  • #19: Lots of debate about the choices. The 2010 form (which were not showing) used a lump sum based on the research that said consumers were overwhelmed by large quantities of numbers. Industry hated the lump sum and wanted detailed; advocates wanted lump sum.Bias, if any, was to go with the lump sum. Round 2 (CA) preferred the detail; ask more questions with detailRound 3 (IL) - preferred the detail; ask more questions with detailRound 3 (IL) -preferred the detail; ask more questions with detailRound 4 (MA) same thingRound 5 (NM): Went with detail
  • #20: Industry wanted Closing Cost Details of the CD to remain like the current HUD-1. Saw the details of HUD-1 as a distribution of funds record; not intended for consumers to use.
  • #21: First round of testing on the Closing Disclosure.
  • #23: Round 7 AlabamaRound 8 PennsylvaniaRound 9 TexasRound 10 Maryland
  • #24: Sometimes its the little things that drive you crazyConsumers thought it meant they would never be able to refinance and was part of the loan terms
  • #25: Consumers thought it meant they would never be able to refinance and was part of the loan terms
  • #30: Policy & testing EntwinedFragile relationship with consumersResponsible to meet mandates of requirements & performance (make it clear)Responsive to consumersIntelligent saves redo of work AFTER the policy is final.