Posts from August 2012

One part of our proposed rule to improve the disclosures consumers receive when applying for and closing on a mortgage was a change to the current definition of “finance charge.” The finance charge is intended to reflect the cost of credit for consumers as a dollar amount. It’s used to calculate the Annual Percentage Rate or “APR.”

The proposed rule would eliminate numerous exceptions that exclude common costs (such as title insurance) from the finance charge. We want APR to be a more accurate reflection of the overall cost of credit. However, higher APRs and finance charges could affect the number of loans subject to other legal requirements and protections, such as special disclosures and restrictions for high-cost mortgages. In another rulemaking, we also proposed an adjustment that would prevent that from happening, by changing the coverage test for the high-cost mortgage protections to account for the higher APRs.

Comments on the proposed changes to the definition of the finance charge and the proposed change to the high-cost mortgage coverage test were originally due on September 7, 2012. Based on the feedback received, the Bureau now believes that it is appropriate to provide the public with additional time to prepare their comments. These comments are now due November 6, 2012. All other deadlines under both proposed rules remain unchanged.

For more information about the extensions, please see:

• Notice of Comment Extension for proposed changes to the definition of the finance charge
• Notice of Comment Extension on whether and how to account for the implications of a more inclusive finance charge on the scope of HOEPA coverage

Choosing your first bank account is an important decision. Unlike that first school ID photo, your first banking relationship could last long after you graduate. Making a smart decision now will mean fewer surprise fees that can add up later.

Get started

1. Choose an account as soon as possible. You should try to find an account before you start school. Don’t feel limited to only the banks or credit unions that have ATMs on or near campus; some will automatically reimburse fees for using any ATM. Consider accounts that offer services like remote check deposits, mobile apps, and online bill-pay. Signing up for a bank account now can save you headaches later, and researching accounts with the lowest fees can save you money.

2. Avoid paying unexpected fees. Dig deeper when accounts are marketed as “free” or “easy” – very few accounts charge no fees at all. Does your bank charge monthly fees? Many require minimum balances or regular direct deposit to avoid monthly fees. What about out-of-network ATM fees, overdraft fees, fees to use your debit card, and fees for services like online bill-pay? Knowing if and when fees will be charged could save you hundreds of dollars in fees each year. While half of young Americans never overdraft, the other half average approximately seven overdrafts a year. Overdrafts can cost more than $30 each, so that’s potentially a lot of money taken out of your pocket.

3. Sign up for direct deposit as soon as possible. Once you have a bank account, sign up for direct deposit with your school before classes start. If you are expecting money from your financial aid office, you’ll often get it faster this way – it can be weeks before the school gets to writing you a paper check.

Choosing a bank account

You have many bank accounts options. Here are are three possibilities and key factors to compare when making your decision.

	Virtual checking accounts	Student checking account	School-affiliated banking services
How it works	Some financial institutions provide exclusively online banking services that are comparable to a traditional checking account	Some banks and credit unions offer student checking accounts with discounted fees to establish long term relationships with new customers	Many colleges have a bank they partner with to offer students campus affiliated checking accounts or prepaid debit cards
Benefits	May waive or reimburse ATM fees, even those for out-of-network ATMS Often include online banking and bill-pay Often have mobile apps for things like remote check deposit Often won’t let you overdraft your account	Free access to in-network ATMs May include online banking and bill-pay Access to traditional in-person bank branches	On-campus branch locations and ATMs May include online banking and bill-pay May offer discounts at local or campus businesses Sometimes your student ID card can be used to access your money
Risks	Generally do not have in-person customer service options	Possibly charge monthly maintenance fees – up to $12 a month in some cases – if you don’t meet the minimum balance or the bank’s other enrollment criteria, like maintaining a full-time enrollment status at school May charge more than $30 per overdraft, which can add up quickly, especially if you opt in to coverage for ATM and debit card overdrafts	Could charge fees every time you use your debit card Don’t always provide the ability to write checks May charge inactivity fees each month for not using your account frequently Possibly charge monthly maintenance fees – up to $12 a month in some cases – if you don’t meet the minimum balance or the bank’s other enrollment criteria, like maintaining a full-time enrollment status at school May charge more than $30 per overdraft, which can add up quickly especially if you opt in to coverage for ATM and debit card overdrafts

Accessing your financial aid

After your school takes out the cost of tuition, fees, and any on-campus living expenses from your total financial aid award, there is often money left for you to use for other expenses, like books. You normally have several options for how you get that money, including direct deposit to a bank account, to a card that might also double as your student ID, by check, or cash.

We recently published an advisory to consumers about financial aid disbursements, and we encourage you to choose your disbursement option wisely. They all have benefits and risks, so the most important thing is that you understand your needs and what potential fees you will be charged to use each option.

	Direct deposit to personal account	Paper check	Financial aid disbursement account
How it works	Once you choose the best bank account for you, share that information with your school, and they will deposit additional aid funds directly to that account	Schools generally must offer a paper check or cash option no later than 14 days after the funds are available	A school may partner with a bank or another third party to handle financial aid disbursements The most common option is a debit card attached to bank account that has your financial aid deposited in it You are not required to use the bank chosen by your school
Benefits	You can pick an account that offers what you need and charges few or no fees You can access the disbursement quickly with direct deposit	You can deposit your money into the account of your choice and do not need to provide additional personal financial information	Often the quickest way to access to your disbursement if you haven’t already provided your school with direct deposit info
Risks	No significant risks	If you use a check casher, they may charge as much as 4% of the check amount You may not be able to access your funds immediately after making a deposit	The school makes the agreement with the bank, not you You won’t be able to shop for a low-cost product, and these cards and accounts may come with fees you could avoid by shopping

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Last week, I got my 401(k) plan fee disclosure notice in the mail. I almost threw it away.

At first, it looked like all of those form notices you get – you know, the ones with the window envelope and “US Postage Paid” in the top right-hand corner. Not the most exciting-looking mail.

So, why am I telling you?

Because I work for the Bureau’s Office of Financial Protection for Older Americans, and because I’m an older American learning through my own experiences. A big part of our mission is to help people understand how to plan and save for retirement.

What’s a 401(k)?
A 401(k) account helps you to save for retirement by making contributions from your paycheck. In some plans, your employer also makes contributions. In many cases, participants choose from among the investment options available through the plan. The money saved in a 401(k) account, and the growth in the account, isn’t taxed until you retire. This tax deferment helps your retirement savings grow faster.

While everyone with a 401(k) plan pays fees, an AARP survey found that over 70 percent of people with a 401(k) thought that they weren’t paying any fees at all.

Possible fees include investment fees for the funds, stocks, bonds and other investments you choose, individual service fees for things like taking out a loan from the plan or selling shares in a particular investment fund, administrative fees and more.

That’s where last week’s mail comes in. Under a new rule from the Department of Labor, everyone with a 401(k) must receive an annual disclosure about fees. Many have received them already and more will get them in the mail around Labor Day. To see how fees can affect your retirement savings, check out this video:

How will this new information help me?
The disclosure will tell you the fees and expenses for the investment options your plan offers and how those investment funds have performed over time. You can use the statement to compare your options.

What can I do to get a better deal?
If you think the fees in your 401(k) plan are too high, you can ask your employer to find more cost-effective investment options or plan services.

What else do I need to know?
Remember that fees are not the only factor in choosing 401(k) investments. Your plan may offer access to professional investment advice. If you’re thinking about rolling over your 401(k) savings into an IRA, consider that IRAs have fees, too, and those fees could be higher than your 401(k) plan fees.

To learn more, the Department of Labor offers resources that cover what you should know about your retirement plan.

And of course, I’ll be there learning with you along the way.

Last month, we released a report to Congress with the Department of Education on the private student market. This report helped shed light on how the private student loan market works and where there are opportunities for improvement.

When we design a form or develop a regulation, we work to gather continuous feedback. The same goes for our reports. Since releasing the private student loan report, we’ve been talking to researchers, consumer groups, and industry players to share our results and get feedback. Based on this feedback, we developed ways to make better estimates on certain market statistics, particularly in areas where our data set was incomplete.

While there aren’t any changes to the key findings and recommendations, we released an update today to reflect new methodologies our research team used to calculate some statistics in the report: first, the proportion of private student loan borrowers who exhausted their Federal Stafford Loan options; and second, the extent to which schools certified a borrower’s need for a private student loan.

Compared to the original estimates, the update shows that the number of borrowers who exhausted their federal options is lower than our original estimate, and the level of school certification is higher.

Check out the updates.

Do you have more suggestions about future topics for research on student loans? Share your ideas and tag your story with “student loans.”

Your opinion is important – weigh in now.

As we talked about on Friday, the Bureau is trying to put the customer service back in mortgage servicing. We are proposing nine rules to address issues that consumers face when paying their mortgage loans, dealing with escrow accounts, or figuring out what to do when they have fallen behind on their loans. We want to get rid of surprises and runarounds by servicers, which are often hired by creditors and investors to manage home loans.

You may not know this, but getting comments from the public – you – is an essential part of the agency rulemaking process. Federal law generally requires that the public get an opportunity to read a proposed rule and submit comments before the rule is finalized. Agencies publish the proposed rules in the Federal Register.

All too often, this opportunity passes, and the public doesn’t weigh in. This, in part, is because not everybody skims the Federal Register every day.

We want to make it easier for consumers and small businesses to tell us what they think about the rules that we are working on. To do that, we’ve partnered with Cornell University, which has launched a project called Regulation Room as part of the Cornell e-Rulemaking Initiative, to get your take on our new proposed mortgage servicing rules.

RegulationRoom.org is not a government website. It is operated by students and staff at Cornell, with the goal of making it easy for people to participate in the rulemaking process. They are researching how to remove barriers to public participation, and we are excited to be partnering with them.

• First, the Cornell folks realized that all too often, the public is unaware of the rule-writing process, so they are spreading the word through a social media campaign.
• Next, they realized that most members of the public are not interested in reading a Federal Register notice that may easily be 100 pages or more. They use “layering” of information so you can quickly get an overview, but have the ability to dive deeper if you are interested in a particular point or subtopic.
• Also, they realized rulemakings involve complicated issues that can benefit from dialogue rather than just one-time letter writing. Besides presenting the information, Regulation Room hosts a forum for discussion. Even better, the forum is moderated to help answer questions and get more detailed information and feedback. Feel free to say that you do or don’t like our rule, but be prepared for a moderator to ask you to be more specific: Why do you feel that way? How could it be improved?
• Finally, they realized that most members of the public are unfamiliar with the formal commenting process at Regulations.gov (the official government site). So Regulation Room presents information and conducts a conversation right when a proposed rule first comes out, and then closes its forum down about a week before the end of the comment period so that the Cornell team can assemble all the feedback they have received into an official comment. People who have participated get one last chance to react to the summary before it is submitted formally to the CFPB through regulations.gov. And, like all other formal comments, we will read and consider it.

We are excited about this project for two reasons.

First: We really do want to hear what you think of our proposals on mortgage servicing.

Second: We want to learn as much as possible from this experience about how to get more public feedback in future rulemakings.

So head on over to Regulation Room and let us know what you think!

Today, we’re proposing new mortgage servicing rules.

So, what’s mortgage servicing and why does it need the new rules?

The short answer is that mortgage servicing is the processing of mortgage payments. That may sound simple, but as many borrowers have learned in the aftermath to the financial crisis, it can get complicated very quickly.

When you make a mortgage payment, part of that pays interest on the money that you borrowed, and part of that actually repays the money that you borrowed. Often the company that owns your mortgage hires someone else – a servicer – to collect and apply these payments, along with handling other day-to-day responsibilities in administering the loan.

This can be a challenge due to sophisticated mortgage products, partial payments, delinquent borrowers, fees, errors and misunderstandings. And when consumers can’t make their mortgage payments, servicers are the ones that decide what to do. As we saw during the recession, not all servicers were prepared to handle these challenges. And that can have very bad consequences for consumers.

Why are you proposing new rules?
When an agency writes a new rule, that rule must first be proposed, and the public has an opportunity to comment on it. After we get your comments we’ll review them and consider them while we’re writing the final rule.

How did you arrive at these rules?
Several of them are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (which we call the Dodd-Frank Act for short). We developed others in response to issues in the marketplace. To do this, we have spent a lot of that time talking to the public because we want to write rules that work. For us, rules that work are rules that protect consumers, are consistent with other rules that apply to servicers, recognize the impact on lenders and mortgage investors, and do not cause unnecessary burden on industry. So, in addition to meeting with consumers, consumer advocates, servicers, trade associations, and mortgage investors, we worked with a design team, conducted consumer testing, and met with small servicers to develop these proposals.

What are the new rules?
We are proposing rules on mortgage servicing to implement new laws in the Dodd-Frank Act. Our proposals have new rules that are designed to put the service back in mortgage servicing, and will benefit borrowers by eliminating surprises and run-arounds. The rules are divided into two proposals – one to amend the regulations in the Truth in Lending Act (Regulation Z) and the other to amend the regulations in the Real Estate Settlement Procedures Act (Regulation X). The rules are:

• Monthly mortgage statements
  Servicers would be required to provide clear billing statements including information on the loan, amount due, and application of past payments.
• Warnings before interest rate adjustments
  Servicers would be required to provide consumers with a new notice 6 to 7 months before the first rate adjustment, as well as earlier and improved notices before rate adjustments causing an increase in a consumer’s mortgage payments.
• Force-placed insurance
  Servicers can only charge borrowers for buying insurance on the property when they have a reasonable basis to believe that the borrowers have let their own insurance lapse and have given borrowers two notices estimating the cost of the “force-placed insurance.”
• Early outreach for delinquent borrowers
  Getting a delinquent borrower back on track requires early intervention and information about options available.
• Prompt crediting of payments
  Payments must be applied as of the day they are received, and the handling of partial payments is clarified.
• Accurate information management
  Servicers must have reasonable policies to ensure that when borrowers provide documents and information the servicers can find and use them.
• Error resolution and information requests
  Mistakes happen, but they need to get fixed. Servicers must address borrower concerns about possible errors within certain timeframes and provide the information they request.
• Direct and ongoing access to servicer personnel
  Delinquent borrowers will be able to contact the right people at their servicer to get information and take steps to avoid foreclosure.
• Evaluation for alternatives to foreclosure
  Servicers would be required to appropriately review borrower applications for loan modifications or other options to avoid foreclosure.

How can I get involved?
We want your comments by October 9 – here’s how to weigh in:

• Read a summary of these proposals or the whole Truth in Lending Act proposal and the whole Real Estate Settlement Procedures Act proposal, and either:
• Participate in the formal comment process by going to Regulations.gov (TILA Servicing or RESPA servicing) to send us your comments, or
• Visit our partner, the Cornell e-Rulemaking Initiative, to read other summaries of the rules on www.regulationroom.org and participate in an on-line conversation about them. Cornell will share with us a summary of the feedback that you and others provide.

 
Update (8/20/12): The proposals were updated to reflect corrections and other changes on page 9 of each concerning litigation and settlements concerning servicing.”