When do you aim to open the new agency?
The official transfer date is July 21, 2011. That’s when we pick up responsibility for the 18 federal consumer-financial-protection laws that are now enforced by seven different regulatory agencies. All of that comes to us.
Speak to the average consumer out there. What do you expect will be different a year, two years from now? Take mortgages. When you get a mortgage or refinance your home, you are presented with a large stack of papers that someone hands you and …
… and says, “Sign here, sign here, sign here,” and strongly urges you not to read them.
The law requires the agency to come out with a model mortgage document within a year.
My ambition is to create a one-page mortgage-shopping document that [would come] early in the process and have all the key terms the consumer needs to shop for a mortgage: the monthly payment, cash at closing, how long it will take to pay off the loan. That’s what produces real value for the consumer, and that’s what creates a more competitive mortgage market. Compliance also becomes much easier for lenders, and this is particularly important for community banks. Complex regulations are killing community banks. They can’t afford an army of lawyers to work through the regulatory thicket.
Would this require new legislation?
We may reach a point where we have to go to Congress and ask them to amend pieces of the 18 regulatory laws that are out there, to permit us to lighten the regulatory burden. Let’s pick one concrete example. There’s something called a TILA form [from the 1968 Truth in Lending Act], and there’s also a RESPA form [from the 1974 Real Estate Settlement Procedures Act]. Both are required by law as part of the mortgage documentation. They come shortly before closing—long after the consumer has shopped for the mortgage and decided to buy the home. These take real time to fill out. They drive up costs for the lender and produce no discernible benefit for the customer. I’d like the agency to push for a statutory mandate to compress the two forms into one. There have been talks for more than 20 years to merge these two forms. Why haven’t they been merged? One belongs to HUD [the Department of Housing and Urban Development], and one belongs to the Fed [the Federal Reserve]. Each issues under a different statute, and each agency has felt strongly that its version of the form is superior.
All this implies that you want regulation to mandate clarity.
If the role of regulation is to make the price clear, to make the risk clear, and to make it easy to compare one product with another, then it’s possible to have regulation with a much lighter touch than [we’ve had] before. Twenty years ago, consumer credit markets had products that were pretty easy to understand, and the business model was built around making the right decisions about to whom to lend. If the lender was too reckless, the lender went broke because people couldn’t repay the loans. What began to change in the 1990s is that lenders began to realize that it was possible to create ever-more-complex products that appeared on the front end to be cheaper, but on the back end were more expensive [and more profitable]. So 3.99 percent financing is highly advertised out front. But the plan has a lot of fees and penalties and accelerated interest so that something that appears to cost 3.99 percent could cost 15, 18, 25 percent. The consumer says, “I can tell this card is cheaper because it’s 3.99 percent and that one’s 4.99 percent.” But you don’t know which one is cheaper, because the real price isn’t the price you see.
Do you still want to run this bureau?
I don’t want to be coy, but I’ve got my hands full right now.