10 recommendations floated by GAO for regulators to ease burden, assess mortgage disclosure effectiveness

The federal consumer protection agency and the federal financial institution regulators are the subject of 10 recommendations made by the congressional watchdog, including assessing effectiveness of mortgage disclosure guidance and reporting rationales for their actions.

In a report Tuesday, the Government Accountability Office (GAO) made the recommendations for the Consumer Financial Protection Bureau (CFPB) and the regulators – the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA).

Specifically, GAO recommended that CFPB should “assess the effectiveness of guidance on mortgage disclosure regulations and publicly issue its plans for the scope and timing of its regulation reviews and coordinate these with the other regulators’ review process.”

For the financial institution regulators, GAO recommended that they conduct comprehensive regulatory burden reviews. As part of those, the GAO said the regulators should develop plans to report “quantitative rationales for their actions and addressing the cumulative burden of regulations.”

GAO said the five agencies generally agreed with the recommendation in written comments.

The congressional oversight agency said it made the recommendations after conducting interviews and focus groups with individuals from more than 60 community banks and credit unions. In the sessions, GAO said, the financial institution representatives “indicated regulations for reporting mortgage characteristics, reviewing transactions for potentially illicit activity, and disclosing mortgage terms and costs to consumers were the most burdensome.”

The GAO said the financial institution representatives said the regulations were time-consuming and costly to comply with, in part because the requirements were complex, required individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes.

More specifically, they told the GAO that new mortgage disclosure regulations increased compliance costs, added significant time to loan closings, and resulted in institutions absorbing costs when others, such as appraisers and inspectors, changed disclosed fees.

GAO noted that CFPB issued guidance and conducted other outreach to educate institutions after issuing these regulations in 2013. But the watchdog agency found that some compliance burdens arose from misunderstanding of the disclosure regulations – which in turn may have led institutions to take actions not actually required.

“Assessing the effectiveness of the guidance for the disclosure regulations could help mitigate the misunderstandings and thus also reduce compliance burdens,” the report states.

Regulators and others told GAO that the regulations they have written were essential to preventing lending discrimination and use of the banking system for illicit activity, and they were acting to reduce compliance burdens, according to the report.

GAO said it conducted the study in response to many new regulations enacted in recent decades intended to strengthen financial soundness, improve consumer protections, and aid anti-money laundering efforts at financial institutions. GAO said mandatory compliance can be more challenging and costly for smaller community banks and credit unions.

Among the details of the 10 recommendations (two each for CFPB, FDIC, the Federal Reserve, OCC, and NCUA) are:

  • CFPB: (1) should assess the effectiveness of TRID guidance to determine the extent to which TRID’s requirements are accurately understood and take steps to address any issues as necessary; (2) should issue public information on its plans for reviewing regulations applicable to banks and credit unions, including information describing the scope of regulations the timing and frequency of the reviews, and the extent to which the reviews will be coordinated with the federal depository institution regulators as part of their periodic reviews under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).
  • FDIC: (1) should, as part of the EGRPRA process, develop plans for its regulatory analyses describing how it will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process; (2) should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities for streamlining bodies of regulation.
  • Federal Reserve: (1) should, as part of the EGRPRA process develop plans for its regulatory analyses describing how it will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process; (2) should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation.
  • OCC: (1) should, as part of the EGRPRA process, develop plans for its regulatory analyses describing how it will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process; (2) should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation.
  • NCUA: (1) should, as part of the EGRPRA process, develop plans for its regulatory analyses describing how it will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process; (2) should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation.

COMMUNITY BANKS AND CREDIT UNIONS: Regulators Could Take Additional Steps to Address Compliance Burdens

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