Plain Language Consumer Financial Disclosures...Less Can Be More Clear

The Center for Plain Language, will hold its first ever awards ceremony on Thursday April 29 for the best and worst use of plain language in government and business. This nonprofit, which was reportedly started by a group of federal government employees who wanted the government to provide plain language forms to the public, is holding this ceremony at the most opportune time.

The last two years has seen a proliferation of new disclosure requirements being imposed on providers of financial products and services. Examples include:

• New mortgage loan disclosure requirements issued by the US Department of Housing and Urban Development (HUD) under the Real Estate Settlement Procedures Act (RESPA)
• New credit card and gift card disclosure requirements issued by the Federal Reserve under the CARD Act of 2009
• New overdraft program requirements on debit card and ATM transactions issued by the Federal Reserve under the Electronic Funds Transaction Act

Each of these new disclosure rules come with model forms. But some of these new rules and model forms are so complicated that pages of questions and answers have been released by the agencies to help providers set them up. (A good example is the new Good Faith Estimate form for mortgage loans, which is so complicated that HUD has had to even put on webinars to assist providers in filling out the form). 

The financial reform legislation being debated by Congress will undoubtedly engender more disclosure requirements. Indeed, one of the primary purposes of the proposed Consumer Financial Protection Bureau is to ensure that “consumers are provided with timely and understandable information to make responsible decisions about financial transactions.” [Senate Bill, Section 1021]. To that end, the Bill specifically gives the Bureau the authority to issue rules ensuring that “that the features of any consumer financial product or service both initially and over the term of the products or service are fully, accurately and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits and risks associated with the product or service.’ [Senate Bill, Section 1032]

The Center’s director, Annetta Cheek, is certainly aware that most consumer financial disclosures are hopelessly complicated. In interviews with the press publicizing the event, she used credit card disclosures and other financial disclosures as examples of the worst use of plain language (other press links can be found here and here). Hopefully, future efforts can be spent on not just the amount but also the quality of the disclosure. For some times, less rather than more can be better - and certainly clearer.

- Beth DeSimone