Our Viewpoints

Our Viewpoint

The Dodd-Frank Update: What's Happening Now, What's Coming in July – and How to Prepare

April 06, 2012

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a transformative piece of legislation passed in 2010; it’s a game changer for the financial services industry. That leaves you with the big question, what to do now?

What to do – be a Teacher!

Let’s start with the end first; how to prepare. You could prepare by delving into the statute, reviewing the various regulatory proposals and checking out some social media sites the government is using to either be relevant or hip – either choice is probably right. But preparing is all of that and more. The ‘more’ is about the essence of your relationship with your borrowers. The most valuable relationships are those based on trust. The keys to building trust are education, transparency and customer advocacy. Change is upon us, and we know more is coming. Use that as an opportunity to be a leader in educating your borrowers and prospects about the changes, how they can navigate the new paradigm to their benefit and how they can identify a bad financial deal. Simple really! If your message can hold up in a class setting, and your products ‘walk-the-talk’ by being fair and adhering to your classroom message, you will create trust and get every deal, loan or account, even if you don’t beat the apparent ‘low-cost provider.’ You can and should make trust, education and advocacy market differentiators.

What’s happened to talk about – the CFPB exists!

Among Dodd-Frank’s most sweeping changes is to consolidate nearly every federal financial consumer protection provision under the umbrella of the consumer  (CFPB). These include: Real Estate Settlement Procedures Act, Truth In Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Home Mortgage Disclosure Act, Fair Debt Collection Practices Act, Secure and Fair Enforcement for Mortgage Licensing Act; Gramm-Leach Bliley Act, Home Ownership and Equity Protection Act, Truth In Savings Act, Alternative Mortgage Transaction Parity Act, Electronic Funds Transfer Act, Expedited Funds Availability Act, Fair Credit Billing Act, and the Homeowners Protect Act.

The CFPB at consumerfinance.gov is open for business. It is hearing consumer concerns, sharing research, including consumer testing and moving forward with initiatives in mortgage lending, credit cards, student loans and ramping up supervision activities. Use this to your advantage. We can be unhappy with the consolidation of power and how it will make our examinations more demanding, and how it will change our business practices and business model, but that gets us only grumpy and gridlocked. Use their information by integrating it into your consumer facing teaching and marketing to highlight that you care and want to do the right thing.

What’s coming to talk about – combined mortgage disclosure will be here soon!

By July 21, 2012, the CFPB is expected to release a new combined Good Faith Estimate and Truth-in-Lending Disclosure, plus about 1,000 pages of proposed regulations to guide its deployment into the real estate lending market. This will be a ‘proposed’ regulation, but the forms will be essentially final, with minor tweaks at most in the future. Use the forms and the proposed regulation to both plan for how your products will be packaged and priced, and what to teach your borrowers about how to navigate future real estate secured loans.

In looking at the latest version of the combined RESPA – TIL Disclosure, potential borrowers will be able to make an easy comparison between lenders. To help build trust, make a Quick Guide on how to compare loans between lenders, picking the top three to seven comparison factors and then the ‘deal-breaker’ terms found in the disclosures or that can come up later. Buying or refinancing a home is an emotional and complicated event. Arm your borrowers with the information that empowers them to reduce the emotions and complexity. Otherwise, they will agree to a bad deal just because they have cleared an emotional hurdle when they hear ‘you’re approved’ from a competitor.

As an example, the CFPB has introduced a new way to gauge the financial cost of a mortgage loan. In the past, we relied on the Total of Payments and the Annual Percentage Rate, but in addition, there will likely now be the Total Interest Percentage (TIP). It is intended to convey the ratio of payments to interest, or stated another way, the true cost of this financial transaction so it can be easily compared with other financing arrangements, such as comparing a fixed rate loan with a 5/3 Interest only ARM. For example, below we see an interest only loan with a TIP rate of 99%.

There are situations where interest-only loans compared to a fully amortizing loan make sense, so teach your borrowers the reasons and they will thank you all the way to the closing. Understanding coming changes, embracing them and educating your customers about them will yield many benefits. It will be the loan they are considering or the next financial service, either way, your financial institution will benefit from empowering consumers to be better borrowers.


Mitch Lucas
Vice President of Product Management and Legal Compliance

Mitch Lucas is vice president of product management and legal compliance at D+H. He leads the compliance legal and product management departments, which are responsible for several dynamic (computerized) and static form and origination systems for commercial, consumer and real estate lending, and deposit account opening. Mitch joined D+H in October 2004 after 11 years as general counsel for a northwest financial institution. Prior to his role as general counsel, he was the managing shareholder of a firm representing 30 financial institutions in Washington State.