Not-So-Uniform Response to Fed's Disclosure Plan
Lee, W. A., American Banker
Legal sources are expressing mixed reactions to the Federal Reserve Board's proposal to set uniform standards on financial disclosures to consumers.
Last month the Fed recommended the application of a single standard for providing disclosures under five consumer protection regulations: Equal Credit Opportunity (Regulation B), Electronic Fund Transfers (Regulation E), Consumer Leasing (Regulation M), Truth-in-Lending (Regulation Z), and Truth-in-Savings (Regulation DD).
All of these regulations mandate in some way that disclosures be "clear and conspicuous," but the proposal would give a standard definition for that phrase. The question is whether that new definition would be stricter than the current ones.
Sources gave different answers. Some said the Fed's proposal would not establish a tougher standard at all. If anything, they said, the new rules could be easier for the industry to deal with than a host of different definitions.
Steven I. Zeisel, a vice president and senior counsel of the Consumer Bankers Association in Washington, said he did not believe the Fed was "trying to make any massive statement or change" to current practices. The proposal addresses "fairly technical" issues rather than "broad policy questions."
The Fed may even be trying to help the industry to reduce costs by simplifying compliance, he said.
In a notice published Nov. 26 in the Federal Register, the Fed wrote that a uniform disclosure standard "is intended to help ensure that consumers receive noticeable and understandable information that is required by law in connection with obtaining consumer financial products and services." Consistency, it wrote, should make compliance easier.
Though most consumer financial services and fair-lending laws call for "clear and conspicuous" disclosures, each regulation uses slightly different language, the Fed wrote. The proposal's blanket definition takes its cue from Regulation P (Privacy of Consumer Financial Information), which lays out the requirements for the privacy notices mandated by the Gramm-Leach-Bliley Act.
Whereas other regulations require that disclosures be "readily understandable," Reg P calls for disclosures that are "reasonably understandable and designed to call attention to the nature and significance of the information" being communicated. The Fed encourages financial institutions to use, among other things, short sentences, bullet points, everyday words, active voice, wide margins, and "ample line spacing. …