Fed Chair Bernanke’s defense of his organization’s role as a consumer protector to Congress went to the next level last week, as the Federal Reserve issued proposed new, tougher guidelines to keep poor, innocent, dumb Americans safe from the big bad pages of paper with small words on them. From The Journal:
The proposals seek to overhaul the timing and content of disclosures to consumers, and to ban controversial side payments to mortgage brokers for steering customers to higher-cost loans.
“I think the general thrust of this is to make more intelligent shoppers of households, have them make better decisions,” Fed Vice Chairman Donald Kohn said at a public meeting Thursday with other Fed officials.”
Under the new Fed proposals, consumers would receive more streamlined cost disclosures after applying for a mortgage loan. Buyers also would be presented with a one-page document, in question-and-answer format, warning about risky loan features such as negative amortization and balloon payments associated with adjustable-rate mortgages, or ARMs.
The Fed is also proposing that lenders provide clearer information on how borrower payments might change under ARMs. And it wants to revise how the annual percentage rate, or APR, is calculated in disclosures to reflect several routine costs that are passed on from the lender to the borrower, such as title insurance.
The proposal also comes as Congress seriously considers taking the consumer protection responsibilities away from the Fed and giving them to a Consumer Financial Protection Agency.