A Fighting Chance

people to take the form for a test drive: Each participant in the initial “Know Before You Owe” study signed a privacy notice and consent form. Kleimann Communication Group, Inc., “Know Before You Owe: Evolution of the Integrated TILA-RESPA,” presented to CFPB, July 9, 2012 34. www.consumerfinance.gov/knowbeforeyouowe/. The CFPB has never publicly identified individual participants in the study, instead using nonidentifiable information to characterize participant responses in its report. As such, I treat the identity in this example as confidential.

clear information, so he could make a clear choice: The study protocols and the results and stories are validated beginning on p. 53 in “Know Before You Owe.” Disclosures, by Kleiman Communications Group, July 9, 2012, available at http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf.

The CFPB employed a user-centered design process to test prototype mortgage disclosure forms, in which the users influenced how the design took shape. The process had several phases, including context setting (information gathering), formative development (rapid prototyping), and iterative usability testing (interviewing and testing prototypes all over the country). During the iterative usability testing phase, the CFPB tested two different thirty-year, fixed-rate loans and two different 2/1 adjustable-rate mortgages using two different designs, both of which contained a summary of key loan and affordability information, closing cost details, and information about insurance, servicing, escrow, and appraisal. Participants in the study were asked to compare the loans and answer a number of questions related to the process, which were coded using grounded theory to identify response trends and participant performance. “Know Before You Owe,” xxiii.

On November 20, 2013, the CFPB finalized the “Know Before You Owe” mortgage disclosure forms, which turned out to be longer than one page. Extensive testing revealed that consumers were better able to understand the revised forms, as they proved more capable of answering questions about a sample loan. In particular, consumers demonstrated understanding of risky loan features, short-term and long-term costs, and monthly payments. In addition, consumers were better able to compare different products and evaluate the difference between an original and final loan offer. The forms will become effective August 1, 2015, following consultation with industry representatives and consumers. See “CFPB Finalizes ‘Know Before You Owe’ Mortgage Forms,” CFPB Newsroom, November 20, 2013.

The stories were genuinely awful: News of the mortgage foreclosure scandal first emerged in fall 2010. It became clear that many banks were engaged in the practice of “robo-signing,” which occurred when employees signed or forged mortgage foreclosure documents without verifying the information contained in those documents as they were required to do by law. In one such case, Jeffrey Stephan of GMAC (now Ally), who was responsible for reviewing foreclosure cases to ensure they were legally justified, testified in July 2010 that he signed off on ten thousand mortgage foreclosure documents per month for five years, which provides some sense of the massive scale of the fraud. Ariana Eunjung Cha, “Ally Financial Legal Issue with Foreclosures May Affect Other Mortgage Companies,” Washington Post, September 22, 2010.