For the last few years, the Pew Charitable Trust has been conducting studies of consumer financial services disclosures and urging banks and other financial institutions to adopt simplified disclosure forms. For example, in April 2012, Pew developed a model disclosure form for consumer checking accounts, and Pew reports that 26 major banks have already adopted the form (we are aware of additional banks to have adopted the form). In February 2014, Pew published a similar model disclosure form for prepaid card accounts.
Both of these Pew disclosures are similar to the “Schumer Box” disclosures used for credit cards, though of course less complicated since not written by a regulator. The prepaid form is specifically designed to be printed on the inside flap of the packaging used for many prepaid cards sold in retail locations, and is designed to be opened and reviewed by consumers prior to purchasing the card. If one assumes that consumers read disclosures at all, the Pew-style disclosures arguably are an improvement.
Pew also is recommending legislators and regulators to require banks to use such disclosures, or at least provide information about account terms, conditions and fees in a concise, easy-to-read format. While bankers do not need more regulation, there could be certain upsides to a rule this time, if only the regulators can do it right.
As it stands, Pew-style disclosures for deposit and lending products are dangerously close to being “advertisements” for purposes of Truth in Savings (TISA) and Truth in Lending (TILA). If deemed to be advertisements, then additional information is generally required in the material, somewhat defeating the simplifying purpose of the forms. At the same time, these simplified disclosures do not satisfy the account opening disclosure requirements of TISA or loan closing disclosure requirements of TILA, thus forcing banks to provide more disclosures rather than fewer. And the Pew disclosures certainly omit important contractual details, raising yet another risk that a court or regulator will deem the disclosure to violate various unfair, deceptive and even abusive acts and practices laws (UDAP and UDAAP).
A clear rule that Pew-style disclosures are not subject to advertising rules, with clear standards to minimize UDAP or UDAAP claims, could therefore be useful. The question is whether regulators can write such rules without adding needless complications and liability.
Even in the absence of regulation, Pew disclosures seem to be the trend. Despite the uncertainties, many banks are now voluntarily using Pew-style disclosures. Even the CFPB’s new integrated mortgage disclosures have many similarities to the Pew approach (though perhaps still including more information than is necessary or useful). We also have observed that bank examiners react very favorably when banks have voluntarily adopted Pew-style disclosures.
The process of creating simplified disclosures for your institution is itself educational and can lead to better products and services. Favorable terms and fees become much clearer when written in simplified terms, as do overly harsh terms. The exercise thus can be useful to your institution as well as your customers. Pew might argue that this is their fundamental point.
The pendulum might well swing back toward more lengthy disclosures in the future. Detail is awfully irresistible to compliance lawyers and staff, and trends certainly change. For now, the trend is toward simple and concise. So in the coming years, expect many institutions to go Pew. How about you?