The Federal Reserve Board (the “Board“) recently announced that it will not seek to finalize mortgage disclosure rules proposed in August 2009 and September 2010. The Board‘s decision recognizes the forthcoming transfer of Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) rulemaking authority to the Consumer Financial Protection Bureau (“CFPB”) pursuant to the Dodd-Frank Act. Indeed, the Board considered the likelihood that CFPB would seek advance notice of proposed rulemaking on similar issues. Now that the CFPB’s launch is approximately five months away, the Board‘s move could foreshadow a rulemaking quiet period for those agencies that will lose rulemaking authority to the CFPB.    

The Proposed Rules

The proposed rules focused primarily on new, more expansive disclosures to consumers prior to assuming home-secured loan obligations. Two of the proposed rules, released contemporaneously in August 2009, expanded the required disclosures for home equity lines of credit and closed-end mortgages, respectively. The rules would have required more disclosures on “potentially risky loan features” such as adjustable interest rates, amortization, and payment schedules. The third proposed rule, released in September 2010, changed disclosures on a mortgagee’s right to rescind and the rescission procedure.

Receiving the most attention from consumer advocacy groups was the proposed rule modifying the rescission process for borrowers who did not receive mandated disclosures. The proposed rule would have required borrowers to pay their principal balance prior to rescission. This proposal would have altered current procedure in certain jurisdictions, requiring a creditor to release its security interest before the borrower is obligated to repay the loan (enabling the borrower to obtain another mortgage or negotiate a loan modification). Among the comments of the consumer advocacy groups was a request to postpone rulemaking until the CFPB’s plans for a combined TILA-RESPA disclosure rule could be considered.

In a statement released on February 1, 2011, the Board acknowledged that “a combined TILA-RESPA disclosure rule could well be proposed by the CFPB before any new disclosure requirements issued by the Board could be fully implemented.” In fact, the U.S. Treasury Department—the agency charged with establishing the CFPB—is considering advance notice of proposed rulemaking “as a means of gathering information and input, before the transfer date.” Given the timetable to promulgate disclosure rules, the Treasury may seek advance comment on this very issue.