FTC Staff Comment Before the CFPB on Notice of Proposed Rulemaking: Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Reg X) and the Truth In Lending Act (Reg Z)

BEFORE THE
CONSUMER FINANCIAL PROTECTION BUREAU
In the Matter of
Request for Comment on Notice of Proposed Rulemaking:
Integrated Mortgage Disclosures under the Real Estate Settlement
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)
Docket No. CFPB-2012-0028
Comments of the Staff of the Federal Trade Commission
Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning*
September 25, 2012
___________________________________________________________________________
* These comments represent the views of the staff of the Bureau of Consumer Protection,
the Bureau of Economics, and the Office of Policy Planning. They are not necessarily the
views of the Commission or any individual Commissioner. The Commission has, however,
voted to authorize the staff to submit these comments.

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I. 	Introduction
On July 9, 2012, the Consumer Financial Protection Bureau (CFPB) issued a notice of
proposed rulemaking (NPRM),1 seeking comment, data, and information from the public about
its proposal to combine certain disclosures that consumers receive in connection with applying
for and closing on a home mortgage loan under the Truth in Lending Act (TILA)2 and Real
Estate Settlement Procedures Act (RESPA). 3 The NPRM, among other things, sets forth two
proposed disclosure forms (and accompanying instructions) designed to aid consumers in
understanding the features, costs, and risks of mortgage loans.
Federal Trade Commission (FTC or Commission) staff commends the CFPB’s efforts to
develop improved mortgage disclosures that are designed to help consumers make better-
informed decisions about mortgages. Based on its own research and law enforcement
experience, the FTC staff believes that the disclosures that current federal regulations require
often fail to effectively convey the key information consumers need to make decisions about
mortgages.
FTC staff also believes that the disclosures developed and being considered by the CFPB
will likely improve the information that consumers receive under current federal regulations;
they are generally simpler and less technical, and should be easier to understand. Given the
significance of a consumer’s decision to purchase a home or seek other home financing, and the
importance of mortgage disclosures in enabling consumers to evaluate the costs of this important
transaction, it is vitally important to ensure that disclosures effectively enable consumers to
evaluate the real costs of taking out a mortgage. Therefore, FTC staff encourages the CFPB to
conduct controlled quantitative testing of the proposed disclosures prior to finalizing a rule to
help ensure that the proposed disclosures effectively convey key mortgage terms to consumers,
are not misinterpreted or misunderstood, and offer significant benefits over the currently
mandated disclosures. Previous studies of mortgage disclosures by FTC staff have demonstrated
the value of such testing in the mortgage area. In this comment, FTC staff provides a general
description of the FTC’s experience in the mortgage market (including the FTC staff’s own
research on mortgage disclosures), and discusses its view of the value of controlled quantitative
testing of disclosures in the area of mortgage financing.
II. 	FTC Authority and Experience
The FTC has a long history as the nation’s consumer protection agency. The
Commission has used law enforcement, rulemaking, research, conferences and workshops, and
educational efforts to protect consumers of mortgage loans from deceptive, unfair, and other
unlawful conduct. Most significantly for purposes of the current rulemaking proceeding, FTC
1 	The NPRM was initially issued on the CFPB’s website, http://www.consumerfinance.gov, and is now
available at 77 Fed. Reg. 51116 (Aug. 23, 2012).
2 	15 U.S.C. § 1601 et seq.; TILA is implemented by Regulation Z, 12 C.F.R. Part 1026.
3 	12 U.S.C. § 2601 et seq.; RESPA is implemented by Regulation X, 12 C.F.R. Part 1024.

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staff has engaged in rigorous empirical research on mortgage disclosures and has long been an
advocate for comprehensive reforms to improve consumer understanding of these disclosures.
A. 	Legal Authority
The FTC enforces Section 5 of the FTC Act, which prohibits unfair or deceptive acts or
practices, against a variety of financial service companies that offer mortgage products, including
many non-bank lenders, servicers, brokers, and advertisers.4 The Commission also has law
enforcement authority under a number of consumer protection statutes and regulations that relate
to mortgage lending, mortgage advertising, and other aspects of the mortgage process. These
laws include the Truth in Lending Act (TILA) and its implementing Regulation Z,5 the Home
Ownership and Equity Protection Act (HOEPA), 6 the Equal Credit Opportunity Act (ECOA),7
and the Omnibus Appropriations Act of 2009 (as clarified by the Credit CARD Act).8 Further,
the FTC is authorized to enforce, with respect to entities within the FTC’s jurisdiction, rules
promulgated by the CFPB to protect consumers of financial services, including mortgage
disclosure rules that the CFPB issues to implement Title X of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act).9
In addition to its law enforcement authority, the Commission can promulgate rules under
the FTC Act 10 and under certain other statutes11 to protect consumers of financial services. The
4 	See 15 U.S.C. § 45(a). The FTC Act, however, exempts banks, savings and loan institutions, and Federal
credit unions from the Commission’s jurisdiction.
5 	See supra note 2.
6 	15 U.S.C. §§ 1667-1667f (requires disclosures, limits balloon payments, and regulates advertising in
connection with consumer lease transactions).
7 	15 U.S.C. §§ 1691-1691f (prohibits creditor practices that discriminate on the basis of race, religion,
national origin, sex, marital status, age, receipt of public assistance, and the exercise of certain legal rights).
8 	Omnibus Appropriations Act of 2009, Pub. L. 111–8, 123 Stat. 524; Credit Card Accountability
Responsibility and Disclosure Act of 2009, Pub. L. 111–24, 123 Stat. 1734; 12 C.F.R. Part 1014 (prohibits deceptive
mortgage advertising practices); 12 C.F.R. Part 1015 (prohibits deceptive and unfair practices in connection with
mortgage assistance relief services).
9 	The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (July
21, 2010). See § 1061(b)(5)(C)(ii), 12 U.S.C. § 5581(b)(5)(C)(ii) (2010).
10 	See, e.g., Credit Practices Rule, 16 C.F.R. Part 444 (restricting the use of certain remedies in consumer
credit contracts); Holder in Due Course Rule, 16 C.F.R. Part 433 (preserving the ability of consumers to raise claims
and defenses against purchasers of consumer credit contracts).
11 	For example, as detailed below, the Commission used the authority granted to it by Congress under the
Omnibus Appropriations Act of 2009 (as amended by the Credit CARD Act) to issue the MAP and MARS Rules.
See supra note 8; infra notes 17 & 19. In another important example, the FTC promulgated the Telemarketing Sales
Rule (TSR), pursuant to rulemaking authority conferred by Congress in the Telemarketing and Consumer Fraud and
Abuse Prevention Act. See 15 U.S.C. § 6102; 16 C.F.R. Part 310. The Commission also amended the TSR to
include specific provisions curbing deception and abuse in the telemarketing of credit card debt relief services, like
debt settlement. See 75 Fed. Reg. 48458 (Aug. 10, 2010).

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Commission also has conducted research and studies, hosted public workshops and conferences,
developed consumer and business education materials, and worked with other federal and state
law enforcement and regulatory entities to protect consumers from unlawful practices in
connection with mortgage lending.
B. Efforts to Protect Consumers of Mortgage Loans
1. 	Law Enforcement
The FTC has aggressively pursued law enforcement actions against companies in the
mortgage lending industry that have engaged in unfair, deceptive, or otherwise illegal practices.
In the last two decades, the Commission has filed 35 law enforcement actions against those who
advertise, originate, or service mortgage loans,12 obtaining relief of more than a half-billion
dollars for consumers. These actions have challenged the illegal conduct of different types of
entities (e.g., non-bank lenders, brokers, and servicers) during all stages of the mortgage lending
process. In many of these lawsuits, the Commission charged companies with deceiving
consumers regarding key terms and costs of mortgage products, including the annual percentage
rate (APR), finance charges, and whether a loan has a fixed or adjustable rate.13 In other cases,
the FTC has challenged unlawful practices in servicing mortgages. For example, the
Commission in 2011 took action against the allegedly unlawful actions of large mortgage
12 	See FTC v. Countrywide Home Loans, Inc., No. CV10-4193 (C.D. Cal. 2010); FTC v. Golden Empire
Mortg., Inc., No. CV09-03227 (C.D. Cal. 2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009); In re
Shiva Venture Group, Inc., F.T.C. Dkt. No. C-4250 (2009); In re Am. Nationwide Mortg. Co., F.T.C. Dkt. No. C-
4249 (2009); FTC v. Ryan, No. 1:09-cv-00535-HHK (D.D.C. 2009); FTC v. EMC Mortgage Corp., No. 4:08-cv-338
(E.D. Tex. 2008); FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-1185 (N.D. Ill. 2008); FTC v. Mortgages
Para Hispanos.com Corp., No. 4:06-cv-19 (E.D. Tex. 2006); FTC v. Chase Fin. Funding, Inc., No. SACV04-549
GLT (ANx) (C.D. Cal. 2004); FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004); U.S. v. Fairbanks Capital
Corp., No. 03-12219 (D. Mass. 2003); FTC v. 30 Minute Mortg., Inc., No. 03-60021 (S.D. Fla. 2003); FTC v. OSI
Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill.
2002); FTC v. Diamond, No. 02-5078 (N.D. Ill. 2002); FTC v. Assocs. First Capital Corp., No. 1:01-00606 (N.D.
Ga. 2001); FTC v. First Alliance Mortg. Co., No. SACV 00-964 DOC (EEx) (C.D. Cal. 2000); In re FirstPlus Fin.
Group, Inc., F.T.C. Dkt. No. C-3984 (2000); United States v. Action Loan Co., No. 00-511 (W.D. Ky. 2000); FTC v.
NuWest, Inc., No. 00-1197 (W.D. Wash. 2000); United States v. Delta Funding Corp., No. 00-1872 (E.D.N.Y.
2000); FTC v. Barry Cooper Prop., No. 99-07782 (C.D. Cal. 1999); FTC v. Capitol Mortgage Corp., No. 99-580
(D. Utah 1999); FTC v. CLS Fin. Serv., Inc., No. 99-1215 (W.D. Wash. 1999); FTC v. Granite Mortgage, LLC, No.
99-289 (E.D. Ky. 1999); FTC v. Interstate Res. Corp., No. 99-5988 (S.D.N.Y. 1999); FTC v. LAP Fin. Serv., Inc.,
No. 99-496 (W.D. Ky. 1999); FTC v. Wasatch Credit Corp., No. 99-579 (D. Utah 1999); In re Fleet Fin., Inc., FTC
Docket No. C-3899 (1999); United States v. Unicor Funding, Inc., No. 9901228 (C.D. Cal. 1999); FTC v. Capital
City Mortg. Corp., No. 1:98CV237 (D.D.C. 1998); In re Felson Builders, Inc., 119 F.T.C. 652 (1995); In re Lomas
Mortg. U.S.A., Inc., 116 F.T.C. 1062 (1993).
13 	See, e.g., FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-1185 (N.D. Ill. 2008); FTC v. Chase Fin.
Funding, Inc., No. SACV04-549 GLT (ANx) (C.D. Cal. 2004); FTC v. First Alliance Mortg. Co., No. SACV 00-
964 DOC (EEx) (C.D. Cal. 2000). Additionally, in 2007, the Commission sent warning letters to more than 200
mortgage advertisers and associated media outlets, informing them that their ads may be deceptive in violation of
Section 5 of the FTC Act or in violation of TILA. See FTC Warns Mortgage Advertisers and Media That Ads May
Be Deceptive (June 1, 2007), available at http://www.ftc.gov/opa/2007/09/mortsurf.shtm.

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servicer Countrywide Home Loans, Inc., obtaining $144 million in consumer redress to settle the
action.14
The Commission also has waged an active campaign to protect consumers who are
having difficulty making their monthly mortgage payments. Many of these consumers fall prey
to mortgage relief scams that falsely promise to obtain loan modifications or help them avoid
foreclosure. In the last five years, the FTC has filed 38 actions and obtained more than $174
million in judgments against mortgage assistance relief companies for violating Section 5 of the
FTC Act or the Mortgage Assistance Relief Services (MARS) Rule. 15
14 	See Bank of America Subsidiary Reversing or Refunding $36 Million in Fees to Resolve FTC Allegations
That it Overcharged Struggling Homeowners (Feb. 9, 2012), available at
http://www.ftc.gov/opa/2012/02/bachomeloans.shtm; FTC Returns Nearly $108 Million to 450,000 Homeowners
Overcharged by Countrywide for Loan Servicing Fees (June 20, 2011), available at
http://www.ftc.gov/opa/2011/07/countrywide.shtm.
15 	See FTC v. Freedom Companies Marketing, Inc., No. 12-cv-5743 (N.D. Ill. July 23, 2012); FTC v.
Consumer Advocates Group Experts, LLC, No. CV12-04736 (C.D. Cal. filed May 30, 2012);
FTC v. Sameer Lakhany, No. SACV12-00337 CJC (C.D. Cal. filed Mar. 5, 2012); FTC v. Mallett, No.1:11-cv-
01664-CKK (D. D.C. filed Sep. 14, 2011); FTC v. Phillip A. Flora, No. SACV11-00299-AG-(JEMx) (C.D. Cal.
filed Feb. 22, 2011); FTC v. U.S. Mortgage Funding, Inc., No. 11-CV-80155-COHN (S.D. Fla. filed Feb. 7, 2011);
FTC v. Residential Relief Foundation, Inc., JFM 10 CV3214 (D. Md. Filed Nov. 15, 2010); FTC v. U.S.
Homeowners Relief, Inc., No. SA-CV-10-1452 JST (PJWx) (C.D. Cal. filed Sept. 27, 2010); FTC v. National
Hometeam Solutions, LLC, No. 4:08-cv-067 (E.D. Tex. filed Aug. 30, 2010) (contempt action); FTC v. Dominant
Leads, LLC, No. 1:10-cv-00997 (D.D.C. filed June 15, 2010); FTC v. Truman Foreclosure Assistance, LLC, No. 09-
23543 (S.D. Fla. filed Nov. 23, 2009); FTC v. The Debt Advocacy Center, LLC, No. 1:09-cv-2712 (N.D. Ohio filed
Nov. 19, 2009); FTC v. First Universal Lending, LLC, No. 09-82322-CIV-ZLOCH (S.D. Fla. filed Nov. 18, 2009);
FTC v. Kirkland Young, LLC, No. 09-23507 (S.D. Fla. filed Nov. 18, 2009); FTC v. 1st Guaranty Mortgage Corp.,
No. 09-CV-61846 (S.D. Fla. filed Nov.17, 2009); FTC v. Washington Data Resources, Inc., No. 8:09-cv-2309-T-23
TMB (M.D. Fla. filed Nov. 12, 2009); FTC v. Federal Housing Modification Dept., No. 1:09-cv-01753-RJL
(D.D.C. filed Sept. 16, 2009); FTC v. United Credit Adjusters, No. 09-cv-00798 (D.N.J. amended complaint filed
Aug. 4, 2009); FTC v. Infinity Group Services, No. 8:09-cv-00977-DOC-MLG (C.D. Cal. filed Aug. 4, 2009); FTC
v. Lucas Law Center, No. SA-CV-09-770 DOC (ANx) (C.D. Cal. filed July 17, 2009); FTC v. Apply2Save, Inc., No.
09-00345-EJL (D. Idaho filed July 15, 2009); FTC v. Loss Mitigation Services, Inc., SA-CV-09-800 DOC (ANx)
(C.D. Cal. filed July 13, 2009); FTC v. US Foreclosure Relief Corp., SA-CV-09-768 JVS (MLGx) (C.D. Cal. filed
July 7, 2009); FTC v. Freedom Foreclosure Prevention Services, LLC, No. 09-1167 (D. Az. filed June 1, 2009);
FTC v. Data Medical Capital, Inc., No. SA-CV-99-1266 AHS (EEx) (C.D. Cal. filed May 27, 2009) (contempt
action); FTC v. Dinamica Financiera LLC, No. 09-CV-03554 (C.D. Cal. filed May 19, 2009); FTC v. Sean
Cantkier, No. 1:09-cv-00894 (CKK) (D.D.C. filed May 14, 2009); FTC v. Federal Loan Modification Law Center,
LLP, No. SA-CV-09-401-CJC (MLGx) (C.D. Cal. filed April 3, 2009); FTC v. Home Assure LLC, No. 8:09-cv-547-
T-23TBM (M.D. Fla. filed March 24, 2009); FTC v. Thomas Ryan, No. 1:09-cv-00535-HHK (D.D.C. filed March
20, 2009); FTC v. Hope Now Modifications, No. 1:09-cv-01204-JBS-JS (D.N.J. filed March 17, 2009); FTC v. New
Hope Property LLC, No. 1:09-cv-01203-JBS-JS (D.N.J. filed March 17, 2009); FTC v. National Foreclosure Relief,
Inc., No. 8:09-cv-00117-DOC-MLG (C.D. Cal. filed Feb. 2, 2009); FTC v. United Home Savers, No. 8:08-cv-
01735-VMC-TBM (M.D. Fla. Filed Sept. 3, 2008); FTC v. Foreclosure Solutions, LLC, No. 1:08-cv-01075-SO
(N.D. Ohio filed Apr. 28, 2008); FTC v. Safe Harbour Foundation of Florida, Inc., No. 1:08-cv-01185 (N.D. Ill.
filed Feb. 27, 2008); FTC v. National Hometeam Solutions, LLC, No. 4:08-cv-00067-RAS (E.D. Tex. filed Feb. 26,
2008); FTC v. Mortgage Foreclosure Solutions, Inc., No. 8:08-cv-00388-SDM-EAJ (M.D. Fla. filed Feb. 26, 2008).

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2. 	Rulemaking
The FTC has used its prior rulemaking authority to create new protections for consumers
of mortgage loans. Most recently, the FTC promulgated two rules designed to protect consumers
in connection with mortgage lending, both pursuant to the Omnibus Appropriations Act of 2009
(as clarified by the Credit CARD Act).16
First, in July 2011, the FTC issued the Mortgage Acts and Practices (MAP) Advertising
Rule.17 The MAP Advertising Rule prohibits advertisers of mortgage credit products from
making material misrepresentations regarding the key characteristics of loans, including the
interest charged; the annual percentage rate; the existence, nature, or amounts of fees or costs to
the consumer; and the variability of interest, payments, or other terms of a mortgage.18
Second, in December 2010, the Commission used its rulemaking authority under the
Omnibus Appropriations Act of 2009 to issue the Mortgage Assistance Relief Services (MARS)
Rule, which prohibits unfair and deceptive conduct by third-party providers of loan modification
or other mortgage relief services.19 The MARS Rule specifically prohibits these companies from
charging advance fees to consumers; requires that they disclose key information regarding their
services; and prohibits them from making material misrepresentations.20
Under the Dodd-Frank Act, the FTC’s authority to issue rules to implement the Omnibus
Appropriations Act of 2009 transferred to the CFPB. 21 In December 2011, the CFPB reissued
the MAP Advertising Rule without substantive modification as “Regulation N.” 22 At the same
time, the CFPB reissued the MARS Rule without substantive modification as “Regulation O.”23
The MAP and MARS Rules (now reissued as Regulations N and O, respectively) confer
significant protections on consumers of mortgage loans. Under the Dodd-Frank Act, the
16 	See supra note 8.
17 	76 Fed. Reg. 43826 (July 22, 2011).
18 	12 C.F.R. § 1014.3.
19 	75 Fed. Reg. 75092 (Dec. 1, 2010).
20 	12 C.F.R. §§ 1015.3 - 1015.5.
21 	Although the FTC retains law enforcement authority for the MAP and MARS Rules, its rulemaking
authority was transferred to the CFPB, effective July 21, 2011, under the Dodd-Frank Act. See §§ 1061, 1097, 12
U.S.C. §§ 5581, 5538.
22 	76 Fed. Reg. 78130 (Dec. 16, 2011), see also 12 C.F.R. Part 1014.
23 	76 Fed. Reg. 78130 (Dec. 16, 2011); see also 12 C.F.R. Part 1015.

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Commission retains the authority to enforce these regulatory requirements, and the agency is
actively enforcing these rules.24
3. 	Consumer Education
In mortgage lending, as in other financial areas, consumer education can help prevent a
great deal of harm. The FTC has published a wide variety of consumer education pieces and
alerts on mortgage lending to assist consumers of mortgage products to make well-informed
decisions, and avoid deceptive and unfair practices.25 The Commission’s online library of
consumer education addresses many important steps of the mortgage borrowing process,
including mortgage advertising, tips on shopping for a mortgage loan, working with a mortgage
servicer, home equity loans, and dealing with monthly mortgage payments. The Commission
also has published and widely distributed numerous alerts to help consumers avoid deceptive
practices and scams, like certain mortgage loan modification and foreclosure rescue services.
4. 	Research and Policy Development
The FTC staff conducted studies in 2004 and 2007 testing the impact of mortgage
disclosures and has advocated for comprehensive reform of the current disclosure regime under
RESPA and TILA. This research has shown that then-current mortgage disclosures did not
effectively help consumers make better-informed decisions.
In 2007, the Commission’s Bureau of Economics released a research report, “Improving
Consumer Mortgage Disclosures: An Empirical Assessment of Current and Prototype Disclosure
Forms.” 26 FTC staff used both qualitative and quantitative research to compile this report. The
FTC staff’s quantitative testing was the first comprehensive, quantitative assessment of then-
existing mortgage disclosures. The study examined how consumers search for mortgages, how
well they understand cost disclosures and the terms of their own loans, and whether better
disclosures could help them shop for mortgage loans and avoid deceptive lending practices. The
24 	In fact, the Commission has already filed four lawsuits against companies for alleged violations of the
MARS Rule. See FTC v. Freedom Companies Marketing, Inc., No. 12cv5743 (N.D. Ill. filed July 23, 2012); FTC v.
Consumer Advocates Group Experts, LLC, No. CV12-04736 (C.D. Cal. filed May 30, 2012); FTC v. Sameer
Lakhany, Case No. SACV12-00337 CJC (C.D. Cal. filed Mar. 5, 2012); FTC v. Mallett, No.1:11-cv-01664-CKK
(D. D.C. filed Sep. 14, 2011).
25 	These educational publications are available at
http://www.ftc.gov/bcp/menus/consumer/credit/mortgage.shtm.
26 	See James M. Lacko and Janis K. Pappalardo, Improving Consumer Mortgage Disclosures: An Empirical
Assessment of Current and Prototype Disclosure Forms, FTC Bureau of Economics Staff Report (2007), available
at http://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf. FTC staff also released an earlier report
on mortgage disclosures that presented the results of controlled, quantitative testing of mortgage broker
compensation disclosures proposed by the U.S. Department of Housing and Urban Development (HUD), finding
that the proposed disclosures confused consumers and led many to choose more expensive loans. See Lacko and
Pappalardo, The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition: a
Controlled Experiment, FTC Bureau of Economics Staff Report (2004), available at
http://www.ftc.gov/os/2004/01/030123mortgagefullrpt.pdf.

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study was based on in-depth qualitative interviews with 36 consumers who had recently obtained
a mortgage, and controlled quantitative testing of existing and prototype disclosures with over
800 mortgage customers. Among other issues, the qualitative interviews examined consumers’
understanding of the disclosure documents they had received in their recent loans, which they
were asked to bring to the interviews. During the quantitative testing, consumers were given
disclosure forms for hypothetical mortgage loans and asked a series of objective questions to
assess whether the forms effectively conveyed information on key loan terms. Half of the
participants were given disclosures using the existing forms required by TILA and RESPA and
half were given prototype disclosures developed by FTC staff for the study.27
The study found that the then-existing mortgage disclosures failed to convey key
mortgage terms and costs to many consumers and often resulted in confusion. The qualitative
interviews revealed, for example, that many consumers mistakenly believed that the “amount
financed” disclosed on the TILA statement of their recently obtained loan represented their total
loan amount and that the “discount points” disclosed on the Good Faith Estimate was a discount
they received (as opposed to a fee they paid). The quantitative testing demonstrated that many
consumers viewing the existing disclosures could not correctly identify key loan provisions.
More specifically, the testing showed that:
 	About a fifth of the consumers could not correctly identify the APR of the loan, the
amount of cash due at closing, or the monthly payment;
 	Nearly a quarter could not identify the amount of settlement charges;
 	About a third could not identify the interest rate;
 	About a third did not recognize that the loan included a large balloon payment;
 	A third did not recognize that the loan amount included money borrowed to pay for
settlement charges;
 	Half could not correctly identify the loan amount;
 	Two-thirds did not recognize that they would be charged a prepayment penalty if they
refinanced with another lender;
 	Three-quarters did not recognize that substantial charges for optional credit insurance
were included in the loan; and
 	Nearly nine-tenths could not identify the total amount of up-front charges.
27 	HUD revised the Good Faith Estimate disclosures after the study was conducted. Thus, the study examined
the then existing disclosures rather than those now required. See HUD, 24 C.F.R. Parts 203 and 3500, Real Estate
Settlement Procedures Act (RESPA): Rule To Simplify and Improve the Process of Obtaining Mortgages and
Reduce Consumer Settlement Costs; Final Rule, 73 Fed. Reg. 68204-288 (Nov. 17, 2008).

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The study also showed that consumers’ understanding of mortgage terms and costs
significantly improved when they were presented with clearer, prototype disclosures developed
by FTC staff, demonstrating that better disclosures are possible. The study further concluded
that, in efforts to improve mortgage disclosures, controlled quantitative consumer testing is
important to help ensure that the new disclosures effectively convey key information to
consumers.
In light of the FTC staff’s research, Commission staff has advocated for improved
mortgage disclosures and rigorous disclosure testing in public comments to other federal
agencies. For example, in the period 2006-2008, FTC staff filed public comments to federal
banking regulators working on improved disclosures to recommend the comprehensive reform of
mortgage disclosure documents.28 More recently, in other public comments filed with federal
regulators regarding mortgage lending, FTC staff has advocated for stronger consumer
protections under the TILA; broader data reporting under the Home Mortgage Disclosure Act;
and guidance on deceptive practices in connection with reverse mortgages.29
The Commission also has hosted two public conferences that focused on mortgage
disclosure research and other important mortgage lending issues. 30
III. 	Recommendations Regarding Consumer Research and Mortgage Disclosures
FTC staff commends the CFPB for its efforts to consolidate and improve the disclosures
consumers receive when shopping for and closing on a mortgage. The proposed new disclosures
28 	See FTC Staff Files Comments with HUD on Proposed Amendments to RESPA Regulations (June 16,
2008), available at http://www.ftc.gov/opa/2008/06/respafyi.shtm; FTC Staff Files Mortgage Disclosure Comments
With Banking Agencies (Nov. 1, 2007), available at http://www.ftc.gov/opa/2007/11/mortgage.shtm; Commission
Provides Federal Reserve Board with Comments on the Home Equity Lending Market (Sept. 19, 2006), available at
http://www.ftc.gov/opa/2006/09/fyi0661.shtm.
29 	See FTC Staff Submits Comments to Federal Reserve on Making Fair Lending Law Stronger (Dec. 17,
2010), available at http://www.ftc.gov/opa/2010/12/hmda_fcra.shtm; FTC Submits Comments on Proposed
Guidance to Help Consumers Avoid Reverse Mortgage Deception (Mar. 19, 2010), available at
http://www.ftc.gov/opa/2010/03/revmortgage.shtm; FTC Approves Filing of Staff Comment to the Board of
Governors of the Federal Reserve System Regarding Proposed Rule to Restrict Certain Mortgage Practices Under
TILA (Apr. 16, 2008), available at http://www.ftc.gov/opa/2008/04/frb.shtm.
30 	In May 2008, the FTC’s Bureau of Economics held a conference entitled “Consumer Information and the
Mortgage Market,” at which participating scholars shared their research on how disclosures and other forms of
consumer information affect consumer choices, mortgage outcomes, and consumer welfare. At the conference, FTC
economists and conference panelists discussed the FTC staff’s mortgage disclosures study (detailed above). See
“Consumer Information and the Mortgage Market” (May 2008), presentations and transcript available at
http://www.ftc.gov/be/workshops/mortgage/index.shtml. Further, in May 2006, the Commission hosted a public
workshop, “Protecting Consumers in the New Mortgage Marketplace,” to explore the characteristics and potential
risks of alternative mortgage products, such as interest-only loans and payment option ARMs. At this workshop,
FTC staff and other panelists again emphasized the importance of clear disclosures for ensuring that consumers are
in a position to make well-informed decisions about mortgage loans. See “Protecting Consumers in the New
Mortgage Marketplace” (May 2006), transcript available at
http://www.ftc.gov/bcp/workshops/mortgage/index.shtml.

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hold great promise for improving the information consumers receive and their subsequent
choices of mortgages. The new disclosures are likely to benefit consumers in several ways.
First, combining the currently separate TILA and RESPA disclosures into a single document will
make it much simpler for consumers to review key loan terms. Second, combining the forms
also eliminates the possibility of inconsistent disclosures between forms, which can lead to
consumer confusion. Third, the language and formatting in the new forms appears to be more
effective than current forms in conveying key loan terms to consumers, in ways they can
understand and use. Fourth, the new disclosures change or clarify some current disclosures that
may be confusing.
FTC staff also commends the CFPB for its use of careful qualitative consumer research to
develop, assess, and refine the proposed disclosures. This research involved ten rounds of
qualitative testing conducted over a 10-month period.31 The CFPB also used innovative methods
to solicit consumers’ opinions on several rounds of disclosure forms posted on the agency’s
website, and received input from 27,000 consumers in this process. 32 Obtaining input from
consumers on the importance of various loan terms in their mortgage shopping decisions and on
the usability of alternative designs for the language and format of the new forms is important to
the development of effective disclosures. This type of research can improve the disclosures and
help avoid forms that are confusing.
While qualitative consumer research suggests that the new disclosures are understandable
and an improvement over current disclosures, quantitative consumer testing is an effective way
of confirming that this is the case and can help ensure that consumers are not confused by the
disclosures in the new form. For many consumers, purchasing a home or obtaining another
home mortgage involves one of the largest and most important financial transactions of their
lives. Given the importance of mortgage disclosures for consumers, FTC staff encourages the
CFPB to conduct controlled quantitative testing prior to the final approval of the proposed
disclosures to help ensure that the forms result in the greatest practicable level of consumer
understanding.
A. The Value of Quantitative Testing for Developing Effective Disclosures
In the NPRM, the CFPB states that it “may conduct large-scale quantitative testing of the
[proposed new disclosure] forms to confirm that the forms aid consumers’ understanding of
mortgage transactions,”33 and previously announced its intention to seek approval for
quantitative testing from the Office of Management and Budget (OMB).34 FTC staff encourages
31 	See 77 Fed, Reg. at 51127-51128. Kleimann Communication Group, Inc. conducted the testing on the
combined forms for the CFPB. Kleimann specializes in testing consumer financial disclosures and was used by the
FTC and the Federal banking agencies to design and conduct consumer testing for revised model privacy
disclosures. Id. at 51126.
32 	See 77 Fed. Reg. at 51129.
33 	See 77 Fed. Reg. at 51129.
34 	CFPB, Proposed Collection; Comment Request, 77 Fed. Reg. 18793, 18794 (March 28, 2012).

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the CFPB to test the proposed forms prior to finalizing the rule, including with use of control
groups that allow for valid comparisons to existing forms. Controlled quantitative testing can
help to ensure that the proposed disclosures effectively convey key mortgage terms to
consumers, are not misinterpreted or misunderstood, and offer significant benefits over currently
mandated disclosures.
Effective disclosures can greatly benefit consumers by reducing search costs, facilitating
comparison shopping, preventing deception, improving purchase decisions, and promoting
efficient markets. Ineffective disclosures may fail to provide such benefits – and may even do
more harm than good. For example, as discussed above, FTC staff’s consumer testing of
mortgage disclosures has shown that then- mandated disclosures failed to convey key
information to many consumers and, in some cases, confused and misled them. 35
An established mechanism for testing the effectiveness of proposed disclosures is through
controlled quantitative testing, in an experimental setting, with random assignment, using
objective performance measures, with representative samples of relevant consumers, in large
enough numbers to reach valid statistical conclusions. Quantitative testing can be conducted in
either a “laboratory” environment using hypothetical mortgage loans or as part of a “real-world”
field test using real loans in real transactions actually undertaken by consumers. Quantitative
testing in either context would use similar methodology, including the use of controls, random
assignment, objective performance measures, and representative samples of consumers. Several
members of the mortgage industry have suggested that some form of “real-world” field testing be
conducted.
36
35 	See Lacko and Pappalardo (2007), supra note 26 and accompanying text. See also Lacko and Pappalardo,
Improving Mortgage Disclosures: Consumer Testing of Current and Improved Disclosure Forms, Presentation at
the FTC Bureau of Economics Conference on Consumer Information and the Mortgage Market, May 29, 2008,
available at http://www.ftc.gov/be/workshops/mortgage/presentations/Lacko_Pappalardo.pdf. Other research also
has shown that ineffective attempts to improve disclosures can actually have the opposite effect and lead some
consumers to make worse decisions. See Lacko and Pappalardo (2004), supra note 26 (2004 study examining
HUD’s proposed mortgage broker compensation disclosures). In that study, which used controlled, quantitative
testing of over 500 recent mortgage consumers, subjects were shown cost information on two hypothetical mortgage
loans and asked which loan was less expensive and which they would choose if they were shopping for a mortgage.
The proposed broker compensation disclosures were included in the cost information shown to some of the
consumers, but were not included for others. The study found that the proposed disclosures confused consumers,
significantly reduced the proportion that correctly identified the less expensive loan, and significantly increased the
proportion choosing the more expensive loan as the one they would select if shopping for a mortgage.
36 	See, e.g., Mortgage Disclosures: How Do We Cut Red Tape for Consumers and Small Businesses?:
Hearing Before the H. Comm. On Financial Servs. 112th Cong. 8 (2012) (statement of Bill Cosgrove, Mortgage
Bankers Association: “Also, while the forms should continue to be tested on consumers, they must be carefully
tested in conjunction with lenders and settlement service providers on real loans.”); id. at 3 (statement of Housing
Policy Council: “After the Bureau issues proposed rules and forms but before they are finalized, we continue to urge
the Bureau to establish a trial program with a few lenders using the new forms in real world transactions.”); id. at 9–
10 (statement of Mr. Chris Abbinante, American Land Title Ass’n: “[Q]ualitative testing of disclosures should take
place in the context of the greater transaction. During the last round of RESPA Reform in 2002-2009, consumer
testing took place in a vacuum where the testing of the GFE and HUD-1 were conducted individually instead of as
part of an actual loan and real estate transaction. While the new forms passed that testing, many ALTA members
today find that consumers are having a more difficult time, rather than a less difficult time, understanding their

11
Although qualitative research, such as focus groups and in-depth interviews, allows for
detailed, open-ended exploration of issues, and can provide valuable preliminary insight when
developing and assessing consumer disclosures, it also has limitations. Qualitative testing is
typically limited to the examination of small, non-representative samples of consumers. Thus,
the results cannot be projected to the larger population of interest, and statistical findings and
comparisons are not possible. Additionally, qualitative studies usually employ less structured
and standardized lines of questioning, which make it difficult to compare responses across
subjects. The interactive nature of the questioning also raises the possibility that subjects’
responses will be influenced by the statements or questions of the interviewer (or, in group
settings, interactions with other subjects).37
Quantitative testing, on the other hand, typically involves larger, representative samples
of consumers, in a controlled, experimental setting. This approach yields statistically valid
results that can be projected to the larger population of interest. Quantitative testing also uses
structured survey instruments that ask the same questions to all subjects, allowing for precise
aggregation of the responses and comparisons between treatment and control groups.
The importance of quantitative testing is widely recognized, including in publications by
the Federal Reserve Board38 and the OMB39 – as well as in the report submitted to the CFPB by
costs.”); id. at 3 (statement of Anne C. Canfield, Consumer Mortgage Coalition: “[O]nce the new draft disclosures
are designed, they need to be tested on actual closed loans across all available loan products to ensure that they
actually work.”); id. at 8 (statement of Independent Community Bankers of America: “ICBA recommends that the
CFPB conduct a BETA test of the finalized forms and proposed TILA/RESPA rules on real loan transactions done
by community banks, large banks, and small and large mortgage bankers.”).
37 	The qualitative testing conducted by the CFPB, for example, used a sample of 92 consumers spread across
10 different testing sessions, with most sessions evaluating two alternative disclosure designs (with subjects viewing
both alternatives in some sessions and primarily a single alternative in others), using multiple loan products. In
addition, the CFPB also released information about and posted prototype forms on their Web site, obtaining
feedback and comments from the public. The CFPB received over 150,000 visits to this Web site and over 27,000
public comments and emails about the prototype disclosures. This latter approach creatively solicited information
about the disclosures from consumers (or other parties, such as industry representatives), who chose to respond and
provide feedback or their views. However, it did not involve quantitative testing or utilize a random or
representative sample of respondents, and did not test specific consumer understanding of the disclosures.
38 	See Jeanne M. Hogarth and Ellen A. Merry, Designing Disclosures to Inform Consumer Financial
Decisionmaking: Lessons Learned from Consumer Testing, Federal Reserve Bulletin, Vol. 97(3), August 2011, at 8-
9, available at http://www.federalreserve.gov/pubs/bulletin/2011/pdf/designingdisclosures2011.pdf (“Including a
quantitative validation phase in the study design can help determine whether the changes based on findings from the
small samples used in qualitative testing actually result in improvements when tested with a larger and statistically
representative sample of the population. . . . Unlike focus groups or individual interviews, consumer surveys can be
used to assess whether alternative disclosure designs can improve consumer comprehension by a statistically
significant amount.”).
39 	See Executive Office of the President, OMB, Office of Information and Regulatory Affairs, Cass R.
Sunstein, Administrator, Disclosure and Simplification as Regulatory Tools, Memorandum for the Heads of
Executive Departments and Agencies, June 18, 2010, at 5, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/disclosure_principles.pdf (“To the extent feasible,
agencies should test, in advance, the likely effects of summary disclosure, and should also monitor the effects of
such disclosure over time. . . . Scientifically valid experiments are generally preferable to focus group testing, and

12
the communications firm that assisted in the development of the proposed disclosures and
conducted the qualitative testing.40 Although careful and innovative qualitative research was
clearly instrumental in the CFPB’s development of the proposed disclosures, and it suggests that
these disclosures are an improvement over current disclosures, quantitative research can test and
confirm this hypothesis.
B. Two Key Elements of Quantitative Testing
FTC staff notes that two elements of quantitative testing are particularly important.
First, quantitative testing should focus on the actual performance of the disclosures in conveying
the desired information to consumers, rather than consumers’ opinions about the disclosures,
their preferences for alternative designs, or whether they believe they understand the
information. Research conducted by FTC staff has demonstrated that consumers sometimes
incorrectly believe that they understand a disclosure, when in fact they do not.41
Second, FTC staff recommends including an appropriate control group in the study
design. This allows the study to isolate and measure the impact of the proposed disclosure. If
randomized experiments can be especially valuable.”); Executive Office of the President, OMB, Office of
Information and Regulatory Affairs, John D. Graham, Administrator, Guidance on Agency Survey and Statistical
Information Collections, Memorandum for the President’s Management Council, January 20, 2006, at 16-17,
available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/pmc_survey_guidance_2006.pdf
(“In a qualitative study . . . the sample is usually not representative—in a statistical sense—of any larger population.
However, the obtained information may be very useful in generating hypotheses that can be tested more
systematically with other methods such as quantitative surveys. Sometimes qualitative studies are done in
conjunction with or as a component of a larger quantitative study to obtain further insights or context for the results;
however, these qualitative interpretations can be prone to misinterpretation and over-generalization. . . . Agencies
need to acknowledge the limitations of data gathered using these methods and not generalize the data beyond those
persons or entities that were interviewed. These studies should usually be considered preliminary, and will often
need to be followed with a larger-scale, representative study.”)
40 	See Kleimann Communication Group, Inc., Know Before You Owe: Evolution of the Integrated TILA-
RESPA Disclosures, Presented to the Consumer Financial Protection Bureau (July 9, 2012) at 40, available at
http://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf (“Qualitative testing is not statistically
based. In fact, the sample for qualitative testing is relatively small. The results are not generalizable to a larger
population, but they are not meant to be. . . . A user-centered design project often includes a validation study as its
fourth phase. These studies are quantitative in nature, use large samples, and aim for statistically significant results.
Because our project took place before the notice and comment period for the disclosures, no quantitative validation
study was conducted. The CFPB may undertake such a study after the notice and comment period.”); id. at 26 (“A
quantitative test provides statistical data and evidence about the performance of the disclosure.”); id. at 32 (“The
goal of qualitative usability testing is not to develop statistical results; that is the scope of the quantitative validation
in user-centered design. In qualitative usability testing, we remain focused on design and how consumers interact
with the design, and a small sample size is typical.”).
41 	See Lacko and Pappalardo (2007), supra note 26 and accompanying text. As noted above, the qualitative
interviews conducted for the staff’s 2007 mortgage disclosure study found that many consumers mistakenly believed
that the “amount financed” disclosed on the TILA statement of their recently obtained loan was their total loan
amount, and others believed that the “discount points” disclosed on their Good Faith Estimate was a discount they
received, as opposed to a fee they paid. Presumably, if these consumers had been asked if they understood these
terms, and nothing more, they would have incorrectly reported that they did.

13
the proposed disclosure is intended to replace an existing one, as is the case here, the appropriate
control group should consist of subjects using the currently required disclosures. 42 Subjects in
both the current and revised disclosure groups would view disclosures based on the same loans
and be asked the same questions. The impact of the revised disclosures could be measured by
comparing the results of the two groups. Although there may be some information elements in
the new forms proposed by the CFPB that do not appear in the current forms, thus making
controls for those elements unavailable, there are numerous other elements that appear in both
forms and which could be directly compared through the use of a control.
The comparison provided by the control group makes the test results clearer. The tests
may show, for example, that the revised disclosure is not understood by a significant proportion
of consumers, but a control group might confirm that the new disclosure still represents a
substantial improvement over the current disclosure. Conversely, the tests may show that nearly
all consumers understand the revised disclosure, but a control group might show that the same is
true for the current disclosure, indicating that the revision provides little additional benefit.
IV. 	Conclusion
FTC staff supports the CFPB’s efforts to develop improved mortgage disclosures
designed to help consumers make better-informed decisions about mortgages, and believes that
the CFPB disclosures are likely to improve the information that consumers currently receive
under federal law. Based on the FTC staff’s research and the Commission’s law enforcement
experience in this area, FTC staff encourages the CFPB to conduct controlled quantitative testing
of the proposed disclosures prior to finalizing a rule. FTC staff hopes that its recommendations
prove useful to the CFPB’s efforts and appreciates your consideration of them. If you have any
questions about this comment or would like additional information, please contact James Lacko,
Deputy Assistant Director for the Bureau of Economics, at (202) 326-3387, or Carole Reynolds,
Senior Attorney, Division of Financial Practices, at (202) 326-3230.
42 	One also could include additional groups to test alternative designs for the revised disclosure.

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Respectfully submitted,
_________________________
Howard A. Shelanski, Director
Paul A. Pautler, Deputy Director
Janis K. Pappalardo, Assistant Director
James M. Lacko, Deputy Assistant Director
Bureau of Economics
_________________________
David C. Vladeck, Director
Jessica L. Rich, Associate Director
Thomas B. Pahl, Assistant Director
Carole Reynolds, Senior Attorney
Evan Zullow, Senior Attorney
Bureau of Consumer Protection
_________________________
Andrew I. Gavil, Director
Tara I. Koslov, Deputy Director
Christopher M. Grengs, Attorney Advisor
Office of Policy Planning