January 12, 2005
Acting Comptroller Williams Urges New Approach to Disclosures To Enhance Consumer Protection
WASHINGTON – Acting Comptroller of the Currency Julie L. Williams today urged bankers, government officials, and consumer advocates to work together to improve our current system of disclosure for financial consumers.
In a speech before Women in Housing Finance and The Exchequer Club, Ms. Williams said that such disclosures are at the heart of our current system of consumer protection, in which bank customers are to be provided with the information they need to make informed choices about financial products and services. However, she added, the system is on the verge of breaking down.
“And it’s reached that point not because consumers are getting too little information, but because they are getting too much information that's not what they're really after; and because the volume of information presented may not be informing consumers, but rather obscuring what's most helpful to understanding of financial choices,” she added.
Ms. Williams pointed to the work the Food and Drug Administration did in developing the highly-effective “Nutrition Facts” disclosures that appear in a box on food products. That effort, she said, was the result of painstaking work, in the field, the laboratory, plus extensive input from consumers.
“The clear labeling of nutrition content has not only enabled consumers to find products with the nutritional characteristics they’re seeking, it has influenced food producers to develop products that consumers want,” Ms. Williams said. “In other words, these disclosures have been effective and useful to consumers.”
Ms. Williams said every party to the process – Congress, consumer advocates, bankers and regulators – must rethink its approach to consumer disclosures if the process is going to be made to work for consumers.
The FDA’s experience, Ms. Williams said, suggests that Congress should consider more emphasis in financial services legislation on articulating the goals to be achieved through a particular consumer protection disclosure regime, rather than the precise elements of mandated disclosures.
In addition, she said, “Congress should look for opportunities to require, and please provide adequate time for, regulators to include consumer testing as part of their rulemaking process.”
Regulators “need to embrace consumer testing when we design, or attempt to redesign, consumer protection measures,” she said.
“Let’s just admit that we can’t throw a bunch of lawyers—however talented—into a room and expect that they are going to come up with consumer disclosures that are understandable to most people,” she said. “There’s a critical element that’s been missing from our consumer disclosure rulemaking process—testing how consumers interpret particular disclosures and how to make disclosures usable to them.”
Bankers, she said, complain about excessive regulatory burden, but seem fearful of the consequences of a clearer, less burdensome approach to consumer disclosure such as a streamlined, short form privacy notice containing only certain key information.
“Marketing departments get uneasy because simple and straightforward disclosure of a bank’s information sharing policies and an easy means for customers to opt out of that sharing might mean—that customers will actually understand those policies—and decide to opt out,” she said.
While noting the vital role consumer advocacy organizations play in the bank regulatory environment, Ms. Williams said what seems to be absent in the dialogue with these groups is a discussion of the interplay of how to better inform consumers by disclosing better, but not necessarily more, information, and the impact of regulatory disclosure burdens on banking institutions.
“Why aren’t consumer organizations berating us to do consumer testing to find out what consumers really want and think is important?”
Ms. Williams urged all major participants in the process of developing financial services consumer disclosures to muster the resolve to change the current approach.
“The benefits will be better-informed, better protected consumers, clearer accountability concerning consumer treatment and consumer behavior, reduced regulatory burden—and a more robust financial services marketplace for all.”