May 12, 2005
Acting Comptroller Williams Tells Bankers Disclosures not Working for Consumers and Imposing Unnecessary Burdens
Phoenix, AZ – Acting Comptroller of the Currency Julie L. Williams said today disclosures to accomplish consumer protection objectives in the banking business are one important aspect of the current debate concerning regulatory burden and that, despite good intentions and enormous resources expended, disclosures are not working well for consumers, and are imposing unnecessary burdens on bankers.
"Consumers who see just a haze of fine print, instead of the information they want and need, may understandably conclude that certain information is deliberately being obscured," Ms. Williams said in a speech before the Economic Group Regulatory Paperwork Reduction Act (EGRPRA) Outreach Meeting. "And banks large and small complain about the cost and burdens of various consumer compliance requirements. The expense associated with developing and distributing disclosures would be more bearable if people thought all the effort effectively accomplished their purpose: to get vital information into the hands of consumers to make informed choices and to promote healthy competition among financial providers."
Ms. Williams noted that one of the great strengths of our financial system is that the government does not dictate the price and terms of products and services that may be offered. But in order for the free market to work, she said, consumers need to have the means to make informed decisions.
Citing credit cards as an example, Ms. Williams pointed out that there are two areas where current developments hold promise of positive developments to produce better, more effective and less burdensome approaches to consumer disclosures; first in Congress and second through revisions to regulations including Regulation Z.
Ms. Williams hoped that next week's Senate Banking Committee hearing on credit card disclosures will be an opportunity not simply to criticize the current state of credit card disclosure, but to begin a re-examination of the processes of developing, designing, implementing, overseeing and evaluating consumer disclosures for financial products and services.
"Our goal here ought to be consumer disclosures that consumers can understand and find useful, provided in a manner than minimizes unnecessary regulatory burdens on the company required to provide them," she said.
Ms. Williams highlighted the Food and Drug Administration's "Nutritional Facts" label as an efficient and effective consumer disclosure and she summarized the development of the label as a model on how to achieve effective and useful consumer disclosures.
The development of the FDA's nutritional label began, she noted, with a clear statement by Congress of the objectives the FDA was charged to accomplish and gave that agency the flexibility to delete or add requirements in the interest of assisting consumers. The FDA was given the time and discretion to design, conduct intensive research, poll focus groups to elicit ideas on the kind of information consumers wanted to see, and test formats with target consumer audiences to determine what actually worked.
"Given the example of the concise disclosure that resulted from the FDA's process, I would hope legislators would require that regulators take into account both the burden associated with implementing any new standards, together with the effectiveness of those disclosures," Ms. Williams said. "The EGRPRA effort as it plays into regulatory burden reduction legislative proposals that are currently being developed is the perfect opportunity for Congress to do this."
Ms. Williams informed the bankers that the OCC took the unusual step of submitting a comment letter responding to the Federal Reserve Board's Advance Notice of Proposed Rulemaking on Regulation Z's open-end credit rules stressing several key themes including the use of multi-phase consumer testing to develop and improve disclosures for financial service products; that extensively detailed, prescriptive rules risks consumer information overload; and the need to ensure that credit disclosure rules keep pace with the evolution of credit products and industry practices.
"Quality rather than quantity; disclosure in the spirit of openness and free markets rather than as a mere compliance gesture; research rather than guesswork—these are values that should guide us," Ms. Williams concluded. "If we take these values to heart, I believe we can develop a framework for consumer compliance disclosures that work effectively for consumers and efficiently for the bankers that seek to serve them.