BANKTHINK

Dodd-Frank Makes a Mockery of 'Plain Language' Movement

Print
Email
Reprints
Comments (4)
Twitter
LinkedIn
Facebook
Google+

The plain language movement began in the 1970s with a spate of state laws mandating use of plain language in consumer transaction documents. New York and Connecticut were pioneers.

The New York law was fairly simple, providing that covered agreements must be "written in a clear and coherent manner using words with common and everyday meanings and appropriately divided and captioned by its various sections."

Connecticut's statute is too long to set forth here in its entirety. It provided for alternate tests. To comply with one of the tests, a consumer contract would be deemed to be written in plain language if it fully met all of 11 specified tests. 

Five of the 11 look like something that might have been produced by Dickens' Circumlocution Office. They are: (1) The average number of words per sentence is less than 22; (2) No sentence in the contract exceeds 50 words; (3) The average number of words per paragraph is less than 75; and (4) No paragraph in the contract exceeds 150 words; and (5) The average number of syllables per word is less than 1.55.

One is tempted to wonder whether if Einstein had followed this formula in explaining his theory of relativity, he would have made it intelligible to the masses.

Congress jumped on the plain language bandwagon in 2010, upon enactment of the Plain Writing Act. It defined the term "plain writing" as "writing that is clear, concise, well organized, and follows other best practices appropriate to the subject or field and intended audience." It covers any document that is necessary for obtaining any federal government benefit or service or filing taxes; provides information about any federal government benefit or service; or explains to the public how to comply with a requirement the government administers or enforces.

Unfortunately, the law does not cover regulations, although previously existing executive orders stated that regulations "must be simple and easy to understand, with the goal of minimizing uncertainty and litigation," and that each regulation must specify its effect in clear language. Neither the law nor the executive orders require the use of plain language when drafting statutes.

You may be surprised to learn that somewhere in the bowels of the federal government there is a group called the Plain Language Action and Information Network, or PLAIN for short. It describes itself as a group of federal employees from many different agencies and specialties who support the use of clear communication in government writing. They have developed and maintain their own web site. plainlanguage.gov. PLAIN has been meeting informally since the mid 1990s. They should invite those who draft banking legislation to their meetings

Despite all of these laudable efforts, Congress has yet to get the message. Lawmakers continue to layer confusion on top of confusion. The Dodd-Frank Act provides a recent example.

One could cite a number of examples, but I will focus on its efforts respecting mortgage reform. Prior to Dodd-Frank, there were high cost and higher priced mortgages, as described in Regulation Z.  One needed to take a rather circuitous route to find the definition of high cost mortgage in the regulation.

Dodd-Frank muddied the water respecting high cost mortgages by amending the Truth in Lending Act to introduce a new definition of high cost mortgage. The consequences of falling under one or the other definition are not the same.

So, now we have two different versions of a high cost mortgage, as well as a higher priced mortgage. Then, along comes Dodd-Frank again, introducing yet another category of mortgage loan, the higher risk mortgage.

The definition of Higher Risk Mortgage Loan is something to behold. Space does not permit repeating it verbatim.

It is sprinkled with references to parts of other statutes, such as "having an original principal obligation amount that does not exceed the amount of the maximum limitation on the original principal amount of obligation in effect for a residence of the applicable size, as of the date of such interest rate set, pursuant to the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage corporation Act."

Thus, one must scurry off to find the referenced statute to nail down the definition of a higher risk mortgage.

Is it any wonder that your bank's compliance officers are turning prematurely grey? 

Congress has turned the ancient Chinese proverb "A picture is worth a thousand words" into "A thousand words are worth a picture."

William M. Aukamp is a lawyer in the Wilmington, Del., office of Archer & Greiner, P.C.

 

JOIN THE DISCUSSION

(4) Comments

SEE MORE IN

RELATED TAGS

Who's Who in Auto Lending Investigations
As U.S. auto lending has boomed, the industry especially its subprime sector has become a growing target for a slew of prosecutors and regulators. Here are seven government agencies to keep an eye on.

(Image: Bloomberg News)

Comments (4)
Any definition of high risk mortgage which does not talk of (1)capacity to repay (like EMI to monthly cash flow available to service the loan ratio) and (2)loan to value ratio is plainly inappropriate. What is needed is appropriate and plain definitions!
Posted by Center for Safe and Sound Banking | Wednesday, November 28 2012 at 2:48PM ET
Let's not forget the Qualified Residential Mortgage (QRM) and the Qualified Mortgage (just QM, no "r"), two rather different but both consequential rules that people in the industry are already (understandably) confusing!
Posted by Marc Hochstein, Editor in Chief, American Banker | Wednesday, November 28 2012 at 3:39PM ET
RE: Frank wins Lifetime Award as they say on NFL Countdown C'mon man this is Banking Highest Award.Is anybody in our business paying attention we are about to enter a very interesting point in this phase of the road back I for one am curious about one who attacks and then turns around and comes up with HARP 1=100% then HARP 2=125% now HARP 3=150% smells like a GOV.stamped subprime product to me, so be it bring on QE3 (quantitive easing) and let's get it on. I can sleep at night I have a bumper sticker that reads Dont't blame me... you know who you are


























Posted by FXS92663 | Wednesday, November 28 2012 at 9:39PM ET
Add your comments here.
Posted by FXS92663 | Thursday, November 29 2012 at 12:10AM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
Already a subscriber? Log in here
Please note you must now log in with your email address and password.