Weary of facing lawsuits and enforcement actions over technicalities, a group of bankers is searching for a way to simplify lending disclosure rules.
The group, which began meeting this month, wants to rewrite the Real Estate Settlement Procedures Act and Truth-in-Lending Act. Compliance officers have complained for several years that these two laws are confusing and overly burdensome.
Possible changes include eliminating the requirement that lenders list every fee individually and replacing the annual percentage rate with the nominal rate, which is the amount the bank charges for the loan.
The changes would make the loan-closing process clearer for bankers and consumers, said Edwin Schmelzer, a partner with at the Washington law firm of Bryan Cave.
"It's time to sit down with Congress and regulators and see if we can't come up with a simpler, less-complicated system that would be devoid of all of the technical glitches that the current rules have," Mr. Schmelzer said.
Consumer groups said they welcome a fresh look at the disclosure regulations. Janice Shields, research analyst at the Center for Responsive Law in Washington, said the current rules are too convoluted. But she said she wants to see the working group's plan before endorsing its efforts.
Mr. Schmelzer said the meetings were spurred by the so-called Rodash cases, in which consumers have sued banks for minor violations of the real estate disclosure regulations.
In addition to the bankers, the group includes lawyers and even two consumers plus a staffer for Rep. Bill McCollum, R-Fla., a member of the House Banking Committee.
The group expects to work on a legislative fix, which could be introduced next year.
Group members said the annual percentage rate is confusing for customers and lenders. "Customers don't understand APR," said a representative from a large nationwide mortgage bank involved in the talks. "But they have a level of confidence with the nominal interest rate, and that makes it seem more relevant to them."
The group also considered requiring banks to disclose the total cost of the loan, including fees for title insurance, preparation of loan documents, and flood hazard certifications. Thus, "lenders couldn't hide anything," said the mortgage banker, who requested anonymity.
Another possibility is to lump all the fees together to avoid haggling over individual items, the mortgage banker said. This would let lenders compete for customers by offering the lowest overall package of closing costs, thus removing the focus from any one fee.