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

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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. 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.


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