stark-debraNew loan estimate disclosure forms approved Wednesday, Nov. 20, by the Consumer Financial Protection Bureau (CFPB) are a step in the right direction. But signers still may be shortchanged on valuable information that can help them make an informed decision, says Professor Debra Pogrund Stark of The John Marshall Law School.

“I join with the National Consumer Law Center in asking CFPB to consider changes before these new forms take effect in August 2015,” Stark said. “I believe our study shows that giving consumers clear information up front can help them make sound choices in their loan options.”

The final CFPB forms, Stark says, leave many future homebuyers unclear when presented with two different loans — one with a higher interest rate and lower closing costs, and the other with a lower initial interest rate and higher closing costs. The NCLC cited a study by Stark in expressing its own disappointment with the newly approved forms.

Stark, with Dr. Jessica Choplin of DePaul University, ran experiments to test whether consumers could successfully use annual percentage rate (APR) to identify the lower-cost loans – even without completely understanding it – when the APR is displayed in a simple and consumer-friendly format on the first page of loan documents.

The experiments were designed to show how the borrower recognized on which of the two offered loans is the lower cost loan. Experiments by Stark and Choplin using the CFPB’s new format, where the APR information is buried on page 3, found that prospective borrowers recognized which was the lower cost loan only 44 percent of the time (a chance level).

With Stark and Choplin’s “enhanced” APR disclosure, displayed at the top of page 1 of the Loan Estimate Form, with a price tag under which it states: “APR: Price of the Loan, lower is better for you,” potential mortgage signers recognized the correct lower-cost loan 74 percent of the time, a vast improvement.

Stark says that based on the experiments she has run, she agrees with the findings of the National Consumer Law Center that these forms weaken the disclosure goal of helping consumers choose the lowest-cost loan.

“Highlighting the APR in the disclosure form, and modifying the rules to require that all closing costs, including title insurance be included in the annual percentage rate would have simplified overly complex disclosure rules. Having all costs included would have made it much easier for purchasers to understand the total price of the loan,” Stark explained. “And putting the information on the first page, in a simple–to-understand format, would have put the number immediately into a future home buyer’s conversation.”

Stark applauds the staff at CFPB for its work in developing the new combined disclosure forms, but wishes they had implemented the enhanced APR disclosure that has been demonstrated to be a great aid to consumers in identifying the lower cost loan from two offerings.  JMLS street

For details of the two experiments (one of which used eye-tracking technology) and their results in the study, “When is Consumer Understanding Necessary to Make Wise Home Loan Decisions? Testing Enhanced APR Disclosure and General Financial Literacy,” please contact Debra Pogrund Stark at


I have functioned as a Business and Media Consultant over the past sixteen years and spent many years developing my capacity to function in our ever evolving use of technology, communication, education and training.