At the 2012 Face of Finance Conference, at Bentley University, in Waltham, MA, Deborah Bosley (UNC Charlotte/The Plan Language Group) presented "Regulatory Requirements for Plain Language: Making Financial Information Transparent".

1. Regulatory Requirements for Plain Language:
Making Financial Information Transparent
presented by
Dr. Deborah S. Bosley
Associate Professor of English at UNC Charlotte and
Principal, The Plain Language Group
deborah@theplainlanguagegroup.com
presented to
THE FACE OF FINANCE
October 24, 2012
All material in this slide presentation is copyrighted. No material may be used in any other
context without permission from Dr. Deborah S. Bosley.

2. How plain is this?
"I know what you're thinking. Did
he fire six shots or only five?
Well, to tell you the truth, in all
this excitement, I've kind of lost
track myself. But being as this is a
44 Magnum, the most powerful
handgun in the world, and would
blow your head clear off, you've
got to ask yourself one question:
Do I feel lucky?”

3. How SEC regulators might write it?
"I imagine that you are harboring significant uncertainty
concerning the precise number of times that the
hammer of this particular multi-shot firearm was
cocked, its cylinder was advanced, the hammer was
then released at the rear of its travel, the round in the
chamber was fired, and the cylinder was then advanced
once again — and specifically whether the exact figure
is six, or possibly only five…I myself am experiencing
difficulty in quantifying the discharges with exactitude.
… a result, it is appropriate that you pursue a specific
and directed line of inquiry and self-examination…in
view of all the facts and circumstances, and giving due
weight to the relevant risk factors, is it your considered
judgment that you are more likely than not to be
relatively fortunate?” Former SEC Chairman Christopher Cox at the
Center for Plain Language Symposium, 2009

4. Here’s the agenda
1. What are the problems?
2. What is plain language?
3. How do we know it works?
4. What laws | regulations
require plain language?

5. 1. What are the problem?
• cell phone agreements
• insurance policies
• mortgage contracts
• credit card statements
• internet | software agreements
• proxy statements (CD&A)
• investment | shareholder information
• code of ethics
• liability
• the language of regulations

6. 1. What are the problems?
• disclosure ≠ communication
• accuracy ≠ understanding
• information ≠ answers
• what readers need to know ≠ what
you want to tell them
• compliance requires understanding
• legalese not always required
• intense federal scrutiny
• corporate trust at all time low

7. Lack of trust and understanding
Investors
• 63% intentional
• 84% distrust companies1
Corporations
• decreases accurate earnings forecasts2
Lenders
• 90% up-front fees, 80% APR, 65% penalty3
1 Siegel& Gale: A Clarion Call for Transparency, January 2009.
2 Reuven Lehavy, Feng Li, and Kenneth Merkley (2011) The Effect of Annual Report Readability on Analyst
Following and the Properties of Their Earnings Forecasts. The Accounting Review: May 2011, Vol. 86,
No. 3, pp. 1087-1115.
3 2006 study by the Federal Trade Commission: 819 prime and sub prime mortgage customers

8. Why plain language is important
Too much complexity
• 71 Stanford students evaluated writing
samples: "moderately complex" to
"highly complex”
• As complexity increased, judges’
estimation of author's intelligence
declined1
1 DanielM. Oppenheimer. “Consequences of Erudite Vernacular Utilized Irrespective
of Necessity: Problems with Using Long Words Needlessly.” Applied Cognitive
Psychology, October 2005.

9. The language of regulations
BEFORE: If there is an increase in an an
APR, annual fee or minimum interest charge due
to a 60 day past due payment, the notice must
state that the increase will cease to apply to
transactions that occurred prior to or within 14
days of provision of the notice, if the creditor
receives six consecutive required minimum
periodic payments on or before the payment
due date, beginning with the first payment due
following the effective date of the increase.
79 words; 33rd grade

10. BEFORE: If you turn age 701/2 this year, federal
minimum distribution rules generally require that you
receive some income from your retirement plan
accumulations by April 1 following the year you turn
701/2 — April 1, 2007 — or the April 1 after the year you
retire,* whichever comes later. Although April 2007 is
the deadline, you can receive your minimum distribution
in 2006. If you wait until 2007 to receive your minimum
distribution for 2006, you will receive two payments in
2007. One payment will satisfy the minimum distribution
requirement for 2006 and another payment will satisfy
the 2007 requirement. You must also begin receiving
income by April 1, 2007, regardless of your employment
status, from any accumulations in TIAA-CREF’s
Traditional IRAs or other companies’ traditional IRAs, or
from qualified plans (including Keogh plans) if you are a
5% owner of the plan. If you turned age 70 1/2 before
2006, you must receive enough income by December…

11. AFTER: We are writing to you because
you are subject to the minimum distribution
requirements of the Internal Revenue Code.
Since you are or will be 701/2 or older this year,
you need to receive at least a minimum amount of
income. The following shows when you need to
receive this income based on your age:
If you turn 70 1/2 If you turn 70 1/2
in 2007 in 2006 or earlier
Must begin by Must begin by
April 1, 2008 December 31, 2007

12. 2. What is plain language?
Plain language is the use of proven
writing and designing strategies
that make it easy for the intended
audience to understand, find, and
use the information.
Clear | Credible | Honest

13. Myths about plain language
• means dumbing down
• oversimplifies or changes
the meaning
• subverts terms of art
• means just changing words
• does not work as well as
traditional legal language

14. Plain language strategies
• write for intended audience | purpose
• focus on structure
• use active voice
• use pronouns
• use positive language
• be succinct
• use legal terms of art only if “irreducible”
• use common words when possible
• write short sentences | paragraphs
• use headings
• include visuals (tables, figures, etc.)
• test document for usability

15. “There is no right way to do a wrong thing.”
Whirlpool’s Code of Ethics
Before: “Management is responsible for making sure
that proper attention is given to, and that controls
are in place for, promoting compliance with our code
of conduct and the specific Company policies
addressing each area. Employees who fail to abide by these Company
policies will face corrective action, up to and including termination of
employment. As to executive officers, senior financial officers, and
directors, the requirement that you adhere to these policies may
only be amended or waived by the board of directors of
Whirlpool, or a committee thereof, and we will disclose to our
shareholders within four business days any amendment or
waiver of these policies made by the board of directors on behalf of any
executive officer, senior financial officer, or director.” 69 words
average 41; 25th grade

16. “There is no right way to do a wrong thing.”
Whirlpool’s Code of Ethics
After: Management is responsible for
• requiring compliance with
our code of conduct and policies; and
• making sure compliance controls are in place.
Employees who do not live up to these policies will suffer penalties
including the possible end of their employment.
Executive officers, senior financial officers, and directors are
required to adhere to these policies unless the board of directors
or a committee waives this requirement. In that case, we must notify
shareholders within four business days of such waivers.
16 average words; 14th grade

17. 3. How do we know it works?
Study of legal documents and the use of plain language
Improved understanding -- 31% from 50.5% to 66%
• more likely to be read | understood
• easier to comply
• strongly preferred
• less likely to cause mistakes
• fewer questions | fewer complaints
• decreased some likelihood of litigation
• saved time and money
1Michael E.J. Masson & Mary Anne Waldron, Comprehension of Legal Contracts by Non-Experts:
Effectiveness of Plain Language Redrafting, 8 Applied Cognitive Psychology . 67, 75, 77 (1994).

18. Investments and reputation
If clear:
• increases investment dollars1
• provides higher corporate
reputation2
1 Loughran, T. and McDonald, Bill (2009) Measuring Readability in Financial Texts. Unpublished paper.
2 Gebbart, J. and Lawrence, J. Predicting Firm Reputation Through Content Analysis of Shareholders’ Letters.
Corporate Reputation Review. Vol. 11, No. 4, 284-30

19. 4. What are existing laws | regulations that
require plain language?
• PRIVACY
• HIPPA
• GLB
• ERISA
• CAARD Act
• Dodd-Frank
• Consumer Financial
• Protection Bureau
• TILA | RESPA
• SEC: Form ADV, Part II
• DOL 401(k) Fee Disclosure
• Plain Writing Act of 2010

20. Health Insurance Portability and
Accountability Act (HIPAA)
“A covered entity can satisfy the
plain language requirement if it
makes a reasonable effort to
organize materials for needs of
readers; write short sentences in
active voice, use “you” and other
pronouns; use common words;
divide materials into short
sections.”

21. Gramm-Leach-Bliley (GLB)
“Notices must be ‘clear and
conspicuous’… a notice must be
reasonably understandable and
designed to call attention to the
nature and significance of the
information in the notice.”

22. Example of opt-out notice
“If you prefer that we not disclose
nonpublic personal information
about you to nonaffiliated third
parties, you may opt out of those
disclosures, that is, you may direct us
not to make those disclosures (other
than disclosures permitted by law.)”

24. Credit Card Accountability Responsibility &
Disclosure Act of 2009 (CAARD)
-- “clear and conspicuous”
• disclose terms in language
consumers can see | understand
• give clear account terms
before | after opening accounts
• show consequences of decisions
• display payment amount total
interest cost for 36 month payoff

26. Employee Retirement Income Security Act
(ERISA)
• Summary Plan Description shall be "written
in a manner calculated to be understood by
the average plan participant, and shall be
sufficiently accurate and comprehensive to
reasonably apprise such participants and
beneficiaries of their rights and obligations
under the plan.”
• Inaccurate, incomprehensible or misleading
explanatory material will fail to meet the
requirements of this section.
See Bard, 471 F.3d at 244-45.

27. ERISA lawsuits
“Many plans are operating under
carelessly worded SPDs that leave
their sponsors open to liability.”
Mark Stember, benefits attorney, Washington, D.C. office of Kilpatrick Stockton LLP
“If you are sued [under ERISA], the
first thing an attorney will do is see
if your SPD follows ERISA guidelines.”
Jonathan Edelheit, VP of United Group Programs, third-party administrator (TPA) Boca Raton, Fla

28. Dodd-Frank
Mortgage disclosures
• Simpler than old forms
• Highlight information consumers need
• Easier to look out for risks
• More time to consider choices

29. TILA | RESPA
• uses plain language comprehensible
to consumers
• succinctly explain information that
must be communicated to consumers
• contains a clear format | design

31. President Barack Obama holds up a
proposed mortgage application form as
he speaks at the James Lee
Community Center in Falls
Church, Va., Wednesday, Feb.
1, 2012. (Credit: AP Photo/Cliff Owen)
http://www.consumerfinance.gov/knowbeforeyouowe/

32. SEC: Form ADV, Part II
“In its current form … the format
frequently does not correspond well to
an adviser’s business…the required
disclosure may not describe the
adviser’s business or conflicts in a
way that is truly accessible to the
investor.”
New requirements
Use narratives | Improve format
Expand content | Ensure easy access
Use plain English

34. SEC new CD&A disclosures rules for 2010
• increase transparency of company
compensation | governance
• disclose compensation and
governance that contribute to risk
• include comp information for
employees if risks effect company
• disclose information to evaluate
potential for conflict of interest for
compensation consultants

35. Before and after

36. SEC fact sheet on DOL fee disclosure
The proposal would require the fund to
• identify | more clearly disclose
distribution fees
• disclose “ongoing sales charges” |
“marketing and service fees”
• describe total sales charge rate an
investor has to pay

37. DOL: 401(k) Fees: Before

38. DOL: 401(k) Fees: After

39. Plain Writing Act of 2010
Any document necessary to get
federal benefits or services or
filing taxes
• explains how to comply
• letters | publications | forms |
notices| instructions
• does not include regulations

40. The Plain Writing Act of 2010

41. Accountability | Enforcement
“Between the thought and the
action there falls a shadow.”
T.S. Eliot