From:
Mark Blazek [mailto:oakcreek@inebraska.com]
Sent: Tuesday, April 20, 2004 1:06 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Mark Blazek
PO Box 8
Valparaiso, NE 68065
April 20, 2004
Dear FDIC:
As a community
banker, I welcome regulators' effort on the critical
problem of regulatory burden. Community bankers work hard to establish
the trust and confidence with our customers that are fundamental to
customer service, but consumer protection rules frequently interfere with
our ability to serve our customers. It certainly increases the cost and
is frustrating to watch customers throw away or simply refuse to read the
flood of papers they must sign to comply with the hefty regulatory burden.
The community banking industry is being crushed under the cumulative
weight of regulatory burden, something that must be addressed by Congress
and the regulatory agencies before it is too late. This is especially
true for consumer protection lending rules, which though well intentioned,
unnecessarily increase costs for consumers and prevent banks from serving
customers. I FIRMLY BELIEVE THAT VIRTUALLY NO CONSUMER WOULD SUPPORT THE
CURRENT EXTENT AND LEVEL OF REGULATION IF THEY UNDERSTOOD THE "TRUE" COST
ASSOCIATED WITH COMPLIANCE. While each individual requirement may not be
burdensome itself, the cumulative impact of consumer lending rules, by
driving up costs and slowing processing time for loans from legitimate
lenders, helps create a fertile ground for predatory lenders. It's time
to acknowledge that consumer protection regulations are not only a burden
to banks but are also a problem for consumers.
Truth in Lending
(Federal Reserve Regulation Z)
Right of Rescission.
One of the most burdensome requirements is the
three-day right of rescission under Regulation Z. Rarely, if ever, does a
consumer exercise the right. Consumers resent having to wait three
additional days to receive loan proceeds after the loan is closed, and
they often blame the bank for "withholding" their funds. Even though
this
is a statutory requirement, inflexibility in the regulation making it
difficult to waive the right of rescission aggravates the problem. If not
outright repealed, depository institutions should at least be given much
greater latitude to allow customers to waive the right. It never makes
sense to require right of rescission when it is the Customer who came to
the bank to apply and not the bank or "lender" going to the customer
to
solicit the loan.
Finance Charges.
Another problem under Regulation Z is the definition of
the finance charge. Assessing what must be included in - or excluded from
- the finance charge is not easily determined, especially fees and charges
levied by third parties. And yet, the calculation of the finance charge
is critical in properly calculating the annual percentage rate (APR).
This process desperately needs simplification so that all consumers can
understand the APR and bankers can easily calculate it.
Equal Credit
Opportunity Act (Federal Reserve Regulation B)
Regulation B
creates a number of compliance problems and burdens for
banks. Knowing when an application has taken place, for instance, is
often difficult because the line between an inquiry and an application is
not clearly defined.
Spousal Signature.
No customer understands the need to sign a seperate
document indicating their intent to apply for joint credit, when the
reason they are in the bank is to apply for credit. Signing a note should
certainly, in and of itself, constitute a clear intention to apply for
credit. Honest lenders (and customers) are forced to suffer through the
wasted time, expense and effort of signing a second document, while
Lenders who inappropriately require "spouses" to sign a note they
did not
intend to apply for, will now simply require those same spouses to sign
the note along with the redundant, burdensome second document indicating
they are applying for joint credit. The requirements make it difficult
and almost require all parties - and their spouses - come into the bank
personally to complete documents. This makes little sense as the world
moves toward new technologies that do not require physical presence to
apply for a loan. Under the logic of the Current Reg. B, wouldn't it make
sense to require a third document which says "I really, really intend
to
apply for joint credit"?
Adverse Action
Notices. Another problem is the adverse action notice. It
would be preferable if banks could work with customers and offer them
alternative loan products if they do not qualify for the type of loan for
which they originally applied. However, that may then trigger
requirements to supply adverse action notices. A straightforward rule on
when an adverse action notice must be sent - that can easily be understood
- should be developed.
Home Mortgage
Disclosure Act (HMDA) (Federal Reserve Regulation C)
As a small rural
bank in the Midwest (42 Million)I have been overwhelmed
at the time spent attempting to comply with this regulation for the
limited number of loans which apply. Furthermore, the MAJORITY of loans
we are forced to include (literally more than half) are refinance loans
for Commercial and/or Agricultural operating which have as primary
collateral a Farm or Business Financing Statement and Security Agreement
which simply references Real Estate as an abundance of caution and not as
the primary collateral and for no purpose related to the residential real
estate. THE INCLUSION OF THESE LINES CAN DO NOTHING BUT SKEW THE DATA
BEING COLLECTED. To be forced to spend the time, effort and expense to
comply, knowing that the only impact you have, if any (based on our small
size and limited loans), is to distort and skew whatever legitimate data
is trying to be obtained is frustrating to say the least.
Exemptions. The
HMDA requirements are the one area subject to the current
comment period that does not provide specific protections for individual
consumers. HMDA is primarily a data-collection and reporting requirement
and therefore lends itself much more to a tiered regulatory requirement.
The current exemption for banks with less than $33 million in assets is
far too low and should be increased to at least $100 million.
Volume of Data.
The volume of the data that must be collected and
reported is clearly burdensome. Ironically, at a time when regulators are
reviewing burden, the burden associated with HMDA data collection was only
recently increased substantially. All consumers ultimately pay for the
data collection and reporting in higher costs, and regulators should
recognize that.
Certain data
collection requirements are difficult to apply in practice
and therefore add to regulatory burden and the potential for error, e.g.,
assessing loans against HOEPA (the Home Owners Equity Protection Act) and
reporting rate spreads; determining the date the interest rate on a loan
was set; determining physical property address or census tract information
in rural areas, etc.
Privacy:
There is current
discussion about standarizing Bank Privacy Notices.
There is nothing standard about the difference between a 40 million dollar
one bank holding company and a multi-billion dollar conglomerate that
shares information with more affilates, subsidiaries and business partners
than there are days in the month. Yet the privacy notice of these two
already looks virtually the same and is indistinquishable to the average
consumer. That consumer gets no benefit by receiving dozens of these
notices in the mail. These notices provide no useful information to the
average consumer and can not possibly meet any reasonable cost-benefit
analysis and should be eliminated or at least be limited to something far
less than an annual requirement.
Additional Comments
It would be much
easier for banks, especially community banks that have
limited resources, to comply with regulatory requirements if requirements
were based on products and all rules that apply to a specific product were
consolidated in one place. Second, regulators require banks to provide
customers with understandable disclosures and yet do not hold themselves
to the same standard in drafting regulations that can be easily understood
by bankers. Finally, examiner training needs to be improved to ensure
that regulatory requirements are properly - and uniformly - applied.
Conclusion
The volume of
regulatory requirements facing the banking industry today
presents a daunting task for any institution, but severely saps the
resources of community banks. We need help immediately with this burden
before it is too late. Community bankers are in close proximity to their
customers, understand the special circumstances of the local community and
provide a more responsive level of service than megabanks. However,
community banks cannot continue to compete effectively and serve their
customers and communities without some relief from the crushing burden of
regulation. Thank you for the opportunity to comment on this critical
issue.
Sincerely,
Mark Blazek
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