Cross County Federal Savings
Bank
From: Doug Augresani
Sent: Thursday, August 05, 2004 9:48 AM
To: regs.comments@federalreserve.gov; Comments; regs.comments@occ.treas.gov;
regs.comments@ots.treas.gov
Subject: EGRPRA
Douglas Augresani
79-21 Metropolitan Avenue
Middle Village, New York 11379
April 19, 2004
Dear OTS:
As a community banker, I greatly welcome the 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. The community banking industry is slowly 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. 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 If not outright repealed,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. 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. Credit Card Loans.
Resolution of billing-errors within the given and limited timeframes for
credit card disputes is not always practical. The rules for resolving billing-errors
are heavily weighted in favor of the consumer, making banks increasingly
subject to fraud as individuals learn how to game the system, even going
so far as to do so to avoid legitimate bills at the expense of the bank.
There should be increased penalties for frivolous claims and more responsibility
expected of consumers.
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. Another problem is the issue of spousal signatures. 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. 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. For example,
it may be difficult to decide whether an application is truly incomplete
or whether it can be considered "withdrawn." A straightforward
rule on when an adverse action notice must be sent - that can easily be understood
- should be developed. Other Issues. Regulation B's requirements also complicate
other instances of customer relations. For example, to offer special accounts
for seniors, a bank is limited by restrictions in the regulation. And, most
important, reconciling the regulation's requirements not to maintain information
on the gender or race of a borrower and the need to maintain sufficient information
to identify a customer under section 326 of the USA PATRIOT Act is difficult
and needs better regulatory guidance.
Home Mortgage Disclosure Act (HMDA) (Federal Reserve Regulation
C)
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 $250 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. Consumer activists are constantly
clamoring for additional data and the recent changes to the requirements
acceded to their demands without a clear cost-benefit analysis. 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.
Flood Insurance
The current flood insurance regulations create difficulties with
customers, who often do not understand why flood insurance is required and
that the federal government - not the bank - imposes the requirement. The
government needs to do a better job of educating consumers to the reasons
and requirements of flood hazard insurance. Flood insurance requirements
should be streamlined and simplified to be understandable.
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 there
customers, understand the special circumstances of the local community and
provide a more responsive level of service than mega banks. However,
community banks cannot continue to compete effectively and serve there
customers and communities without some relief from the crushing burden of
regulation. Thank you for the opportunity to comment on this critical
issue.
Sincerely,
Douglas Augresani
Cross County Federal Savings Bank
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