The
Savings Bank
April 19, 2004
Robert E. Feldman,
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Website: www.fdic.gov
e-mail: comments@fdic.gov
Re: EGRPRA Review of Consumer Protection Lending Related Rules
Dear Sir or Madam:
Thank you for the opportunity to comment on the EGRPRA Review of Consumer Protection
Lending Related Rules. The Savings Bank is small community bank in Massachusetts
with assets of $400 million.
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If not outright repealed, depository institutions should at least be given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. Moreover, 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 their customers, understand the special circumstances
of the local community and provide a more responsive level of service than
large banks. 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,
Kathy Conary
Compliance Officer
The Savings Bank
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