From:
Kimberly Carter [mailto:kcarter@thebankofelkriver.com]
Sent: Monday, April 19, 2004 12:07 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Kimberly Carter
630 Main Street
Elk River, MN 55330
April 19, 2004
Dear FDIC:
As a community banker, I appreciate 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 is 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 burdensome requirement 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 If not outright repealed,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. 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.
Errors and Restitution.
More latitude needs to be given examiners
regarding errors inadvertently made in calculating the finance charge and
APR. It is an expense to the Bank and reflects on the Bank’s reputation
to require restitution to the consumer in situations where the fee is
itemized and disclosed, but inadvertently left out of the total finance
charge. This type of error has no apparent harm or effect on the consumer
as they were aware of the fee and it was disclosed to them. The average
consumer does not care about the total finance charge or APR. Their
concern is whether they get the loan, what the interest rate is, and what
the payment amount is. We (bankers) all know the APR is for comparison
purposes, the consumers rarely, if ever, do.
Advertisement
rules. It would be helpful if the regulators would equally
enforce the Reg Z advertisement rules. Community banks that try to
maintain strict compliance with the rules are at a disadvantage when
mega-bank’s advertisements are not compliant with Reg Z, especially when
they are located in close proximity. It would be great if other lenders
(such as car dealerships) also had some consequences for not complying
with Reg Z advertisement rules.
Equal Credit
Opportunity Act (Federal Reserve Regulation B)
Adverse Action
Notices. The requirement to inform joint applicants of the
reasons for denial put the Bank in a very difficult position with regards
to customer confidentiality. Example: A father and son apply jointly for
a car loan for the son. The father has poor credit and the loan is
denied. The new interpretation states that we need to send an adverse
action notice to the son stating the loan is denied due to his father’s
poor credit history. No longer is the statement that the co-applicant
doesn’t meet our credit standards compliant. This puts the Bank in the
middle of a bad situation.
Home Mortgage
Disclosure Act (HMDA) (Federal Reserve Regulation C)
Exemptions. The
current exemption for banks with less than $33 million in
assets is far too low and should be increased to at least $500 million.
As a Bank on the fringe of an MSA; asset size under $275 million; in a
moderate income; extremely low minority area; we find the collection
especially burdensome as there appears to be no significant value to the
information.
Volume of Data.
The volume of the data that must be collected and
reported is clearly burdensome. At a time when regulators are reviewing
regulatory burden, the burden associated with HMDA data collection has
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.
Rate Spread.
The requirement to report rate spread should include a
category for manufactured homes. The spread calculation to report a first
or second mortgage secured by a manufactured or mobile home, should not be
the same as a first mortgage secured by real property. Manufactured homes
typically have similar rates as autos when real property is not securing
the loan, therefore we are not comparing like products.
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. 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 mega-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,
Kimberly Carter, AVP/Compliance Officer
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