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From: Michael Bresnahan
[mailto:mbresnahan@ssbhibbing.com]
Sent: Monday, April 05, 2004 11:36 AM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Michael Bresnahan
701 East Howard Street
Hibbing, MN 55746
April 5, 2004
Dear FDIC:
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not outright repealed, depository institutions should at least be given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 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,
Michael W. Bresnahan
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