From:
Shane Best [mailto:zbest@texasbankandtrust.com]
Sent: Tuesday, April 20, 2004 10:21 AM
To: Comments
Subject: Commentary on Lending Related Rules
Shane Best
P.O. Box 3188
Longview, TX 75606
April 20, 2004
Dear FDIC:
I am pleased
banking regulators are examining the critical problem of
regulatory burden. Consumers would be shocked to know how much time and
cost is involved in regulatory compliance, since this hidden cost is
ultimately borne by us all. Consumer protection lending rules,though well
intentioned, unnecessarily increase costs for consumers and hinder banks
in serving customers. While each individual requirement may not be
burdensome by itself, the cumulative impact of consumer lending rules
slows loan processing time and leads to "tune out" by the overwhelming
majority of consumers. Rather than welcoming the protection, such
consumers feel harassed and resent the cost and time involved. In some
cases, such as with credit card rules and the Fair Credit Reporting Act,
consumers use the regulations to take advantage of lenders. Following are
comments on specific consumer protection regulations that are not only a
burden to banks but are also a problem for consumers.
RESPA - required
Notice to First Lien Mortgage Loan Applicants regarding
servicing:
Very few community
bank customers take the time to even read this notice.
If the notice is necessary, a much less verbose version would be more
meaningful and effetive.
Community Reinvestment
Act (CRA):
CRA Regulations
need to be greatly simplified and banks need flexibility
in demonstrating their service to and reinvestment in the communities from
which they draw deposits, rather than being subjected to inflexible and
arbitrary standards. Streamlining of this process and an increase in the
cutoff level for the Large Bank exam to banks with assets of at least $1
billion is merited because of the cost to smaller institutions who are in
touch with and are reinvesting their funds in the communities they serve.
Truth in Lending
(Federal Reserve Regulation Z):
Right of Rescission.
One onerous requirement is the three-day right of
rescission under Regulation Z. Very rarely 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 criticize the bank
for this procedure. Even though this is a statutory requirement,
inflexibility in the regulation making it difficult to waive the right of
rescission aggravates the problem. Depository institutions should be
given much greater latitude to allow customers to waive the right of
recission.
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 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):
The most significant
issue with Regulation B is the conflict between this
regulation's requirements not to maintain information on the gender or
race of a borrower and the need to maintain sufficent information to
identify a customer under section 326 of the USA PATRIOT Act.
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
too low and should be increased to at least $1 billion.
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. Rate spreads are not a consistent indicator of
predatory pricing practices, due to shifts in the yield curve that are
created by market forces and governmental policies designed to
artificially lower short term rates.
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
cost and time associated with flood map amendment is burdensome and
frustrating to consumers. Because of potential liability, lenders are
forced to use determination services and the flood determination services
have an incentive to err on the more costly side in performing a very
inexact service.
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 impact of
overlapping and unnecessarily lengthy and cumbersome
regulations and disclosure requirements create tremendous inefficiency in
the administration of consumer lending regulation. The "tune out" effect
on customers means many of the regulatory objectives are not effectively
accomplished and customers would be astounded at the cost we all bear
because of these inefficiencies. 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. 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,
Shane A. Best
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