From: Cynthia Ledford [mailto:cledford@plantersfirst.com]
Sent: Tuesday, April 20, 2004 9:49 AM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Cynthia Ledford
1620 16th Ave.
Cordele, Ga. 31015
April 20, 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outright repealed, depository institutions should at least be given much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.
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.
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
Privacy Act:
Community banks have not historically shared customer information with
third parties, other than what is needed in the course of doing business.
However, they must send the annual notice regardless. This is an expensive
and burdensome task on the banks,as well as, confusing for the customers,
who still do not understand fully why this annual notice is
needed,especially if their bank does not share information and opting out
is not required by them. An initial notice to the customer should be
sufficient for banks that do not share information rather than sending a
mass mailing each year, which says the same thing time after time. The
only time the mass mailing of the notice would be required would be if the
bank changes its policy or procedures.
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,
Cynthia P. Ledford
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