Citizens Bank
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance
Corporation
550 17th Street, NW
Washington, DC 20429
Attention: EGRPRA Burden Reduction Comments
Dear Mr. Feldman:
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 too late.
This is especially true for consumer protection lending rules,
which though well intentioned, uunecessarily 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.
The following outlines some of the problems created by regulatory
rules:
Truth in Lending (Federal Reserve Regulation Z)
1. 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 If not outright repealed, depository institutions should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.
2. 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.
3. Credit Card Loans. Resolution of billing-errors within the given
and limited time frames 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 Signatures. Another problem is the issue of spousal signatures.
The requirements make it very difficult for banks located in community
property states. Especially when state community property laws do
not clearly define signature requirements. This leaves the banker
facing a compliance issue clashing with a safety and soundness issue
and wondering, when a default situation arises, will the bank be
able to enforce collection actions.
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)
1. 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.
2. Volume of Data. The volume of 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.
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.
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,
Jeff A. Nunn
President
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