From: John Heller [mailto:jheller@bankdenison.com]
Sent: Tuesday, April 06, 2004 3:39 PM
To: Comments
Subject: SPAM::EGRPRA Comments
John Heller
1108 Broadway
Denison, Iowa 51442
April 6, 2004
Dear FDIC:
I am writing on behalf of Bank Iowa, a state-chartered bank located
in
Denison, Iowa. Our customer base is primarily agricultural with moderate
income with lending activities focused in the areas commercial, consumer
and real estate lending. Our current asset size is $100 million with
a
total consumer and residential real estate loan portfolio of $35
million.
We appreciate the efforts of the Office of Comptroller of the Currency,
Federal Reserve Board, Federal Deposit Insurance Corporation and Office of
Thrift Supervision, “the Agencies”, in reviewing the current consumer
regulations to identify outdated, unnecessary, or unduly burdensome
regulatory requirements pursuant to the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 (EGRPRA). We also appreciate the
Agencies’ recognition and understanding of the challenges faced by
community banks in meeting the requirements of the ever-growing number of
compliance regulations.
I would like to offer the following comments regarding the current
regulatory rules and environment:
Equal Credit Opportunity Act (Reg. B)
The spirit and intent of Reg. B is to prohibit discrimination based
upon
one of the nine prohibited basis. The current requirements under
Reg. B
are far broader and create numerous challenges for creditors.
The recent revisions to Reg. B which prohibit lenders from assuming
the
submission of a joint financial statement constitutes a request for
joint
credit and now requires whenever more than one individual applies
for
credit, those applicants sign a separate statement of intent to apply
for
joint credit creates additional documentation for creditors and is
often
very difficult to manage, particularly in commercial and agricultural
transactions involving two or more borrower who are operating the
business
jointly but have not legally organized; for example a husband and
wife or
father and son operating a farm together. Many of these borrowers
consider themselves a “partnership” although they are
not legally
organized as such. Rather than evidencing intent for each application,
creditors should be given the latitude to evidence intent for a specific
purpose, such as 2004 agricultural operating expenses. Many times
business borrowers have unanticipated credit needs and time is of
the
essence in filling those needs. If a creditor determines the borrowers
are creditworthy and the purpose of the loan meets the intent statement
previously affirmed, it seems redundant and burdensome for both the
applicant and creditor to obtain an additional statement of intent
for
each application/loan for that intended purpose.
The revisions to the model credit applications in order to comply
with the
requirements to evidence intent to apply for joint credit are
appreciated.. In early September the FRB published revisions in the
Federal Register relating to Fannie Mae’s Uniform Residential
Loan
Application. At that time we assumed that the changes made to the
URLA
were done to facilitate by the Reg B revisions as well as CIP mandates
to
collect date of birth and Reg. C changes for collection of government
monitoring information. Now the indication we are receiving from
federal
regulators is that the revised URLA does not meet the requirements
for
evidencing joint applications for credit and that creditors must
have
residential real estate applicants sign a separate statement. This
seems
redundant given the number of disclosures and authorizations a home
loan
applicant all ready signs at the time of application.
Truth-in-Lending Act (Reg. Z)
The purpose behind the Truth-in-Lending Act, to provide consumers
with
disclosures regarding the total cost and terms of their credit extension,
is necessary. However the current approach and disclosure requirements
often leave consumers more confused than informed.
Most consumers want to know three things: (1) their interest rate;
(2)
their monthly payment; and (3) the total closing cost amount. The
most
common comment/question that occurs after sending out an early TIL
to a
consumer is “I thought your said my interest rate was x%; this
disclosure
states the APR is y%.” The annual percentage rate does not
fulfill its
intended educational purpose – it confuses both consumers and
loan
officers alike. Provide consumers with the information they need
to know
to make an informed decision: the interest rate, the loan term, the
monthly payment and total of all payments. Once consumers have this
information along with the closing cost information provided on the
GFE,
let’s give them the benefit of the doubt that they can figure
out which
loan product best fits their financial needs.
The recent revisions to Section 32 of Reg. Z have been more problematic
than helpful to consumers and have also caused confusion among creditors.
If a loan falls into coverage of a “high cost mortgage loan” as
defined by
this section, the consumer must be provided a 3-day notice prior
to
consummation. Consummation, however is not defined in Reg. Z and
often is
not defined by state law either. Is consummation considered the point
at
which the borrower signs the note? Or in a rescindable transaction,
is it
the point at which the transaction is funded? Can a borrower be
considered legally obligated on a transaction when they do not have
receipt of the funds? Consummation needs be clarified under this
section
to ensure compliance.
Section 32 mortgages are generally rescindable transactions. If
the
Section 32 disclosure is to be provided three days prior to signing
the
note, then the borrower at best has a time period of seven days from
application to closing. The extended waiting period often time has
adverse effects on the borrower for the time period they cannot access
their loan proceeds such as overdraft fees, loss of purchase
opportunities, etc. If the Section 32 three-day time frame ran concurrent
with the rescission 3-day timeframe, the consumer is still afforded
a
“
cooling off” period and would still have the opportunity to
change their
mind and rescind the transaction.
Currently the three-day time frames for the Section 32 is not counted
in
the same manner as the rescission three-day time frame. The Section
32
three-day time frame expires on the third business day, whereas the
rescission time frame expires on midnight following the third business
day. The inconsistency is confusing for both consumers and creditors.
If a loan is determined to be a high-cost loan under Section 32
of Reg. Z,
the creditor has to provide the borrower with an additional disclosure
which warns the borrower they could lose their home if they default
on the
loan and also provides additional information including the loan
amount,
the APR, the monthly payment amount, the fact the rate may go up
following
closing (if applicable), and whether a balloon payment will occur.
These
disclosures are also provided in the final Truth-in-Lending statement
provided at closing, the note itself and many times as mortgage clauses
as
well. Simply put, the disclosure is duplicative.
Also, in regard to HOEPA loans, the explanation for the calculation
for
“
total loan amount” is not clear. Could there not be a simpler
definition
or amount used for this calculation?
Many of today’s
consumers are quite savvy and seek out home equity loans
and lines of credit as a tax reduction tool. They fully understand
that a
security interest that is being taken in their personal residences
but
prefer the product due to the tax deductibility of the interest paid
and
preferable rates and terms often associated with it. These consumers
consider the three-day waiting period a nuisance, not a consumer
protection device, and would much prefer to waive their right rather
than
wait three days for their funds. Given that the rescission rules
were
intended to protect consumers from unscrupulous financers, the greater
majority of which are unregulated, would it not make sense to allow
consumers borrowing from a federally-regulated financial institution
have
the ability to waive their right to rescission in instances other
than a
personal bona fide emergency?
Once again, thank you for the opportunity to comment on these very
important issues. I appreciate your serious consideration of my concerns
over the above-mentioned regulatory burdens currently facing America's
community banks.
Sincerely,
John P. Heller, Vice President
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