From: Bobby Taylor [mailto:bobbyt@rivoli-mortgage.com]
Sent: Tuesday, April 06, 2004 10:41 AM
To: regs.comments@federalreserve.gov; Comments; regs.comments@occ.treas.gov;
regs.comments@ots.treas.gov
Subject: EGRPRA
Dear Sir or Madam:
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 form 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 If not outright repealed, depository institutions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 date 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 arrears, 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 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 property – 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 complete
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.
Bobby Taylor
EVP
Rivoli Mortgage
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