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FDIC Federal Register Citations

STATE BANK OF LAWLER

From: Roger M. Hansen [mailto:roger@lawlerbk.com]
Sent: Friday, April 02, 2004 5:34 PM
To: Comments
Subject: EGRPRA Comments

Roger M. Hansen
2320 South LInn Ave
New Hampton, IA 50659

April 2, 2004

Dear FDIC:

I am writing on behalf of State Bank of Lawler, a state-chartered bank located in New Hampton, Iowa. Our customer base is primarily (give brief description such as agricultural, suburban, moderate income, upper income, etc.) with lending activities (focused in the area of *****) (are broad based and include commercial, consumer and real estate lending.) Our current asset size is $151 Million with a total consumer and residential real estate loan portfolio of $17 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Corporation and Office of Thrift Supervision, “the Agencies”, in reviewing the current consumer regulations to identify outdated, unnecessary, or unduly burdensome regulatory requirements pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).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.

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 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 new definition of “refinance” which removes the purpose test will undoubtedly result in the added reporting of many loans whose purpose has nothing to do with home purchase or home improvement. Commercial and agricultural loans will now be reportable at that time they are refinanced and retain a security interest in a dwelling. Another example would be a farm loan, which is exempt from HMDA reporting when the farm is being purchased, becomes reportable if the farmland (which contains a dwelling) is refinanced. Obviously, business purpose loans are priced very differently from residential real estate loans. In all likelihood, the data collected on these loans will not be useful to the Agencies during a fair lending review, thus all of the banks efforts to collect and report the data are wasted – a true burden! This is also burdensome for regulators, as they will have to “sort” through the data submitted on the LAR and loan files to determine loan purpose and explain LAR variances.

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.

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.

National Flood Insurance RulesUnder the Flood insurance rules, when borrowers are using a property located in a special flood hazard area as security on a loan, lenders must provide notice to the borrowers within a “reasonable period of time” prior to closing, advising the borrowers that the property is in a flood plain and flood insurance under the NFIP is required prior to closing the loan. While “reasonable period of time” is not expressly defined, the NFIP guidelines and Agency examiners have interpreted ten days as a “reasonable period” of time. The timeframe is established to protect the customer from losing their loan commitment while they shop for adequate, affordable insurance coverage. The “reasonable period” of time was not however, intended to delay closing if the borrowers have purchased adequate coverage. Currently, there are examiners in the field instructing banks to wait a minimum of five to ten days from the time notice is provided to the borrower until closing even if the borrower has insurance coverage in place before the time period has expired. Clarification is needed in this area for both creditors and examiners.

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,

Roger M. Hansen
State Bank of Lawler
New Hampton, IA

Last Updated 04/09/2004 regs@fdic.gov

Last Updated: August 4, 2024