April 19, 2004
Robert E. Feldman, Exec Secretary
Federal Deposit Insurance Corporation
550 17th St. NW
Washington, DC 20429
Attention: EGRPRA Burden Reduction
Re: EGRPRA Review of Consumer Protection Lending Related Rules
Dear Sir or Madam:
As a 48 year community banker, I welcome the regulators' effort on the problem
of regulatory burden. Community bankers work hard to establish the trust and
confidence with our customers that are fundamental to customer service, but certain
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 (burden) for consumers. Let’s go back to two pages to sign
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 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If not outright repealed, depository institutions should at least be given much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 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.
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 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.
Conclusion
The volume of regulatory requirements facing the banking industry today presents
more work but severely saps the resources of community banks. We need help.
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.
I used to love to go to work, making loans, getting new accounts, being involved
in the community but the regulatory burden is too much. I’m not having
fun anymore. Every weekend I take a full briefcase home to read. I’m
not ready to retire but…
Thank you for reading this.
Regards,
Michaux Nash,
Jr.
Chairman, CEO & President
|
