From: Francis
Myhre [mailto:bankesb@acegroup.cc]
Sent: Monday, April 19, 2004 10:29 AM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Francis Myhre
108 Iowa Ave.
Eitzen, MN 55931
April 19, 2004
Dear FDIC:
We as a community
bankers 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 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.
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.
Along with the
increased data requirements, we now have reportable
situations that really do not apply to the purpose of HMDA reporting.
Example: a Commercial loan for $750,000 secured by real property with a
$35,000 dwelling is a reportable loan. This situation does not help with
HMDA data when it is reported as a $750,000 loan. Situations with HMDA
should only relate to Consumer Lending, which is the purpose of the
regulation.
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.
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.
In situations
where there is no formal application taken it is difficult
to have documented proof of joint application. now we need to add another
document to our already increasing list of forms to have signed by
customers. If a customer is already signing security agreements and notes
by their own free will, this should meet the requirements that they are
appling for loans together.
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.
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.
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 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,
Francis S. Myhre
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