FINANCIAL SERVICES ROUNDTABLE
April 20, 2004
Public Information
Room
Office of the Comptroller of the Currency
250 E St., S.W.
Mailstop 1-5
Washington, DC 20219
Re: Docket No.
04-05
Ms. Jennifer
J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Re: Docket No.
R-1180
Mr. Robert W.
Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 Seventeenth St., N.W.
Washington, DC 20429
Re: EGRPRA Burden
Reduction Comment
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, DC 20552
Re: Request
for Burden Reduction Recommendations; Consumer Protection: Lending-
Related Rules; Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (“EGRPRA”)
Dear Sirs and Madams:
The Financial
Services Roundtable1 (the “Roundtable”)
appreciates the opportunity to comment to the Board of Governors
of the Federal Reserve System (the “Board”), the Federal
Deposit Insurance Corporation (“FDIC”), the Office
of the Comptroller of the Currency (“OCC”), and the
Office of Thrift Supervision (“OTS”) (collectively, “the
agencies”) on the regulations to reduce burden imposed on
insured depository institutions, as required by section 2222 of
the Economic Growth and Regulatory Paperwork Reduction Act of 1996
(Pub. L. 104-208, Sept. 30, 1996) (“EGRPRA”).
The proposed
rule is part of the agencies’ ongoing effort under EGRPRA
to reduce regulatory burden. The proposal requests comments on
whether or not certain consumer protection/lending-related rules
are outdated, unnecessary or unduly burdensome.
The Roundtable
applauds the agencies’ efforts to reduce the regulatory “red
tape” that has become an overwhelming burden for financial
institutions. While we agree that consumer protection is vital,
we believe the current rules have increased costs unnecessarily
and restricted lending to consumers. We believe that action is
necessary to alleviate these burdens. The Roundtable offers the
following recommendations in connection with the consumer protection
rules listed in this proposal.
Home Mortgage Disclosure Act (“HMDA”) (Federal Reserve Regulation
C)
HMDA is primarily a data-collection and reporting regulation requirement and
does not provide direct protections for consumers. The Roundtable believes
there are several areas in which this regulation can be improved.
The Roundtable agrees that the public disclosure of mortgage lending data can
reduce discriminatory lending practices. At the same time, we believe that
the burden of the HMDA data collection requirements should be balanced against
potential benefits. We believe that some of the data collected under HMDA is
excessive, redundant, and not useful. It is also difficult to apply the HMDA
rules and understand what information must be collected. This process requires
significant personnel and systems to maintain and update this information.
Ultimately, it is the consumer who pays the price for this data collection.
Not only are there additional costs, but there is also an additional opportunity
for errors to occur. As a threshold matter, we believe that one way to reduce
the burden on smaller institutions would be to increase the current exemption
for banks with less than $33 million in assets to those with assets of $250
million. This would assist the institutions that do not have the resources
to meet these requirements.
The data being collected under HMDA raises questions about the fairness of
the lending process in those companies reporting HMDA data. The recent HMDA
amendments, effective January 1, 2004 include data on ethnicity, data collected
in non face-to-face transactions, and pricing data both as it relates to Home
Owner Equal Protection Act (“HOEPA”) and to rate spread between
the Annual Percentage Rate (“APR”) and a comparable Treasury rate.
The Board has stated that this data will prove useful in identifying instances
in which the industry is not operating consistent with the Fair Lending Act,
Equal Credit Opportunity Act, and the Community Reinvestment Act. We disagree
and feel that this does not present the entire picture of the lending process.
The Roundtable believes that the Board has overestimated the usefulness of
the additional data it will receive. HMDA data already has proven to be of
limited value in fair lending and anti-discrimination cases. Several of the
proposed changes will make the data less valuable. The Roundtable urges the
agencies to re-evaluate the HMDA requirements and what data must be collected
in order to achieve the goal of fair lending without creating additional burdens
on the industry.
Equal Credit
Opportunity Act (Federal Reserve Regulation B)
The Board recently conducted a lengthy review of Regulation B. The final rule
amending Regulation B was effective April 15, 2003 and, to allow time for operational
changes, the mandatory compliance date was April 15, 2004. The adopted final
rule addressed the collection of applicants' personal characteristics in connection
with nonmortgage credit and record retention for prescreened solicitations.
Since the compliance date just occurred, additional time may be necessary to
analyze and comment on the rule’s impact on business practices. We encourage
the agencies to re-solicit comments on Regulation B later in the regulatory
burden reduction process. In the meantime, we request that the agencies provide
more guidance on the following issues.
Adverse Action Notices
There is significant confusion on when an adverse action notice is required.
Often, the consumer withdraws an application or receives alternative terms
on a loan. Under these circumstances, there is uncertainty as to whether a
notice must be given to the consumer.
For example, we believe there are inconsistencies between Equal Credit Opportunity
Act (“ECOA”) and the Home Mortgage Disclosure Act (“HMDA”).
A conditional approval is an approval under HMDA guidelines. Conditional approvals
are communicated to the customer via a commitment letter. However, if the customer
does not meet the underwriting conditions, the bank must report the application
as a denial. ECOA does not have an option similar to HMDA for conditional approvals.
ECOA allows only for an approval or denial under Section 202.9(a). Therefore,
there is a question as to whether or not the commitment letter satisfies the
notification requirements under ECOA and is interpreted as an approval. If
the commitment letter satisfies the notification requirements under ECOA, and
the customer subsequently does not meet the conditions and is sent an adverse
action notice, then there would be an ECOA approval along with a HMDA denial.
This would confuse the customer. A suggested remedy would be to include a paragraph
in ECOA that addresses conditional approvals or to specifically state that
it is an approval under ECOA and the customer should be notified accordingly.
The Roundtable
recommends that the agencies provide additional guidance on when
an adverse action notice should be sent. We recommend that the
agencies further define when an application has been completed,
when it may be withdrawn, and what reasons may be offered for denying
an application. By clarifying these issues, the agencies will reduce
the guess work and the costs for financial institutions who must
determine whether a notice is required. These recommendations would
also make the adverse action notice more meaningful to the consumer.
USA Patriot Act Issues
We recommend that the agencies clarify the discrepancies that exist between
the requirement to maintain sufficient information to identify a customer under
section 326 of the USA PATRIOT Act and the Regulation B prohibition on maintaining
information on the gender or race of a borrower. These rules need to be reconciled
in order to ensure compliance with both provisions.
Truth in Lending (Federal Reserve Regulation Z)
Three-Day Right of Rescission
The Roundtable recommends that the agencies remove or amend the three-day right
of rescission under Regulation Z. Under this rule, consumers must wait three
days to receive loan proceeds after the loan is closed. In practice, this right
is seldom exercised. This waiting period is often frustrating for the customer
since the statute does not provide the customer the ability to waive the right
of rescission. We believe that this rule should be eliminated, or at the very
least, customers should be allowed to waive this right and receive their proceeds
immediately.
Finance Charge Definition
Roundtable member companies request that the agencies create a specific definition
of finance charge. Understanding what is included or excluded from the finance
charge, especially fees charged by third parties would assist institutions
in calculating the annual percentage rate (“APR”). It would also
provide the consumer with a better understanding of how the APR was determined.
Resolving billing errors
We believe that resolving billing-errors within the limited timeframes for
credit card disputes is not always practical. Most disputes cannot be resolved
within this time frame, despite the institution’s best efforts, resulting
in excessive provisional credits and significant losses to financial institutions.
In addition, there has been an increased failure to pay legitimate charges
by consumers who have recognized the protective nature of these provisions.
The Roundtable recommends increased penalties for frivolous claims and more
responsibility expected of consumers. We also recommend that the institutions
be given additional time to adequately investigate errors.
Unsolicited issuance of credit cards
The Roundtable
recommends that the Board permit, within reasonable limits, the
unsolicited issuance of additional credit cards on an existing
account outside of renewal or substitution. Allowing issuers to
send unsolicited cards to existing customers would reduce issuers’ costs
by eliminating the need to produce and distribute unnecessary replacement
cards. It also allows issuers to provide additional products and
services to consumers.
We believe that
issuers have the ability to send additional cards or other access
devices to consumers without compromising security. Technological
advances have improved an issuer's ability to protect consumers
from fraud. We would recommend additional security measures, such
as providing at least seven day's notice by mail and requiring
consumer initiated card activation to ensure the consumer is protected.
Flood Insurance
The Roundtable recommends that the agencies provide more guidelines on flood
insurance. In particular, we believe consumers should be provided easier access
to flood zone information and the ability to determine if the information is
current. Flood insurance requirements should be streamlined allowing the consumer
to easily identify the appropriate amount of coverage that is necessary.
Conclusion
The Roundtable
will continue to work with the agencies to identify areas of regulatory
burden and propose effective solutions. We believe consumer regulations
should adequately protect the rights of the consumer. However,
many of the current rules include duplicate or unnecessary requirements
that are costly to financial institutions. In turn, these costs
are passed on to the consumer. Because of the lack of guidelines
in some areas, the consumers are confused as to their rights and
responsibilities. This has a chilling effect on the lending process.
The recommendations above are geared to enhancing consumer protections
while reducing the costs and compliance burdens on the industry.
If you have any
further questions or comments on this matter, please do not hesitate
to contact me or John Beccia at (202) 289-4322.
Sincerely,
Richard M. Whiting
Executive Director and General Counsel
_________________________________
1 The Financial Services Roundtable represents
100 of the largest integrated financial services companies providing
banking, insurance, and investment products and services to the
American consumer. Roundtable member companies provide fuel for
America's economic engine accounting directly for $18.3 trillion
in managed assets, $678 billion in revenue, and 2.1 million jobs.
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