From:
Susan Vachal [mailto:SVachal@firstintlbank.com]
Sent: Tuesday, April 20, 2004 1:58 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Susan Vachal
19 4th St E
Williston, ND 58801
April 20, 2004
Dear FDIC:
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 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.
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outright repealed, depository institutions should at least be given much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 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 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,
Susan J. Vachal
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