MainSource Financial Group
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20249
Attention: EGRPRA
Burden Reduction Comments
Dear Mr Feldman:
As a compliance
officer, I welcome the regulators’ effort to review the critical
problem of regulatory burden. Consumer protection regulations,
although well intended, in some cases 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 often has the effect of driving up costs
and slowing processing time for loans from legitimate lenders,
which helps create a fertile ground for predatory lenders.
Most importantly,
it’s time to acknowledge that consumer protection regulations
have in many cases become a burden and confusing to customers in
addition to financial institutions.
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 this 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 makes it difficult to waive the right of rescission
unless an extreme emergency. If not outright repealed, depository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.
Spousal Signature.
Another problem is the issue of spousal signatures. The requirements
make it difficult and almost require all parties-and their spouses-
to 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.
A final issue
is that 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.
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 $500 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
this 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 the 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 the federal
government-not the bank- imposes the requirement. The government
needs to do a better job of educating consumers to the reasons
and the requirements of flood hazard insurance. Flood insurance
requirements should be streamlined and simplified to be understandable.
In addition,
responsibility should be shifted away from financial institutions
for the constant monitoring of whether borrowers continue to maintain
flood insurance on the property. Although I agree that the loan
should not be made without flood insurance, to require the financial
institution to constantly review whether flood is up-to-date is
a burdensome task. The bank must constantly review files and in
many cases force-place insurance on the borrower. The institution
should be able to rely on the National Flood Insurance Program
(the insurer) to inform the financial institution that coverage
has been dropped rather than institution monitoring the files internally.
RESPA (Real Estate
Settlement Procedures Act and Regulation X)
The requirement
of needing to provide an applicant a Good Faith Estimate in three
business days is not reasonable. In most cases, it is impractical
for a Lender to have reviewed and made a credit decision on a federally
related mortgage loan application three business days after the
application is received or prepared.
Although technically
you are supposed to send a good faith estimate whether a credit
decision has been made or not, sending a good faith estimate to
the applicant on an application that has not yet been approved
or denied can be confusing for the applicant if the loan application
is later denied. The regulation should be expanded to give the
Lender in practicality seven to ten business days to act on the
consumer’s application, therefore when the good faith estimate
is provided the credit decision is more than likely to have been
made and the consumer would receive a good faith estimate or a
denial. This would help the Lender and the consumer applicant.
Expedited Funds
Availability Act (Reg CC)
This regulation
needs to be streamlined. Specifically, the number of days for the
different types of transactions and scenarios that are involved
must be made simpler for the teller to follow. Also, the $100 rule
under case-by-case holds and the first $5000 dollar rule under
the large deposit exception should be eliminated. The Teller should
be able to hold all the money or none at all as long as they provide
prior notice to the customer.
Privacy
The privacy notice
should not be provided on an annual basis. The enormous cost of
producing and distributing these notices on an annual basis clearly
outweighs the consumer protection goals of the regulation.
These notices
should be provided when a consumer opens an account with our institution
and then anytime when there is a revision in that policy. This
would be consistent with other types of consumer protection regulations
such as Truth-in-Savings and the Electronic Funds Transfer Act.
If the financial
institution has not changed what it has originally told their customer
in the initial disclosure then it should not have to repeat that
disclosure on a yearly basis.
Conclusion
The volume of
regulatory requirements facing the banking industry today presents
a daunting task for any institution. Because of this, it is important
for regulators to try and simplify, streamline, and establish more
consistency within the regulations.
I conclude that
the more streamlined the regulations are, the easier it will be
for a financial institution to train personnel to understand the
regulations and comply better.
I also believe that the more informed bank personnel are about what banking
regulations require would eventually lead to quality financial institutions,
especially community banks, passing that knowledge on to their consumers as
to what their rights are.
Finally, I think
everyone agrees that the more consistent and streamlined regulations
are the less costs consumers will incur.
Sincerely,
David Sutherlin, Corporate Compliance Officer
MainSource Financial Group
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