From:
William Watson [mailto:wwwatson@ckbonline.com]
Sent: Monday, April 19, 2004 2:05 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
William Watson
Box 7
St. Joseph, La 71366
April 19, 2004
Dear FDIC:
As a community banker, I am continously frustrated by the total
absurdity
of certain regulations. They impede our ability to serve our customers,
add great cost to our operations, and are simply not reconcilable
to
common sense.
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
overly burdensome in and of 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. Many of you probqbly
are
too young to remember that this law came about from a CBS Sixty Minutes
expose about asbestos siding salesmen going door to door and getting
home-owners to sign high priced contracts to do work on their homes,
and
the contracts were actually real estate mortgages. The national hoopla
about it inspired our congress to score some points with the public
and
pass the three day recission rule, but forgot that banks were not
the ones
causing the problem, but nevertheless included banks in the new law.
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 If not outright repealed, depository institutions should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. Frankly, the rule could simply be eliminated, and any bank
who
failed to allow a borrower to "change his mind" and cancel
a transaction,
could be punished by the regulators, upon a complaint being filed
by a
borrower.
Finance Charges.
Please do not once again talk about "simplifying" the
Reg Z rules. Apparently "simplification" doesn't mean "simplification"
when imposed by a regulatory agency. It simply means more and more
pages
of beauracritize. Simply ask each bank to tell the customer in Simple
interest language the cost of their loan, and not try to enforce
rules
that might effect this number by .0000000001%. Most states already
have
statutory limits on "fees" so maybe they don't "need" to
be included in
Reg Z calculations.
"Adverse action" notices
are also a frustration. You already have spent a
fair amount of time taking a borrowers' application, reviewing it,
and
denying it. To add additional "notice" requirements on
the lender seems a
little like "piling on."
Credit Opportunity Act (Federal Reserve Regulation B)has so many
nebulous
provisions that a Philadelphia lawyer would be required to figure
out
exactly when which items are triggered, and which are not.
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,
William W. Watson
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