INDEPENDENT BANKERS OF COLORADO
1580 Logan Street, Suite 510
Denver, Colorado 80203
Phone 303.832.2000
Fax 303.832.2040
www.ibcbanks.org
April 9, 2004
Public Information Room
Office of the Comptroller of the Currency
250 E Street, SW
Mailstop 1-5
Washington, DC 20219
Attention: Docket No. 04-05
Via e-mail: regs.comments@occ.treas.gov
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: EGRPRA Burden Reduction Comments
Via-mail: comments@fdic.gov
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Attention: Docket No. R-1180
Via e-mail: regs.comments@federalreserve.gov
Re: EGRPRA Review of Consumer Protection Lending Related Rules
Dear Sir or Madam:
The Independent
Bankers of Colorado (IBC) is the largest banker trade association
in Colorado,
exclusively representing community
banks. On behalf of the IBC’s Board of Directors and over 115
member banks, please accept the following comments regarding the
EGRPRA review of consumer protection lending-related rules.
Regulatory burden is suffocating community banks and impairing their
ability to serve their customers and their communities. Of equal
concern is the fact that their customers and communities are receiving
little, if any, ascertainable benefit from the ever-increasing laws
and regulations imposed on community banks. Worse yet, consumers
are paying higher costs for basic banking services as a result.
Proposed amendments to Regulations Z, B, E, M and DD and respective
Official Staff Commentaries, and the proposal to Regulation Z that
includes several technical revisions to the Staff Commentary
The proposal intends to make the form of disclosures consistent among
various consumer protection regulations. Specifically, it adopts
the “clear and conspicuous” standard, along with examples
currently contained in the Commentary to Reg P (GLBA). These proposals
are unworkable and implementation will impose huge costs on the community
banking industry. The subjectivity of the proposals will make compliance
uncertain and will open the door for expensive lawsuits without improving
the disclosures in any meaningful way.
Burden on all institutions
The proposals will impose significant costs to every financial institution.
If the proposals are adopted, financial institutions will have to
review every single consumer financial product document and advertisement
containing required disclosures. For every bank, this means reviewing
hundreds of agreements, forms, statements, web pages, telephone scripts
and radio advertisements. Once identified, the required disclosures
will have to be segregated from non-required disclosures, analyzed
and revised. This revision effort will be enormously time-consuming
and expensive, as bank staff and lawyers debate everyday word. As
the new terminology is determined, financial institutions must then
attempt to format the new disclosures and address software demands.
Software programs will have to be modified and in many places replaced;
they will not be usable as the new disclosures will no longer fit
in the original data fields. Staff training will be necessary, as
well as modifications made to all training and audit materials.
For small institutions the challenges will be overwhelming. Compliance
staff in a small institution wear many hats. They will be less able
to manage those other bank functions while working on new compliance
programs or, perhaps worse, not be able to work on the required changes.
Ultimately, the costs of compliance, no matter what size the institution,
add to the cost to consumers—which results in fewer choices
for consumers, especially low- to moderate-income consumers. The
ultimate result is to drive these consumers into the hands of fly-by-night
predatory lenders. Recalling how many months it took to determine
how to comply with GLBA and Regulation P (GLBA) and the changes to
Regulation Z several years ago (which changed the format on credit
card solicitation disclosures), the proposed changes too will takes
institutions months of unnecessary busywork.
Lastly, the proposed changes will likely provoke the ever-popular
class action litigation.
General approach/flexibility
Financial institutions can never be certain of whether they are adequately
complying with ever-changing requirements and comparisons to one
or more of the so-called “examples”. In many cases, the “examples” themselves
do not improve consumer understanding, leaving the financial institution
facing an untenable dilemma.
Regulation P and the consumer protection regulations
The privacy policy disclosures of Regulation P and those of the typical
consumer protection regulations are inconsistent. Reg P requires
a financial institution to convey an institution’s general
policy that applies to all its products. In contrast, the disclosures
of the consumer protection regulations require complex, sometimes
abstract and often detailed terms unique to a specific product. In
many cases, legal and technical terms are necessary to ensure the
agreement is enforceable and in compliance with the regulation. “Everyday” terms
will change their meaning.
Home Mortgage Disclosure Act (HMDA) (Federal Reserve Regulation C)
HMDA is essentially sets forth data-collection and reporting requirements
and, therefore, lends itself 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 in
assets. At a time when regulators are reviewing the reporting burden,
the burden associated with HMDA data collection was recently substantially
increased (not to mention the dramatically increasing burden of Patriot
Act data matching, child support enforcement data matching, and more).
Data collection requirements are often difficult to apply and, as
a result, add to regulatory burden and the potential for error: for
example, assessing loans against the Home Owners Equity Protection
Act and reporting rate spreads; determining the date the interest
rate on a loan was set; and determining physical property address
or census tract information in rural areas. Consumers ultimately
pay for the data collection and reporting in higher costs.
Regulation Z
It has been proposesd to add an interpretative rule of construction
stating that where the word “amount” is used to describe
a disclosure requirement, it refers to a numerical amount throughout
Regulation Z. It appears the proposed interpretation is intended
to address a court decision regarding the disclosure of payments
scheduled to repay a closed-end transaction. This should not have
a negative impact on financial institutions.
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 often resent having to wait three additional
days to receive loan proceeds after the loan is closed and blame
the bank for "withholding" their funds. Even though this
is a statutory requirement, the unnecessary inflexibility in the
regulation makes it difficult to waive the right of rescission—which
further aggravates the problem. If not outright repealed, institutions
should at least be given much greater latitude to allow customers
to waive the right.
Another problem under Regulation Z is the definition of finance
charge. Assessing what must be included in or excluded from the finance
charge is difficult to determine, especially fees and charges levied
by third parties. The calculation of the finance charge is critical
in properly calculating the annual percentage rate. This process
desperately needs simplification so that all consumers can understand
the annual percentage rate and bankers can easily calculate it.
The resolution of billing-errors within the limited timeframes allowed
for credit card disputes is not 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 giving these individuals the ability to avoid legitimate
bills at the expense of the institution. There should be increased
penalties for frivolous claims and more responsibility expected of
consumers.
Summary
While making disclosures more understandable for consumers is an
important goal, the proposals have not identified a problem with
the existing disclosure requirements. The proposal states that
the goal is to facilitate compliance and ensure consumer understanding
of the regulations. This might be achieved through standardization
of disclosure requirements. Unfortunately, while the regulators
require banks to provide customers with understandable disclosures,
the regulators do not hold themselves to the same standard in drafting
regulations that can be easily understood by anyone. Examiner training
needs to be improved to ensure that regulatory requirements are
properly and uniformly applied.
While banks will appreciate consistency among the regulations, any
additional regulatory burden should be justified by a real need.
Unfortunately, merely making disclosures more uniform between the
six regulations will not necessarily translate into improved understanding
by consumers.
Finally, it would be much easier for banks, especially community
banks that have limited resources, to comply with regulatory requirements
if they were based on products and all rules that apply to a specific
product were consolidated in one place.
Thank you for this opportunity to comment.
Sincerely,
Barbara M. A Walker
Executive Director
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