Merchants and Planters Bank
From: Jim Gowen,
Jr [mailto:jgowen@mandpbank.com]
Sent: Monday, April 19, 2004 11:12 AM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: EGRPRA Burden Reduction Comments
Re: EGRPRA Review of Consumer Protection Lending Related Rules
Dear Sir:
As a community
bank President, 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repealed, depository institutions should at least be given much greater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 mega-banks. 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,
Jim S. Gowen,
Jr.
President
Merchants and Planters Bank
P.O. Box 650
Newport, AR 72112
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