BB&T Corporation
April 14, 2004
Mr. Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Mrs. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
(Docket No. R-1180)
To Whom It May Concern:
BB&T Corporation (“BB&T”) appreciates the opportunity
to comment on the joint agencies’ request for suggestions or
ways to reduce the burden in rules categorized as Consumer Protection
Lending Related Rules. BB&T is a regional financial holding company
with numerous banks and non-bank subsidiaries. Our comments are as
follows:
1. Truth in Lending (TIL), Regulation Z:
Section 226.23(c) states that unless a consumer waives the right
of rescission due to a bona fide personal financial emergency, no
money shall be disbursed nor any services performed until the rescission
period has expired.
We feel that this consumer protection requirement has outlived its
original intent for customers getting loans from a bank. It is a
huge inconvenience for customers to have to wait three days extra
to get their funds especially given that the customer has already
had anywhere from 15 to 30 days of the loan processing/underwriting
to consider the ramification of pledging the home as collateral.
This should give the majority of our customers ample time. It also
places additional work and time on closing agents, attorneys, and
lenders as well as requiring the customer to have to come back to
the bank to get their money. In addition, the rule creates many technical
exceptions by lenders related to miscounting the three business days
and also with interest accrual issues. It is rare that any of our
customers rescind under normal market conditions. A rescission would
tend to happen more often during a refinancing boom where a consumer
put in applications with several lenders to get the best deal.
Many of our customers seek home equity lines simply for tax reasons.
They fully understand that a security interest is being taken in
their home but want the product to be able to deduct interest. These
customers usually are sophisticated and consider the three-day waiting
period a nuisance, not a consumer protection. In cases like these,
financial institutions should at least be given the right to allow
customers to waive the three-day period upon request of the customer.
For these reasons, we feel it is too burdensome to require lenders
of financial institutions/banks to have to prepare rescission forms
and delay the disbursement of funds which places extra work on a
number of people.
Customers are
also very frustrated by this rule as they want their money at closing.
A
better approach might be to make this requirement
exempt for customers that come into the bank to request a loan versus
customers that are solicited for a loan. Another option would be
to broaden the ability to rescind the loan by simply accepting a
note of the customer’s wish to waive the rescission period
initially regardless of the reason. This is certainly one example
where the benefits do not outweigh the burdens imposed by the regulation.
High Cost Home Loans: The federal law should be all that matters
for these type loans. Too many states are jumping on the bandwagon
to come up with their own anti-predatory lending laws which makes
compliance on a federal and state level very cumbersome for lenders
as the state laws are often more restrictive than the federal. In
addition, Section 32 of Regulation Z requires additional disclosures
and carries so much negative publicity that most banks have stopped
making these loans. But for the ones that do, they are required to
give a three-day notice prior to consummation but consummation is
not defined in Regulation Z but left for state law interpretation.
Federal law should clarify consummation for this section. The explanation
for the calculation of total loan amount is also not clear.
While we agree
with the intent behind the TIL Act to promote the informed use
of consumer
credit by requiring disclosures about the
terms and costs, we have come to realize over the years that consumers
only want to know their interest rate, monthly payment and the total
closing costs. Consumers are still very confused about why there
is a difference in the annual percentage rate (APR) and their quoted
interest rate despite the fact that they are given the interpretive
booklets. The finance charge also is not easily determined when there
are third party fees. This process needs simplifying so all consumers
can understand what the APR means and lenders can calculate it easier.
Maybe a better alternative would be to disclose the interest rate
and the total initial charges but not disclose an APR in the “material
disclosures.” Sometimes what is meant to help the consumer
is really a problem for the financial industry and the consumer as
well.
2. ECOA, Regulation B:
Section 202.13(b) requires a lender to note on an application or
some form to the extent possible, the ethnicity, race, and sex of
the applicants on the basis of visual observation or surname if the
applicant chooses not to provide the information. We feel that by
requiring the lender to complete the information, it is against what
the customer requested and in many cases the accuracy from the lender
could be in question as it requires the lender to make a guess (especially
with race and ethnicity). We feel that if the customer initially
checked that he/she does not wish to disclose the information, it
should be left at that.
Section 202.7(d)(1)
of Regulation B needs further clarification. This section states, “A creditor shall not deem the submission
of a joint financial statement or other evidence of jointly held
assets as an application for joint credit.” In reading the
preamble to this change and from reading other information (such
as the FDIC’s Financial Institution Letter 6-2004), it appears
the intent of this regulatory amendment is to clarify that a joint
financial statement does not constitute a joint application.
However, the
commentary to this same section 202.7(d)(1)#3 states in the first
sentence, “A person’s intent to be a joint
applicant must be evidenced at the time of application.” We
understand that a signature line on a financial statement is simply
attesting to the accuracy of the document. We feel a signed application
(when we have one) by the applicant and co-applicant should be sufficient
evidence if we ask the question with a box to check, “Is this
application to be joint credit, yes or no” or if we add additional
verbiage above the signature line of the application where the applicant
and co-applicant sign. Different regulatory agencies have given out
different opinions on how to handle this requirement. For example,
one examiner has told us that we must have an additional line for
initials or signatures on the application or some other written form
to further show joint intent other than the final signature. Another
examiner said adding a statement above the signature line would suffice.
Then we have received other information from different federal attorneys
who have said oral permission of intent is acceptable if there are
established procedures in place to document this. More consistent
guidance is needed in this area between the different regulatory
agencies.
The other problem
is that many business loans do not have an application and thus,
the question
comes up as to whether or not a separate form
must be developed to allow the applicants to sign that they are applying
jointly or if the file could have other documentation noting joint
intent. We feel for business loans that verbal confirmation of who
intends to be obligated should be sufficient. Or, to perhaps add
new verbiage to our notes and guaranty agreements. Suggested language
for business loans might be “By signing the Promissory Note
or Guaranty Agreement, you are affirming that you intend to be obligated
for repayment of the credit or to guarantee debt for the borrower
as prescribed in this agreement.” In addition, the Residential
Mortgage Fannie Mae 1003 form does not have model verbiage or a place
for signatures or initials to indicate joint intent nor does the
government have any plans to revise this form that we know of. A
mortgage application should not have less stringent rules than a
retail application. Some clarification is needed on alternative ways
to comply with the need to evidence joint intent without requiring
bank lenders to have to obtain additional signatures or to create
new forms such as an addendum to the Residential Loan Application
or for those loans without an application. Customers already feel
the amount of paperwork is too much and this only adds to the customers’ and
lenders’ frustration. Guidance is also needed on how to show
joint intent on telephone or Internet applications.
More guidance
is needed on Section 202.2(p) regarding the use of scores purchased
from
the credit bureaus such as Beacon, FICO, Experian,
Navigator, etc. as to whether they are a credit scoring system or
a judgmental system under Regulation B. The industry, I think, in
general feels that these type scores are not “demonstrably
and statistically” sound under Regulation B, because they are
not based on the bank’s empirical data. The credit bureau also
assures us they do not consider age as an element. If the use of
these scores is just a tool to help the lenders predict credit risk
or bankruptcy and the loan is still underwritten as normal, I think
we all agree it should be a judgmental system. We would like more
guidance on which type of system would be applicable if the lender
wanted to use the scores, not as a tool, but as an automatic denial,
based only on the credit bureau score. We would also like to know
if an automatic denial was used but not an automatic approval if
that would still make the process judgmental since it was decided
earlier that their scores were not empirically derived and did not
consider age as a category.
Some consumer reporting agencies are now creating a separate pooled
data scorecard of multiple creditors. There is confusion as to whether
this type of scorecard is still considered to be judgmental or a
true credit scoring system. It appears to be some hybrid type of
credit scoring system as it has one or two application variables
but it does not consider age. Bottom line, the distinction between
a credit scoring system and a judgmental one has become blurred due
to the fact that the industry has access to many products through
consumer reporting agencies and they are used in different ways.
More guidance would be appreciated on this matter.
3. Home Mortgage Disclosure Act (HMDA), Regulation C:
Section 202.2 of Regulation C states that refinancing means a new
obligation that satisfies and replaces an existing obligation by
the same borrower and that both the existing obligation and the new
obligation are secured by liens on dwellings.
The new definition of “refinance” which removes the purpose
test will certainly result in the addition of many more loans on
a financial institution’s LAR whose purpose had nothing to
do with home improvement or home purchase. We feel the elimination
of the purpose test goes against the spirit of the regulation for
identifying home improvement and home purchase loans.
The revised definition of refinance makes no exception for business
purpose loans. Many financial institutions have business purpose
loans, other than for the original intent of home purchase or home
improvement (i.e. machinery and equipment loans agricultural and
commercial), which are secured by a lien on a dwelling thereby making
it HMDA applicable at the time they are refinanced. This concept
creates problems especially with agricultural loans secured by a
lien on a dwelling. We feel that reporting these types of business
purpose loans (other than those related to home purchases or improvements)
is not the intent of HMDA and will skew results across the country.
This will be a burden for the financial institutions as well as examiners
to have to sort through these types of loans to explain variances
since they are priced very differently than residential real estate
loans.
There needs to be further clarification on broker/investor rules
and the action taken between Regulation B and Regulation C. For instance,
if a loan comes in from a broker and is incomplete, most banks have
procedures to call the broker to request the additional information.
If the broker never responds, the bank would show for HMDA, Regulation
C, the action taken as file closed for incompleteness but Regulation
B, Section 202.9(c)(3), appears to state that if the applicant (no
mention of a broker) is informed orally of the need for additional
information but does not respond, a notice, presumably a denial,
must be sent. This could require the lender to issue two different
actions taken to satisfy HMDA and Regulation B. This is too confusing
unless it is permissible to rely on the third party rules just when
dealing with brokers and investors.
While we have chosen not to report open-end Home Equity lines of
credit on the HMDA LAR, we wanted to mention the inconsistencies
throughout the regulation. If a lender were to report a Home Equity
line of credit, the rule is to report only the amount of the line
used for home purchase or home improvement. But, for a closed-end
loan, the entire amount would be required to be reported as long
as any portion is used for the purpose of home improvement or home
purchase. This difference, I would think, would create a lot of confusion
for lenders. In addition, there is inconsistency between the rate
spread calculation determination date and the way the rate spread
index is determined for HOEPA purposes which creates more confusion
and errors. The rate spread index and calculation methods should
be consistent in order to promote better accuracy.
Overall, HMDA is one of the most burdensome regulations for the
financial industry. To ensure HMDA integrity, we have HMDA specialists
in every lending department to review behind the lender all the HMDA
fields before the LAR is filed. This requires many people since we
are a large bank with a submission of thousands of LAR entries. This
process takes thousands of man-hours to perform while there are questions
as to the usefulness of the data in the industry. Ultimately, consumers
will end up paying for all the data collection costs.
4. Fair and Accurate Credit Transactions Act, FACT Act:
The Consumer Credit Reporting Reform Act of 1996 amended the Fair
Credit Reporting Act and permitted the Board of Governors of the
Federal Reserve System to issue interpretations on how the FCRA may
apply to financial institutions. The Federal Reserve did not issue
an interpretation or a regulation. Now that we have the Fair and
Accurate Credit Transaction Act of 2003 (FACT Act) and we are seeing
the Federal Reserve issue interpretations on a section by section
basis, it is putting a heavy burden on financial institutions in
their attempt to track the requirements of the Act and section by
section interpretations by the Federal Reserve. The Federal Reserve
needs to provide financial institutions with the Part 222, Regulation
V, Fair Credit Reporting Act regulation that provides interpretations
for the Act. This is common practice for all other Acts, and we need
the same for the Fair Credit Reporting Act. For example, in the past,
we have referred directly to the regulation to inquire on the specific
formats, verbiage, requirements, etc.; however, for the new FACT
Act, since there is no regulation yet, only section by section, we
are having to refer back to the original Act which is very confusing
and time consuming. We need a full regulation just like we have with
the other Federal Reserve Acts and Regulations.
In addition,
FACT Act requires furnishers (banks) of information to investigate
disputes
if they receive a dispute notice sent directly
to the bank by the consumer instead of to the consumer reporting
agency. After receiving notice of dispute from a consumer, the person
that provided the information in dispute to a consumer reporting
agency (bank) shall: conduct an investigation with respect to the
disputed information; review all relevant information provided by
the consumer with the notice; complete such person’s investigation
of the dispute and report the results of the investigation to the
consumer before the expiration of the time period. If the investigation
finds that the information reported was inaccurate, the bank must
promptly notify each consumer reporting agency to which the person
furnished the inaccurate information of that determination and provide
to the agency any correction to that information that is necessary
to make the information provided by the person accurate. In addition,
if after researching, it is determined nothing is wrong with the
item but the consumer continues to dispute the item, it is not clear
whether the bank must code the item as still being in dispute or
refer the customer to the credit bureau for coding the dispute. The
new regulation, when issued, needs to provide more guidance on how
to handle disputes received by the financial institutions directly
from the consumer.
5. Consistency:
Consistent definitions
between regulations would be extremely helpful and improve the
lender’s understanding and application of a
regulation. For example, the definition of a dwelling between Regulation
Z and HMDA. Also, consistency of the monitoring data requirements
between Regulation B and Regulation C would be helpful.
Thank you for the opportunity to provide these comments. The volume
of regulatory requirements facing the financial industry today presents
a huge challenge for any bank. We commend you for trying to find
ways to eliminate rules and regulations that are particularly burdensome
or no longer provide meaningful information to the consumer.
Very truly yours,
Janie B. Johnson
Senior Vice President and Senior
Corporate Compliance Officer, CRCM
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