Dallas
National Bank
From: Michael Rideau [mailto:mrideau@dallasnationalbank.com]
Sent: Tuesday, April 20, 2004 10:28 AM
To: regs.comments@federalreserve.gov
Cc: regs.comments@occ.treas.gov; Comments
Subject: Re: EGRPRA Review of Consumer Protection Lending Related Rules
Dear Sir or Madam:
As a community
banker, 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repealed, depository institutions should at least be given much greater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 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.
Michael Rideau
Senior Vice President
Dallas National Bank
2725 Turtle Creek Blvd.
Dallas, Tx 75201
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