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FDIC Federal Register Citations



MainSource Financial Group


Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20249

Attention: EGRPRA Burden Reduction Comments


Dear Mr Feldman:

As a compliance officer, I welcome the regulators’ effort to review the critical problem of regulatory burden. Consumer protection regulations, although well intended, in some cases 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 often has the effect of driving up costs and slowing processing time for loans from legitimate lenders, which helps create a fertile ground for predatory lenders.

Most importantly, it’s time to acknowledge that consumer protection regulations have in many cases become a burden and confusing to customers in addition to financial institutions.

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 this 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 makes it difficult to waive the right of rescission unless an extreme emergency. If not outright repealed, depository institutions should at least be given much greater latitude to allow customers to waive the right.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.

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- to 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.

A final issue is that 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.

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 $500 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 this 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 the 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 the federal government-not the bank- imposes the requirement. The government needs to do a better job of educating consumers to the reasons and the requirements of flood hazard insurance. Flood insurance requirements should be streamlined and simplified to be understandable.

In addition, responsibility should be shifted away from financial institutions for the constant monitoring of whether borrowers continue to maintain flood insurance on the property. Although I agree that the loan should not be made without flood insurance, to require the financial institution to constantly review whether flood is up-to-date is a burdensome task. The bank must constantly review files and in many cases force-place insurance on the borrower. The institution should be able to rely on the National Flood Insurance Program (the insurer) to inform the financial institution that coverage has been dropped rather than institution monitoring the files internally.

RESPA (Real Estate Settlement Procedures Act and Regulation X)

The requirement of needing to provide an applicant a Good Faith Estimate in three business days is not reasonable. In most cases, it is impractical for a Lender to have reviewed and made a credit decision on a federally related mortgage loan application three business days after the application is received or prepared.

Although technically you are supposed to send a good faith estimate whether a credit decision has been made or not, sending a good faith estimate to the applicant on an application that has not yet been approved or denied can be confusing for the applicant if the loan application is later denied. The regulation should be expanded to give the Lender in practicality seven to ten business days to act on the consumer’s application, therefore when the good faith estimate is provided the credit decision is more than likely to have been made and the consumer would receive a good faith estimate or a denial. This would help the Lender and the consumer applicant.

Expedited Funds Availability Act (Reg CC)

This regulation needs to be streamlined. Specifically, the number of days for the different types of transactions and scenarios that are involved must be made simpler for the teller to follow. Also, the $100 rule under case-by-case holds and the first $5000 dollar rule under the large deposit exception should be eliminated. The Teller should be able to hold all the money or none at all as long as they provide prior notice to the customer.

Privacy

The privacy notice should not be provided on an annual basis. The enormous cost of producing and distributing these notices on an annual basis clearly outweighs the consumer protection goals of the regulation.

These notices should be provided when a consumer opens an account with our institution and then anytime when there is a revision in that policy. This would be consistent with other types of consumer protection regulations such as Truth-in-Savings and the Electronic Funds Transfer Act.

If the financial institution has not changed what it has originally told their customer in the initial disclosure then it should not have to repeat that disclosure on a yearly basis.

Conclusion

The volume of regulatory requirements facing the banking industry today presents a daunting task for any institution. Because of this, it is important for regulators to try and simplify, streamline, and establish more consistency within the regulations.

I conclude that the more streamlined the regulations are, the easier it will be for a financial institution to train personnel to understand the regulations and comply better.
I also believe that the more informed bank personnel are about what banking regulations require would eventually lead to quality financial institutions, especially community banks, passing that knowledge on to their consumers as to what their rights are.

Finally, I think everyone agrees that the more consistent and streamlined regulations are the less costs consumers will incur.

Sincerely,


David Sutherlin, Corporate Compliance Officer
MainSource Financial Group

 

Last Updated 05/06/2004 regs@fdic.gov

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