HARLEYSVILLE
NATIONAL BANK & TRUST CO.
From: Charles Johannsen [mailto:cjohannsen@firststatebankandtrust.com]
Sent: Friday, April 16, 2004 1:19 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
April 15, 2004
Robert E Feldman
Federal Deposit Insurance Corporation
550 17th Street NW
Washington DC 20429
Attn: EGRPRA Burden Reduction Comments
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 in 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 appealed,
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 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 quality 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 information to identify a customer under section
326 of the USA PATRIOT Act is difficult and needs better regulatory
guidance.
Home Mortgage Disclosure (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 that $33 million in assets is far too low and should
be increased to at least $250 million.
Volume of Data. The volume of 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 addressed substantially. Consumer activists are
constantly clamoring for additional data and the recent changes to
the requirements acceded to their demands without 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
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 protection. 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 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 – not
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.
Sincerely,
D. M. Takes
President and CEO
|
