Missouri
Independent Bankers Association
From: Joan [mailto:jtrader@miba.net]
Sent: Tuesday, April 20, 2004 11:20 AM
To: Comments
Subject: 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repealed, depository institutions should at least be given much greater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.
Sincerely,
Jerry Sage
Executive Director
Missouri Independent Bankers Association
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