From: Dennis Walsh [mailto:dwalsh@firstintlbank.com]
Sent: Monday, April 19, 2004 7:57 PM
To: Comments
Subject: EGRPRA Review of Consumer Protection Lending Related Rules
Dennis Walsh
910 Lincoln Ave.
Harvey, ND 58341
April 19, 2004
Dear FDIC:
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. During my 24 years in lending I have
never
experienced a consumer exercise this right but I have struggled to
explain
the necessity. They usually respond that this procedure is an insult
to
their maturity and knowledge. They also blame our bank for the delay
and
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 If not outright repealed,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.
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. I personally know all of our customers and most
loan
requests are mentioned at a ball game, in a retail store, by phone
to my
home or by customer stopping by the house. Many time the customers
mention their need to my wife or children if I am not available.
Raises
an interesting technical question of when is the application an
application. My case may sound hard to understand but that is how
we do
business in the real world, outside large cities.
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.
Home Mortgage Disclosure Act (HMDA) (Federal Reserve Regulation C)
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,
Dennis Walsh
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