Introduction
The federal banking agencies met with representatives of
consumer and community organizations in Washington, D.C. on
July 20, 2005. The purpose of the meeting was to obtain the
organizations’ views regarding recent proposals to reduce
regulatory burdens in the banking sector. The meeting was
attended by representatives from the following
organizations: Association of Community Organizations for
Reform Now (ACORN), Center for Responsible Lending, Consumer
Federation of America, Consumers Union, National Association
for Consumer Advocates, National Community Reinvestment
Coalition, National Consumer Law Center, and US Public
Interest Research Group. Agency representatives from the
FDIC, OCC, OTS, FRB, and NCUA also attended.
The meeting was held under the leadership of John M.
Reich, Vice Chairman, FDIC. Vice Chairman Reich chairs the
interagency regulatory review process mandated by the
Economic Growth and Regulatory Paperwork Reduction Act of
1996 (EGRPRA). In preparation for the meeting, copies of the
“Matrix of Financial Services Regulatory Relief Proposals”
(the “Matrix”) dated July 8, 2005, and related materials
were sent to the participants.
The EGRPRA Initiative
Congress enacted EGRPRA as part of an effort to minimize
unnecessary government regulation consistent with safety and
soundness, consumer protection, and other public policy
goals. EGRPRA requires the federal banking agencies to
categorize regulations by type; provide notice and solicit
public comment; publish a summary of the comments received;
submit a report to the Congress detailing the extent to
which the burdens identified can be addressed by regulation
or whether legislation is required; and eliminate outdated,
unnecessary, or unduly burdensome regulations to the extent
that such action is appropriate.
Consistent with the mandate of EGRPRA, the agencies have
jointly published four interagency requests for comment in
the Federal Register to date. The second interagency notice,
published on January 20, 2004, sought public comment on the
lending-related consumer protection regulations, which
include Truth-in-Lending (Regulation Z), Equal Credit
Opportunity Act (ECOA), Home Mortgage Disclosure Act (HMDA),
Fair Housing, Consumer Leasing, Flood Insurance and Unfair
and Deceptive Acts and Practices. The third notice,
published on July 20, 2004, sought public comment on
remaining consumer protection regulations (which relate
primarily to deposit accounts/relationships). In addition to
soliciting comments by publishing requests in the Federal
Register, the agencies initiated a series of outreach
meetings with bankers and consumer group representatives.
Prior to the July 20, 2005 meeting, the agencies held three
outreach meetings for consumer and community groups. Those
meetings were held in Washington, D.C., San Francisco, and
Chicago.
Development of the Matrix
Vice Chairman Reich offered testimony before the
Committee on Banking, Housing and Urban Affairs, United
States Senate on June 22, 2004. In his testimony he
summarized the agencies’ regulatory burden relief efforts
under EGRPRA. Aside from Vice Chairman Reich, 18 additional
witnesses from other agencies, the banking sector, and
consumer organizations, participated in the hearing. At the
conclusion of the hearing, Senator Mike Crapo (ID) asked
Vice Chairman Reich, as the leader of the interagency EGRPRA
task force, to review the testimony presented at the hearing
and extract the various regulatory burden reduction
proposals offered by the witnesses.
In compliance with Senator Crapo’s request, a matrix
reflecting a total of 136 burden reduction proposals was
prepared. Thereafter, Vice Chairman Reich convened a meeting
of banking industry representatives to review the matrix in
an effort to determine which of these proposals they could
all support as industry consensus items. This process
yielded a list of 78 banking industry consensus items. The
FDIC then reviewed the 78 banking industry consensus
proposals and determined that it could affirmatively support
58 of the 78 industry consensus proposals. The FDIC shared
its positions with the other Federal banking agencies in an
effort to reach interagency consensus. The FRB, OCC, OTS and
the FDIC agreed to support twelve of the banking industry
consensus proposals. The results of these discussions were
incorporated into the Matrix. The July 8th version of the
Matrix lists 187 proposals.
On June 21, 2005, Vice Chairman Reich again appeared
before the Senate Banking Committee to discuss community
banking issues and regulatory burden. During the hearing,
Senator Paul S. Sarbanes (MD) asked Vice Chairman Reich to
take additional steps to assure that interested consumer and
community groups were given an opportunity to fully share
their views with the regulators. In response to Senator
Sarbanes request, the federal banking agencies asked the
representatives of the national consumer and community
organizations to participate in the July 20, 2005, outreach
meeting. The agencies plan to convene additional outreach
meetings targeted to consumer and community groups outside
of Washington, D. C. during 2005.
Opening Remarks
Vice Chairman Reich opened the meeting by thanking the
organizations for attending. After briefly touching upon the
goals of EGRPRA, he outlined the contributions typically
made by community banks, such as civic leadership,
charitable contributions, and local investment. In an effort
to highlight the supportive role community banks play, Vice
Chairman Reich recalled that he participated in
community-service efforts throughout his banking career. For
example, he served as Chairman of the Board of Trustees of a
public hospital facility in Florida, as Chairman of the
Board of Directors of the Sarasota Family YMCA, and as Board
member for a number of civic organizations. He then outlined
the challenges facing community banks, such as declining
market share and deteriorating efficiency ratios. He shared
his concern that the loss of community institutions could
have a negative impact, not only on the communities they
serve, but on the efforts many organizations are making to
improve the lives of consumers and low- and moderate-income
Americans. He closed his remarks by advising the
participants that he hoped the fabric of community banking
could be preserved.
Vice Chairman Reich then noted that the meeting was being
held at the urging of Senator Sarbanes and was designed to
obtain the views of consumer and community groups regarding
proposals to reduce regulatory burden generated through the
EGRPRA initiative. He indicated that the primary goal for
the day was to obtain the community groups reaction to the
proposals listed on the Matrix. He also called their
attention to the list of proposals attached to the agenda.
This list reflected the FDIC’s position on 24 items.
Robert W. Russell, Deputy to the Vice Chairman, suggested
that the participants might want to focus their attention on
the items that were most significant to community groups. He
suggested that the community groups might want to take
additional time to reflect upon the remaining proposals. He
noted that the agencies hope to reach a final consensus by
mid-September, however, and therefore asked the participants
to share their views with the agencies within the next 30
days.
Mr. Allen J. Fishbein, Director for Housing and Credit
Policy, Consumer Federation of America, responded to the
Vice Chairman’s opening remarks on behalf of the
organizations. He thanked Vice Chairman Reich for inviting
the organizations to share their views. He acknowledged that
the Vice Chairman was passionate about community banks. He
suggested, however, that there had been an overemphasis on
concerns of the banking sector. Referring to issues such as
the current debate regarding preemption of state laws by
federal banking authorities, he advised that the stakes are
high for consumers. He cautioned that there are broad
implications for consumers in many of the agencies
proposals. He suggested that consumer protections must not
be dictated by the size of an organization.
Mr. Fishbein then advised that the organizations had not
yet completed their review of the Matrix. He indicated that
there were 20-30 items that had not been included on the
Matrix but that they hoped to discuss. Responding to
concerns that the FDIC’s positions were already fixed, Vice
Chairman Reich assured him that the FDIC was open to
suggestions. Vice Chairman Reich invited the organizations
to submit further comments in writing if they wished to do
so, keeping in mind the goal of completing the review by
mid-September.
Next, John Taylor, President and CEO, National Community
Reinvestment Coalition, referred to the Vice Chairman’s
comments concerning his meetings with residents of public
housing units throughout Florida while working for U.S.
Senator Connie Mack. Mr. Taylor advised that he too had
first-hand experience of the challenges facing residents of
the projects and economically depressed neighborhoods. He
observed that these residents are able to leave the projects
behind because of opportunities made available to them,
suggesting that it was essential to increase the flow of
private capital into traditionally underserved communities.
In addition to protecting existing opportunities, however,
he cautioned that it is essential to extend opportunities.
He advised that the organizations support community banks;
that the more banks there are, the more consumers can
benefit from the resulting competition. He also referred to
the growth of larger credit unions and expressed concern
that they were not sufficiently serving their customers.
Discussion
Claude A. Rollin, Special Assistant to the Vice Chairman
and EGRPRA Project Manager, then asked the participants how
they would like to proceed. Mr. Travis Plunkett, Legislative
Director, Consumer Federation of America, suggested that the
participants first focus on the items that were “hot button”
issues for the consumer and community organizations. Mr.
Plunkett advised that the organizations had arrived at a
consensus on some issues. Other items were still under
review, though one or more of the organizations might have
already developed a final position. The participants then
turned their attention to the Matrix and discussed each of
the items listed below. The numbering corresponds to the
numbering on the Matrix.
6. Shorten the Post-Approval Waiting Period on Bank
Mergers and Acquisitions Where There are No Adverse
Affects on Competition.
The participants oppose this suggestion. They advised
that, by shortening the waiting period, the public voice
will be unnecessarily limited.
9. Check Cashing and Money Transfer Services Offered
within the Field of Membership.
The participants support the proposal but with some
reservations. They suggested that they needed to see a
broader commitment from credit union to their communities.
They indicated that credit unions should continue to focus
on their primary mission - service to their members - even
as credit unions seek de-regulation.
22. Privately Insured Credit Unions Authorized to
Become Members of a Federal Home Loan Bank.
The participants indicated they had not reached a
consensus but some of the organizations oppose the proposal.
They are concerned that the proposal, if adopted, will
encourage conversions.
26. Repealing State Opt-In Requirements for De Novo
Branching.
Some of the participating organizations oppose this
suggestion. They are concerned that it would materially
reduce the roll of the state. They indicated that several
states are studying the issue and it would be premature for
the federal agencies to act.
28. Resolving Ambiguities in Federal Court
Jurisdiction.
58. Clarifying Citizenship of Federal Savings
Associations for Federal Court Jurisdiction.
184. Diversity Jurisdiction Amendments to the
National Bank Act and the Home Owners’ Loan Act.
The participants oppose these suggestions. They advised
that its effect would be to move thousands of foreclosure
cases out of local courts and into federal courts. They
pointed out that federal courts are already faced with a
jammed docket. They suggested that consumers would suffer
significant delays.
35. Repealing Obsolete References to the Main Place
of Business of a National Bank.
The participants expressed concern that this proposal
might have unanticipated consequences, such as rate
exportation, which they oppose. The proposed language is
more general that the current statutory language and, in
their view, this results in a more subjective test.
42. Allocating Examiner Resources More Efficiently.
The participants oppose this suggestion primarily due to
its effect on CRA exams. They believe it will hurt the
opportunities of lower income people to access credit. They
advised that, when a banking examiner comes into a small
bank and asks questions, those questions really matter.
The banking agencies’ representatives clarified that this
proposal was not intended to apply to CRA examinations.
Rather, it applies to safety/soundness examinations only. A
representative of the OCC suggested that, in any event, the
proposal, if adopted, would be overridden by CRA statutory
requirements.
68. Enhanced Examination Flexibility.
The organizations oppose this suggestion because it
appears to weaken CRA. By doubling the exemption threshold,
there would be fewer examinations. Fewer examinations result
in less scrutiny by the regulatory agencies and compliance
could slip.
A representative of the OCC then asked if the
organizations would still oppose the suggestion if it did
not apply to CRA. The organizations asked if that
clarification could be captured in the proposed legislative
language. Mr. Rollin reminded the group that, although draft
legislative language had been e-mailed to the participants
prior to the meeting, language had not been prepared for all
of the proposals. The organizations indicated that they
would re-visit their position if their concerns regarding
CRA could be addressed.
62. Eliminate Requirement for Prior Written Consent
to Establish Branches by Well-Managed, Well-Capitalized,
Highly-Rated Institutions.
118. Branch Applications/Notices.
The organizations advised that they oppose these items.
The CRA enforcement process is drafted onto the application
procedure, they noted. By eliminating the prior-consent
requirement, opportunities for review are eliminated and CRA
enforcement is undercut. In response to a suggestion that
the proposal contemplates stopping the application process
if a protest is filed, the participants stated that the
proposal does not make that clear. The group then discussed
whether there was a way to reduce the application burden
while protecting CRA. The organizations rejected a shorter
comment period, advising that it was already difficult to
prepare a response within the prescribed timeframe. Mr.
Rollin noted that two other statutes came into play during
the application process: the National Historic Preservation
Act of 1966 and the National Environmental Policy Act of
1969. The banking agencies have adopted different approaches
in implementing these statutes. He cautioned that any change
to the application process must take these statutory
requirements into account.
63. Eliminate Annual Privacy Notice Requirement for
Institutions that Do Not Share Personal Information.
108. Privacy Notices.
134. Simplify Privacy Notice.
174. Replace GLBA’s Annual Privacy Disclosure
Requirement with a Requirement for an Initial Disclosure
and Subsequent Disclosure upon Material Change in Privacy
Policy.
The participants strongly oppose these suggestions, which
involve privacy issues. The organizations advised that the
existing privacy notices provide important information to
consumers. This information goes beyond privacy concerns
alone and has forced banks to stop sharing customer
information. For example, the information concerning the
institutions’ affiliates is valuable information for a
consumer. Moreover, existing regulations permit the consumer
to “opt-out” and this option would be lost under the
proposal. Finally, the proposal is not limited to small
banks. The organizations advised that, as a general matter,
they support shorter/simpler notices. At the same time,
however, they believe it is not the appropriate time for
congress to act on a new proposal, given the many
rule-making initiatives that are already underway.
64. Waiver of the Three-Day Right of Rescission.
The organizations strongly oppose any changes to the
right of rescission. They believe the right of rescission is
a consumer’s most fundamental right. It deters predatory
lending; it deters bait/switch schemes. It enables the
consumer to protect the most precious asset he/she has: the
family home. The organizations believe permitting consumers
to waive their right of rescission is the same as having no
right at all, especially in transactions involving real
estate where a consumer is faced with a large volume of
legal documents.
104. Truth in Lending Act Amendments.
Proposal 104(1)-(2) involve waiving the right to
rescission. The organizations repeated their concern that it
would threaten home ownership and encourage predatory
lending. The agency representatives advised the
organizations that bank customers almost never exercise the
right of rescission. Indeed, bankers report that it is a
source of frustration to their customers because they are
forced to wait for their loan proceeds. Bankers report that
their customers do not perceive it as a device to protect
the consumer but as government intervention. The
organizations responded that, if it is true bank customers
never exercise the right of rescission, then it should not
impose an undue burden on bankers. They emphasized that the
right of rescission is a fundamental principle that should
be preserved.
The participants then turned their attention to the
suggestions in proposal 104 involving TIL amendments. They
noted that the protections of TIL extend beyond the original
lender to the assignee. These are important protections
because most consumers are forced to deal with mortgage
servicers who are far removed from the original lender. They
find that bait and switch schemes are a big problem. They
reported that consumers are under intense pressure to sign
at closing.
They oppose granting even limited powers [to the FED] to
waive TIL provisions. A FED representative advised that in
1989 the FED tried to carve out exceptions to the TIL. At
that time, consumers were simply trying to get lower
mortgage rates. Now, however, the market has changed and
consumers are exposed to exotic mortgages. Thus, she
suggested, it might not be possible to design precise
language.
A FDIC representative suggested that bank/thrift
customers are less likely to fall victim to predatory
lending and that much of the bait and switch activity occurs
at the level of unregulated mortgage brokers. He
acknowledged that bankers get a great deal of business from
mortgage brokers, however, and advised that the agencies
were mindful of such concerns.
The organizations agree that there are too many
exceptions to the TIL and find that creditors manipulate the
exceptions in order to hide fees. They agree that the APR
should be all inclusive.
75. Federal Preemption of State Regulation of
Consumer Protection Practices.
The organizations support this proposal.
76. Consumer Rental Purchase Agreement Act of 2003.
The organizations oppose this suggestion. Various
legislative proposals have been circulated, they said, and
it appears the intent is to repeal state laws that protect
consumers. They noted that rent-to-own agreements are costly
for consumers and can be “a wolf in sheep’s clothing” if the
consumer is not careful. They find that immigrants and
individuals living on or near military bases are often
targeted for these schemes. The organizations believe it is
more appropriate to treat them as local transactions subject
to state laws. Five states have enacted protective laws
while 45 states have poor or no protections for the
consumer. The organizations hope to convince more states to
implement appropriate consumer protections.
77. Clarification of Scope of Applicable Rate
Provision.
The organizations oppose this suggestion. They reported
that the people of Arkansas have determined that there
should be a usury limit and have passed one in their state
Constitution. This suggestion would overrule the decision of
the people of Arkansas.
79. Mortgage Servicer Exemption to FDCPA.
The organizations oppose this suggestion. Mortgage
servicerers are collecting debts; consumers report a number
of problems with mortgage servicers; the movement should be
to extend protection, not cut it back.
91. Continuing Debt Collection Efforts.
The organizations oppose this suggestion. The consumer
world be subjected to collection tactics even though the
consumer’s 30-day protective period has not expired.
98. Extending Divestiture Period.
80. Elimination of RESPA Imprisonment Sanction.
The organizations have not developed final positions on
the above items. They are continuing their review.
101. Industrial Loan Company Exemption.
The organizations support eliminating the exemption for
industrial loan companies from regulation and supervision of
the parent company as a bank holding company.
102. Community Reinvestment Act Amendments.
The organizations oppose this suggestion and applauded
the FDIC for opposing it. They also urged parity among bank
and thrift institutions.
105. Home Mortgage Disclosure Act Amendments.
The organizations oppose these suggestions. HMDA was
adopted to facilitate the development of data, they said.
This data forms the basis for a number of essential studies.
Annual HMDA reporting is easy to complete thanks to
readily-available electronic tools, they advised. Overall,
they believe reducing the availability of HMDA analyses will
undercut consumer opportunities.
109. Call Report Streamlining.
The organizations did not oppose this suggestion. They
wish to see the legislative language, however, in order to
confirm their understanding that the suggestion is limited
to call report improvement/modernization.
110. Sarbanes-Oxley Act.
The Consumer Federation of America opposes this
suggestion and plans to submit written comments at a later
time.
112. Examination Cycle.
The organizations understand that this proposal will
apply to CRA examinations as well as safety/soundness
examination. They therefore repeated their concern that
fewer examinations will undercut CRA compliance.
103. Tiered Regulation.
114. Expedited Funds Availability (Reg CC).
The organizations advised that they would need to see the
legislative language before they could reach a final
position on the above items.
115. Electronic Fund Transfer Act (Reg E).
The organizations oppose the first part of suggestions
115: increasing consumer liability for unauthorized
transfers. They suggested that banks often accuse customers
of giving out a PIN number and then refuse to assist the
customer. They further believe that Reg Z and Reg E need to
be reconciled. Under the current framework, debit cards do
not have the same protection as credit cards. The
organizations support the second part of suggestion 115:
extend notification requirement to achieve consistency
between Reg E and Reg DD.
127. Clarify Application of TILA to Bounce Loans.
128. Payday Lending.
129. Update TILA and the Consumer Leasing Act.
130. Expand Application of EFTA.
The above suggestions were received from National
Consumer Law Center and the US Public Interest Research
Group. Mr. Rollin asked the organizations if they had any
legislative language supporting the suggestions. The
organizations advised that they had developed text on some
of the items and would share copies with the banking
agencies.
135. Flexibility for Limited Purpose Credit Card
Banks for CRA Compliance.
178. Enhanced Flexibility for Credit Card Banks to
Meet CRA Obligations.
179. Public Welfare Investments by Credit Card
Banks.
The organizations oppose these suggestions. They
referred to the Change in Bank Control Act and suggested
that opportunities for scrutiny were already limited.
136. Anti-tying Modernization Amendment.
The organizations have not developed a final position on
this item. They are inclined to oppose it. They are
concerned of a “slippery slope” effect and they are
concerned that there appears to be disagreement between the
FED and Treasury Department.
Conclusion
The organizations noted that the Bank Secrecy Act and USA
Patriot Act added significant new burdens on the banking
sector. In contrast, they said, CRA requirements have
already been substantially streamlined. They suggested that
the banking agencies should focus more on the burdens
imposed by the BSA and the USA Patriot Act.
The organizations advised that they would submit written
comments on the items just discussed. Additional information
is also available in the testimony submitted jointly by the
Consumer Federation of America and the National Consumer Law
Center on behalf of their organizations and clients on June
21, 2005, before the Senate Banking Committee.
http://banking.senate.gov
They noted that they had a number of proposals - some of
them long-standing - and that they would like to submit
these proposals for inclusion as a “mini-matrix” in the
existing Matrix. Vice Chairman Reich reminded the
participants that the focus of EGRPRA is on existing
regulatory and statutory provisions but that their comm
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