WASHINGTON - Federal Deposit Insurance Corp. Vice Chairman John M. Reich recommended that Congress ease several major regulatory requirements, including annual customer privacy notices, disclosures of community reinvestment-related spending, and the three-day waiting period for mortgages.
"Regulatory burden is indeed an important issue for all banks large and small," but it is "particularly important for community banks," Mr. Reich told the Senate Banking Committee on Tuesday. "Unless Congress takes action soon, community banks may indeed become an endangered species."
He and 18 other regulators, industry officials, consumer advocates, and lawmakers produced wide-ranging lists of regulations they would like relaxed or eliminated in a bill Sen. Mike Crapo, R-Idaho, is drafting.
Mr. Reich had perhaps the most far-reaching list, which he said could grow as the FDIC continues its interagency project to find and eliminate outdated, unnecessary regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act.
His suggestions are significant, because Sen. Crapo said in an interview this month that the so-called Egrpra project may serve as a blueprint for the bill, which he expects to unveil by the end of next month and may cover much more ground than a regulatory relief measure the House approved in March.
Mr. Reich called for potentially controversial changes, including exempting banks that do not share customer data with their affiliates or outside companies from the Gramm-Leach-Bliley Act's annual privacy notice requirement. The 1999 law requires financial firms to send customers an initial notice and follow-up ones each year that outline the firms' information-sharing practices. Customers must also have an opportunity to block their data from being shared with third parties.
"For example, after providing the initial privacy notice, an institution would only provide subsequent notices when its privacy policy actually changes in some material way, rather than requiring that notices be provided on an annual basis," Mr. Reich said.
Wading into another politically sensitive area, he called for repealing the Community Reinvestment Act "sunshine" requirement. Under it, banks and community groups that enter into assistance agreements must report each year the grants and other payments of over $10,000 and loans of over $50,000 stemming from the agreements.
Another FDIC recommendation, which Mr. Reich conceded would be "sensitive," is to let consumers waive a Truth-in-Lending Act rescission right that gives them three days to change their mind after closing on a loan that pledges their home as collateral. Another possibility, he said, would be to give consumers closing documents three days before closing and incorporate the right of rescission into that three-day period.
The hearing showed that the most daunting policy obstacle facing a deregulatory bill - what business powers to give industrial loan companies - has not been overcome.
Most of the regulatory and industry representatives who testified Tuesday supported the easing of restrictions for banks on interstate branching and paying interest on corporate checking accounts. But if Sen. Crapo accepted those recommendations, he would not be able to dodge the issue of doing the same for ILCs.
Sen. Paul Sarbanes of Maryland, the committee's ranking Democrat; Federal Reserve Board Governor Donald L. Kohn; and Dale Leighty, the chairman of the Independent Community Bankers of America and the head of First National Bank of Las Animas in Colorado, reiterated their opposition to letting ILCs offer NOW accounts to businesses or branch across state lines unless the ILC is subject to the same regulations and supervision as banks.
In the other camp is Sen. Robert Bennett, the Utah Republican who chairs the Senate Banking financial institutions subcommittee and is a strong advocate for giving ILCs powers similar to banks'.
Few senators were on hand to comment on the regulations that were singled out for easing - a move consumer advocates cautioned against. Some of the regulations, such as removing the business loan limit for thrifts and increasing a 12-year maturity limit on loans made by credit unions, are included in the House bill.
