Consumer compliance regulations continue to frustrate banks despite recent government efforts to simplify the rules.
Seventy-five percent of banks examined by the Federal Deposit Insurance Corp. last year violated the Truth-in-Lending and Real Estate Settlement Procedures acts.
Close behind on the FDIC's list of the 10 most commonly violated consumer and fair-lending laws were equal credit opportunity, fair housing, and Truth-in-Savings. In addition, 65% of institutions erred in reporting Home Mortgage Disclosure Act data.
The ranking of violations was included in a Sept. 2 letter to the chief executives and compliance officers of institutions overseen by the FDIC. The agency culled the data from examinations of 2,031 institutions and reviews of HMDA data from 1,021 institutions in 1996.
Most of these violations are minor and "inadvertent errors," said Steven D. Fritts, associate director of compliance and consumer affairs. "In almost all our institutions, the violations are exceptions, not the rule."
Some violators pay the price. The FDIC forced 148 banks to repay $1.4 million to 6,272 customers for Truth-in-Lending violations in 1996. In addition, three institutions and 10 people were penalized $123,500 last year for compliance errors.
The list of the 10 most violated regulations has remained consistent during the past three years, although the number of Truth-in-Savings and HMDA violators rose about 10 percentage points each from 1994 to 1996.
But agency officials said the number of egregious violations has dropped, primarily because of increased enforcement and more education programs.
Fewer than 1% of FDIC-supervised institutions in 1996 received failing Community Reinvestment Act or low overall compliance ratings-down from 5.3% in 1993.
Still, banks are hampered by highly technical regulations, transition periods to new rules, and employee turnover, experts said.
Some attempts to streamline rules have created more confusion, said Lucy H. Griffin, president of the consulting firm Compliance Resources Inc., Falls Church, Va. "They can look simpler on paper and be more difficult in terms of execution," she said.
"The industry has gotten much better at compliance over the past five years," said Jo Ann S. Barefoot, a partner at the consulting firm KPMG Barefoot Marrinan. But "it is hugely expensive and impossible, really, to be compliant with these regulations."
Examiners found that 46% of institutions did not deliver the mortgage servicing disclosures within three days of application as required by Respa. And 43% did not provide a timely "good faith" estimate of settlement costs to mortgage applicants.
In violation of the Fair Housing Act, more than 500 banks under $10 million of assets, or 25% of the total examined, did not request and keep required data on home loan applicants. The FDIC dropped this requirement in August for banks under $28 million of assets.
Examiners further discovered that 51% of institutions violated the Flood Disaster Protection Act. Of these, more than half failed to maintain records showing how they determined whether real estate used for collateral is located in a flood hazard area. The agency simplified this rule in late 1996.
Of the those reporting HMDA data, 30% did not collect the required information and store it in a loan application register or record the data within 30 days after the quarter in which the institution decided whether to make a loan.
