Regulatory relief legislation, which stands a good chance of passage, would reduce lending disclosures, ease community reinvestment standards, and lessen the industry's supervisory burden.
The plans, detailed below, could go a long way toward curbing the industry's rising compliance costs. Last year, according to the Federal Deposit Insurance Corp., banks spent more than $1 billion on compliance. That compares with total net income of $12.6 billion.
Regulatory relief legislation is being co-sponsored by Sen. Richard Shelby, R-Ala., and Sen. Connie Mack, R-Fla. And a similar House bill has been offered by Rep. Doug Bereuter, R-Neb.
Here are the main provisions. Lending Disclosures
On several fronts, the Senate legislation tries to simplify home mortgage lending.
The bill would allow the Federal Reserve Board to combine the disclosure requirements of Truth-in-Lending with those of the Real Estate Settlement Procedures Act, eliminating duplicate disclosures.
It also would let "sophisticated" borrowers - those with annual incomes of more than $200,000 or assets of more than $1 million - waive their right to disclosures under Truth-in-Lending. The Fed would have the power to exempt banks from making disclosures if the information would not benefit the consumer.
The bill would eliminate third-party closing agent fees from the finance charges that must be disclosed under Truth-in-Lending. That move is an attempt to clear up a problem caused by the "Rodash" decision, a controversial court ruling last year that allowed a borrower to rescind amortgage loan because certain fees were not disclosed in the finance charge.
Banks would have one less regulator if the bill is enacted because responsibility for Respa would be transferred to the Fed from the Department of Housing and Urban Development.
In addition, some of the more complicated Respa disclosures - including those covering secondary market practices and the use of examples of interest rate adjustments - are targeted for simplification.
The legislation would virtually repeal Truth-in-Savings. The only surviving mandate under this law would be for banks to show how they compute the interest rate. The bill would eliminate requirements to disclose information on the annual percentage yield, maturity of the account, and whether the rate will change. Fair-Lending, Community Reinvestment
The Senate proposal also addresses several issues in fair-lending.
For example, the bill would protect banks from getting into trouble by self-testing for discrimination. Banks have been worried that negative results would be used against them in an exam or lawsuit.
Not all regulators agree. "If we begin restricting examiner access to certain internal documents, we foster a more adversarial climate," said Jonathan Fiechter, acting director of the Office of Thrift Supervision.
Community Reinvestment Act provisions in the bill have attracted the most criticism. Regulators object to the legislation, arguing that a recent overhaul of CRA rules does the job.
The bill would give banks a safe harbor from community protests when they earn CRA ratings of "satisfactory" or better. It also would entirely exempt banks with assets of less than $250 million from CRA.
In addition, all CRA record keeping requirements would be abolished. Specifically, banks would not have to collect or report loan data. That would reverse the expanded data collection requirements under the new CRA rules. Supervision
Finally, the Senate bill addresses several safety and soundness issues. Most importantly, it would let regulators stretch examination cycles for small banks to 24 months.
The bill also would allow well-managed and well-capitalized bank holding companies that have high CRA ratings to acquire other banks without prior approval.
In order to avoid such a drastic overhaul in the future, one provision calls for a review of all bank regulations every 10 years.