It is clear from their work product that few drafters of banking laws have worked as bank counsel or compliance officers. Recent attempts to reform banking laws particularly those related to consumer credit are a hodgepodge of redundant, often confusing requirements that often fail to protect borrowers.
The problem is particularly acute in the case of residential mortgage transactions. Borrowers are asked to sign a bewildering array of disclosures and acknowledgements; reading all of this paperwork would easily take a good part of a day. The result is that borrowers sign acknowledgements without reading them and give only a cursory glance-if that-to the other consumer protection documents they are supposed to read. Most borrowers simply want to know when they will receive the loan and how soon they can leave the closing.
The only discernable purpose of such requirements is to provide a paper trail that will enable regulators to go after banks for compliance failures. In order to protect themselves, banks must hire armies of compliance personnel, which can add significantly to their cost of doing business. When business costs rise, price increases usually follow. It is likely that the intended beneficiaries of consumer protection laws will receive less favorable loan terms as a result of them.
The problem is clear. It is time for bankers to offer a solution by putting together a team of experienced bank attorneys and compliance officers tasked with drafting model legislation to simplify consumer protection laws and regulations without sacrificing necessary protections. The task force could also endeavor to help bankers by providing clear, step-by-step guidelines as to how banks can comply with all federal consumer protection laws and regulations.
Such an undertaking would best be done on a cooperative basis, as it would strain the resources of individual banks. For example, the effort could be organized under the auspices of the American Bankers Association. The time may also be right for the ABA to commission another study on the burden of bank regulation, as they did back in 1982. Moreover, it would be interesting to undertake a study of consumers' reactions to all the paperwork they are supposed to read.
Of course, it is unlikely that Congress will adopt any measures proposed by bankers. Nonetheless, hope springs eternal.
William Aukamp is counsel at the law firm of Werb & Sullivan in Wilmington, Del.