Reps. Frank and Sanders Call for Congressional Hearings on CRA Proposal (2004- Blocked CRA Changes)

WASHINGTON—House Financial Services Committee Ranking Member Barney Frank (D-MA) and Rep. Bernie Sanders (I-VT), the Ranking Member of the Financial Institutions and Consumer Credit Subcommittee today called for a hearing into proposed changes to Community Reinvestment Act (CRA) regulations.

The Federal Deposit Insurance Corporation (FDIC) Tuesday announced its proposed rulemaking that would allow institutions with up to $500 million in assets, instead of $250 million according to current rules, to face less stringent CRA requirements. The proposed rule would also let institutions exclude lending activities of certain affiliates from CRA examinations and create a vague and weak anti-predatory lending standard.

In a letter to Committee Chairman Michael Oxley (R-OH) Reps. Frank and Sanders stressed the need for Congress to review the impact of the proposed regulations. The financial regulators have also heard from several community groups opposed to the changes. Last week during the Federal Reserve Board’s hearing in Boston on the proposed merger of FleetBoston and Bank of America numerous speakers stressed the importance of the CRA as a tool for community and economic development.

“The regulators’ proposals to cut back on CRA goes in precisely the wrong direction,” said Rep. Frank. “For example, with financial industry consolidation going forward so rapidly, allowing institutions to exclude large parts of their activities from CRA requirements is an assault on the principles behind the Act.”

“The Community Reinvestment Act has been instrumental in increasing affordable housing, and making sure that banks throughout this country play a more responsible role in their communities,” said Rep. Sanders. “The CRA is working extremely well and must not be weakened. Instead of diminishing the CRA, as the proposed regulations call for, we must strengthen it. If this proposal goes into effect, fewer people will realize the dream of homeownership, fewer small businesses will get off the ground, fewer jobs will be created, and fewer neighborhoods will be rebuilt. I look forward to working with the regulators and Ranking Member Frank, and other Members of the Financial Services Committee to make sure that this disastrous proposal does not go into effect.”

The Community Reinvestment Act was enacted in 1977 to address redlining by requiring banks to make loans in neighborhoods where they collect deposits. The Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) are expected to approve the proposal soon and issue it for public comment.

Good find!

Here’s what La Raza said in 2004:

http://www.responsiblelending.org/pdfs/CRAsignon-FDIC-0904.pdf

September 8, 2004
The Honorable Donald E. Powell
Chairman
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429

Dear Chairman Powell:

The undersigned organizations urge you to withdraw the proposal of the Federal Deposit Insurance Corporation to quadruple (to $1 billion) the minimum asset size for applying the full Community Reinvestment Act (CRA) exam to state chartered non-member banks, which would have a devastating impact on lending, housing, and access to financial services in urban and rural communities across America.

CRA has been instrumental in increasing homeownership, boosting economic development, and expanding small businesses in the nation’s minority, immigrant, and low- and moderate-income communities. The FDIC proposal would dramatically diminish banks’ obligation to reinvest in their communities. It revises the CRA rules to make the less rigorous CRA exam applicable to an additional 900 banks with assets totaling $401 billion. Adoption of the FDIC measure is likely to mean the loss of hundreds of millions of dollars in loans, investments, and services for local communities and would disproportionately impact rural areas and small cities where the market presence of these mid-sized banks is often great.

FDIC rulemaking on this matter is flawed both in terms of procedure and substance. The draft proposal was adopted on a divided vote at a board meeting that was called on unusually short notice, and that provided some board members with only limited opportunity for prior review. The board provided a minimal 30-day public comment period. This comment period is unusually and unnecessarily brief for consideration of such a controversial rule and began during a traditional summer vacation month. Haste to enact proposed changes as soon as one month after the close of the comment period could be seen by consumers as evidence of disregard for public input.

The FDIC rule, as proposed, would greatly weaken or eliminate extremely important standards necessary to ensure that CRA is effective. The proposed change would weaken the lending test and also eliminate the investment and service parts of the CRA exam for FDIC supervised banks that have assets between $250 million and $1 billion.

The FDIC’s plan to add a weak or trivial community development criterion in lieu of the investment and service tests applicable today (that collectively count for 50 percent of a bank’s CRA grade) is a wholly inadequate substitute for the present exam standards. The new factor permits these banks to satisfy the community development criterion by choosing whether to provide community development loans, investments or services instead of assessing their performances for all three categories, as is currently required. This change is likely to result in a significant drop-off of lending, investments and services for affordable housing development, Low Income Housing Tax Credits, community service facilities, such as clinics, and economic development projects.

Another harmful element in the proposal is the dramatic weakening of the lending test for midsize banks which could decrease access to credit for many Americans. Under the proposal banks with assets between $250 million and $1 billion will no longer be subject to the rigorous examination of their mortgage, small business, small farm, and consumer lending. Further, these banks would no longer be required to collect and report essential lending information such as small business lending by census tracts or revenue size of the small business borrowers. Without data on lending to small businesses and small farms, it is impossible for the public to know how well these midsize banks help to meet the credit needs of their local communities.

We also fear that the elimination of the service test will have harmful consequences for low- and moderate-income consumers. It takes away the regulatory incentive for midsize banks to maintain and open new branches and ATM machines serving low-and moderate-income geographies. It is also likely to undercut the extent to which these banks provide affordable banking services and checking and savings accounts necessary for bringing unbanked households into the financial mainstream or money transfer and remittance services, which are particularly important to new immigrants and ethnically diverse communities.

According to the FDIC data, the rule change would mean that only 223 of 5,291 (about 4% ) of all FDIC-supervised banks would continue to receive the full CRA exam. It would affect some parts of the U.S. more drastically than others. Ninety-nine percent of rural FDIC-supervised banks would be
exempted from full coverage. We calculate that no FDIC-supervised banks in eight states (Alaska, Arizona, Idaho, Minnesota, Montana, New Mexico, West Virginia and Wyoming) would be fully covered by CRA. Thirty-six other states would have five or fewer banks facing full CRA scrutiny.

In addition, this proposal would broaden the definition of community development in rural areas so that banks could receive CRA “credit” even if these activities are not particularly directed at serving the needs of low- and moderate-income households, as is presently required. The proposal would be particularly harmful to rural counties, which already have fewer banks. Rural counties have 4.3 banks compared to 10.9 banks in urban counties, on average.

The FDIC proposal and the rule recently adopted by the OTS diminish the CRA requirements for midsize banks and work at cross purposes with the Act’s statutory mandate. As you know, this mandate requires that banks, regardless of their asset size, have a continuing and affirmative obligation to serve the credit and deposit services needs of their local communities, including lowand moderate-income areas.

We urge you to withdraw this proposal.

Sincerely,

AARP
ACORN
AFL-CIO
American Corn Growers Association
Center for Community Change
Center for Rural Strategies
Coalition for Responsible Lending
Coalition of Community Development Financial Institutions
Consumer Federation of America
Consumers Union
Enterprise Foundation
Federation of Southern Cooperatives
Housing Assistance Council
Leadership Conference on Civil Rights
Local Initiatives Support Corporation
NAACP
NAAHL
National Association of Consumer Advocates
National Association of Counties
National Association of Housing and Redevelopment Officials
National Catholic Rural Life Conference
National Community Action Foundation
National Community Capital Association
National Community Development Association
National Community Reinvestment Coalition
National Congress of American Indians
National Consumer Law Center
National Council of La Raza
National Fair Housing Alliance
National Family Farm Coalition
National League of Cities
National Low Income Housing Coalition
National People’s Action (NPA)
National Training and Information Center (NTIC)
National Tribal Development Association
National Urban League
Rural Coalition/Coalición Rural
Stand Up for Rural America
United Auto Workers
U.S. Conference of Mayors
U.S. Public Interest Research Group

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