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FDIC Federal Register Citations

CONSUMERS UNION

September 7, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429

Re: RIN 3064-AC50

Dear Mr. Feldman:

Consumers Union, the nonprofit publisher of Consumer Reports,1 urges the FDIC to withdraw the proposed changes to the Community Reinvestment Act (CRA) regulations. The CRA is a key tool to increase low- and moderate-income homeownership, increase affordable rental housing stock, promote economic development in low-income communities, and in providing credit to small businesses in minority, immigrant, and low- and moderate-income communities. The FDIC’s proposed changes will impede progress in those areas.

Under the existing CRA regulations, banks with assets of at least $250 million are rated using performance evaluations that scrutinize their level of lending, investing, and services to low- and moderate-income communities. While we and others have in the past criticized these exams as too easy for the financial institutions to pass, the regular CRA examination covering each of the three areas does give an institution some incentive to provide services, credit, and capital to low-income communities. The proposed changes will eliminate the investment and service parts of the CRA exam for state-chartered banks with assets between $250 million and $1 billion. Instead, the FDIC proposes to add a so-called “community development” criterion.

Unfortunately, the “community development” criterion cannot adequately replace the investment and service tests. Mid-size banks, with assets between $250 million and $1 billion would have to engage in only one of three activities: community development lending, investing or services. Currently, mid-size banks should engage in all three activities. The FDIC proposal would permit a mid-size bank to select a community development activity that is easiest for the bank, regardless of the level of community need for community development lending, investing and services activities.

We believe that the FDIC’s proposed community development criterion will result in significantly fewer loans and investments in affordable rental housing, community service facilities, and job-creating economic development projects. It will be too easy for a mid-size bank to demonstrate compliance with a community development criterion by sponsoring discrete services such as a series of homeownership fairs, rather than engaging in a sustained and integrated effort to provide loans, investments, and services needed by low- and moderate-income communities.

According to statistics prepared by the National Community Reinvestment Coalition, the FDIC proposal would offer this more cursory CRA examination to the 879 state-chartered banks, which the FDIC regulates, that hold less than $1 billion in assets; yet the combined asset base of these institutions exceeds $754 billion. America’s struggling low- to moderate-income communities need these financial institutions to be fully engaged in neighborhood economic development, promoting homeownership, financing affordable rental housing, and developing lower-cost services for the unbanked. Streamlining the CRA examination and making it easier to pass it without a significant program serving varied needs is unlikely to improve the quality or quantity of participation in the community.

Consumers Union has been a long-time member of the California Reinvestment Coalition (CRC). In this work, we have seen first hand the benefits of CRA to urban and rural consumers. According to CRC, 84% of California’s state-chartered banks located within urban areas would be eligible for a more cursory exam under the new rule as well as 89% of California’s state-chartered rural financial institutions. The potential for this proposal to cause harm in rural communities is even higher because the proposal would count as CRA activities, even activities that fail to benefit low- or moderate-income consumers or communities. Home mortgages for high-end houses in rural areas are likely to squeeze, not help, lower-wage workers whose families may have lived in the area for generations. Rural America can least afford a loss of true CRA activity.

The elimination of the services test will also have harmful consequences for low- and moderate-income communities. CRA examiners would no longer expect mid-size banks to maintain and/or build bank branches in low- and moderate-income communities. Mid-size banks would no longer have a regulatory incentive to provide affordable banking services such as low-balance, low-fee checking and saving accounts to consumers with modest incomes. The regulatory impetus to develop new ways to serve the unbanked would be eliminated for many financial institutions. Finally, the regulatory impetus to site and maintain branches in low-income neighborhoods would be lost.

For these reasons, we ask you to withdraw this proposal.

Very truly yours,

Gail Hillebrand
Consumers Union
West Coast Office
1535 Mission St.
San Francisco, CA  94103


1 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the State of New York to provide consumers with information, education and counsel about goods, services, health, and personal finance; and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life of consumers. Consumers Union’s income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union’s own product testing, Consumer Reports with approximately 4 million paid circulation, regularly carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union’s publications carry no advertising and receive no commercial support.

 

Last Updated 09/08/2004 regs@fdic.gov

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