5 April, 2004
Docket No. 04-06
Communications Division
Public Information Room, Mail stop 1-5
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Docket No. R-1181
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Regulation Comments, Attention: No. 2004-04
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street NW
Washington DC 20552
Dear Officials of Federal Financial Regulatory Agencies:
In response to the request for public comment on Proposed Changes
to the Community Reinvestment Act, I should like to offer the following
comments against the changes:
Before entertaining the proposed changes, it might be better to
examine how well financial institutions subject to the Act are performing
against the existing requirements and mandates. Regulators should
make this evaluation not from the statistics of examination results,
but whether these institutions are indeed responding to the actual credit needs of the communities they serve.
The primary rational
for this suggestion is the strange situation where we see the dramatic
growth of the payday advance industry at
the same time when almost all banks receive “Satisfactory” ratings
on their CRA examination.
By definition a payday advance customer must have both a job and
a checking account. The borrower must write a post-dated check to
secure his loan. Under CRA, these depository customers should be
able to turn to their banks for these types of loans. But they do
not.
These
customers are neither “un-bankable” nor financially
illiterate. They just can’t find banks that make short-term,
small dollar value, unsecured loans – the type of loans that
millions of low- to moderate-income consumers need to handle personal
emergencies. Although situations requiring just a few hundred dollars
may appear inconsequential to bankers, they are cataclysmic to those
in need:
• The lady who
needs $200 to fix the clutch in her car so that she can get to
work and keep her job;
• The mother who needs $300 for the security deposit on the first apartment
for her family outside of public housing; and
• The father who needs $150 to keep from having the electricity turned
off in his apartment.
Representatives of bank regulatory agencies have told me that, in
practice, regulators have interpreted the CRA mandate only in terms
of mortgages. But it would appear logical that without access to
short-term, small dollar value, unsecured loans, hard-working Americans
who live paycheck to paycheck are even less likely to achieve the
goal of home ownership.
Instead, the
lady can’t fix her car, loses her job and files
for unemployment benefits. The mother resigns herself to life in
the projects, where her children inherit the public subsistence mentality.
And the father’s family has to deal with the demoralizing ramifications
of no lights, no refrigerator, no stove, no hot water, no radio,
and no TV.
My consulting
practice deals solely with using technology to expand access to
financial
services to underserved populations. Engagements
have targeted populations in South Africa, the Middle East and here
in the US. In each of these environments, banks have given many reasons
for not serving the credit need of low-income consumers. Here in
the U.S., the few banks that do support the extension of small, short-term
loans to the poor are being persecuted and driven from the business.
None of it seems right – to me.
This nation has
conferred on banks a legal monopoly to hold consumer deposits.
With that
privilege comes a moral responsibility and regulatory
duty to serve the credit needs of their depositors – from long-term
mortgages to short-term emergency loans. After years of abuse, these
responsibilities and duties were written into the spirit, if not
the letter of the Community Reinvestment Act. But they cannot work
without enforcement.
As you revisit
this important legislation, I encourage you to hold the institutions
under your
supervision to the strictest interpretations
of requirements of the existing Act. If the language therein does
not suffice to ensure that all Americans – like those cited
above – can rely on their banks for credit when they need it,
I urge you to strengthen both the wording of the Act and the requirements
of subsequent examinations.
Please, do not
make it easier for banks in the greatest nation in the world to
ignore
the basic financial needs of our poorer citizens.
Use all your regulatory powers to force banks, thrifts and other
insured depository institutions – regardless of asset
size – to
increase their investments in and services to low- to moderate-income
neighborhoods. Increase – not decrease or streamline – the
rigor of CRA examinations to ensure protections for those who cannot
protect themselves.
Please demand that banks and thrifts of all sizes provide branches,
accounts and services to all
citizens and communities, directly or through those state-licensed
entities on which low- to moderate-income consumers rely for their
financial needs.
Please be careful
not to allow your important efforts to be compromised by specious
claims
and semantic games around what is or is not a “predatory” loan.
Clearly, a high rate or fee should not be the sole defining characteristic
of a predatory activity. In the absence of alternatives, what may
appear a high cost to one, may be a market rate to another. Many
attempts to make cost the primary determinant of illegal lending
appear to be aimed at eliminating those lenders that do make loans
to consumers who cannot obtain credit from the banks that hold their
depositors.
By closing branches in poor neighborhoods, gerrymandering service
areas and co-opting the service test to examine only mortgages, banks
have given the impression that they are serving the credit needs
of their depositors. But, there is ample evidence that banks have
actually curtailed lending and other financial services to low- to
moderate-income consumers as well as the non-bank financial intermediaries
to which these citizens must turn to satisfy their needs. Only by
increasing the scope and rigor of the CRA examinations of all banks
and thrifts, regardless of size, will those who most need credit,
regardless of term, be assured of its availability.
Thank you for providing the opportunity for this comment.
Sincerely,
James R. Wells, Jr.
Fort Lauderdale, FL
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