Small Business Finance
Distribution
Docket No. 04-06
Communications Division
Public Information Room, Mailstop 1-5
Office of the Comptroller of the Currency
250 E St. SW,
Washington, DC 20219
Via email to regs.comments@occ.treas.gov
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
Via email to regs.comments@federalreserve.gov
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
Via email to comments@fdic.gov
Regulation Comments, Attention: No. 2004-04
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street NW
Washington DC 20552
Via email to regs.comments@ots.treas.gov
April 5, 2004
Dear Officials of Federal Bank and Thrift Agencies:
As a member of the National Community Reinvestment Coalition, CDC
Small Business Finance urges you to withdraw the proposed changes to the
Community Reinvestment Act (CRA) regulations.
CRA has been instrumental in increasing access to homeownership,
boosting economic development, and expanding small businesses in the
nation’s minority, immigrant, and low- and moderate-income communities.
Your proposed changes are contrary to the CRA statute because they will
halt the progress made in community reinvestment.
In our communities, CRA has allowed us to pilot new programs and
services in partnership with banks to reach small businesses with
capital and technical assistance services that have resulted in new
jobs, businesses and revitalization.
The proposed CRA changes will not assist in provide the economic
stimulus necessary to ensure that new jobs are created by our small
businesses.
The proposed changes include three major elements: 1) provide
streamlined and cursory exams for banks with assets between $250 million
and $500 million; 2) establish a weak predatory lending compliance
standard under CRA; and 3) expand data collection and reporting for
small business and home lending. The beneficial impacts of the third
proposal are overwhelmed by the damage imposed by the first two
proposals. In addition, the federal banking agencies did not update
procedures regarding affiliates and assessment areas in their proposal,
and thus missed a vital opportunity to continue CRA’s effectiveness.
Streamlined and Cursory Exams. Under the current CRA regulations,
large banks with assets of at least $250 million are rated by
performance evaluations that scrutinize their level of lending,
investing, and services to low- and moderate-income communities. The
proposed changes will eliminate the investment and service parts of the
CRA exam for banks and thrifts with assets between $250 and $500
million. The proposed changes would reduce the rigor of CRA exams for
1,111 banks that account for more than $387 billion in assets.
The elimination of the investment and service tests for more than
1,100 banks translates into considerably less access to banking services
and capital for underserved communities. For example, these banks would
no longer be held accountable under CRA exams for investing in Low
Income Housing Tax Credits, which have been a major source of affordable
rental housing needed by large numbers of immigrants and lower income
segments of the minority population. Likewise, the banks would no longer
be held accountable for the provision of bank branches, checking
accounts, Individual Development Accounts (IDAs), or debit card
services. Thus, the effectiveness of the Administration’s housing and
community development programs would be diminished. Moreover, the
federal bank agencies will fail to enforce CRA’s statutory requirement
that banks have a continuing and affirmative obligation to serve credit
and deposit needs if they eliminate the investment and service test for
a large subset of depository institutions.
Enhanced data disclosure. The federal agencies propose that they will
publicly report the specific census tract location of small businesses
receiving loans in addition to the current items in the CRA small
business data for each depository institution. This will improve the
ability of the general public to determine if banks are serving
traditionally neglected neighborhoods with small business loans. Also
the regulators propose separately reporting purchases from loan
originations on CRA exams and separately reporting high cost lending
(per the new HMDA data requirement starting with the 2004 data).
The positive aspects of the proposed data enhancements do not begin
to make up for the significant harm caused by the first two proposals.
Furthermore, the federal agencies are not utilizing the data
enhancements in order to make CRA exams more rigorous. The agencies must
not merely report the new data on CRA exams, but must use the new data
to provide less weight on CRA exams to high cost loans than prime loans
and assign less weight for purchases than loan originations.
Missed Opportunity to Update Exam Procedures: The agencies also
failed to close gaping loopholes in the CRA regulation. Banks can still
elect to include affiliates on CRA exams at their option. They can thus
manipulate their CRA exams by excluding affiliates not serving low- and
moderate-income borrowers and excluding affiliates engaged in predatory
lending. The game playing with affiliates will end only if the federal
agencies require that all affiliates be included on exams. Lastly, the
proposed changes do not address the need to update assessment areas to
include geographical areas beyond bank branches. Many banks make
considerable portions of their loans beyond their branches; this
non-branch lending activity will not be scrutinized by CRA exams.
The proposed changes to CRA will directly undercut the
Administration’s emphasis on minority homeownership and immigrant access
to jobs and banking services. The proposals regarding streamlined exams
and the anti-predatory lending standard threaten CRA’s statutory purpose
of the safe and sound provision of credit and deposit services. The
proposed data enhancements would become much more meaningful if the
agencies update procedures regarding assessment areas, affiliates, and
the treatment of high cost loans and purchases on CRA exams. CRA is
simply a law that makes capitalism work for all Americans. CRA is too
vital to be gutted by harmful regulatory changes and neglect. Thank you
for your attention to this critical matter.
Sincerely,
Kurt Chilcott
Small Business Finance
925 Fort Stockton Dr
San Diego, CA 92103
cc National Community Reinvestment Coalition
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