New Hampshire Community Loan Fund
From: Alan Cantor [mailto:acantor@nhclf.org]
Sent: Tuesday, April 06, 2004 11:34 AM
To: Comments
Subject: Interagency Notice of Proposed Rulemaking, Community Reinvestment
Act
Alan Cantor
7 Wall Street
Concord, NH 03304
April 6, 2004
Federal Deposit Insurance Corp
Robert Feldman, Executive Secretary
550 17th Street NW
Washington, DC 20429
Dear Insurance Corp:
Docket No. 04-06
Office of the Comptroller of the Currency
Docket No. R-1181
Board of Governors of the Federal Reserve System
Attention: Comments
Federal Deposit Insurance Corporation
Regulation Comments
Office of Thrift Supervision
To Whom it May Concern:
The New Hampshire Community Loan Fund appreciates the opportunity
to
comment on the Joint Notice of Proposed Rulemaking regarding the
Community
Reinvestment Act (CRA) [69 FR 5729].
While we commend your efforts regarding the expansion of data collection,
the other two proposed changes—definition of “small
banks” and predatory lending standards—will undermine
the
intent of the law in providing equitable lending in underserved
communities. We cannot support these proposals in their current form
and
we strongly urge you to withdraw the proposed definition of small
banks
and expand the predatory lending standards, as well as include additional
provisions to bring CRA in line with changes in the financial services
industry.
Change in the Definition of "Small Banks"
The agencies propose to make approximately 1,100 banks subject to
less
rigorous CRA exams by changing the "small bank" limit from
$250 million to
$500 million. The long history of partnership between banks and CDFIs
indicates that investment opportunities are available to banks of
all
sizes and in all regions. The proposal would particularly impact
rural
communities, where the number of institutions subject to complete
CRA
exams would decline by an estimated 73%.
We in New Hampshire certainly know this to be the case. We currently
have
13 banks that have invested in our organization, for a total of over
$7
million. These monies are, in turn, being leveraged into many times
that
in new jobs, better housing, and home ownership for lower-income
New
Hampshire Families. And the majority of the banks we have partnered
with
have been of the size that would be affected by this decision.
We strongly urges you to withdraw this proposed change from consideration
to ensure continued inclusion of "investment" and "service" tests
in the
CRA exams of a maximum number of banks.
Predatory Lending Standards
The provisions regarding predatory lending standards in the proposal
are
insufficient to protect consumers from abusive lending and could
actually
perpetuate the practice. The proposal rightly targets loans made
without
regard for the borrower's ability to repay, but fails to incorporate
other
instances of predatory practices, including fee packing, prepayment
penalties, and loan "flipping." Without a comprehensive
standard, the
inclusion of anti-predatory provisions into CRA becomes nearly meaningless
and, in fact, could allow CRA ratings to cover up for abusive practices.
We recommend that this proposal be strengthened significantly, and
that
the agencies develop a more meaningful plan to stop predatory lending.
Enhanced Data Disclosure
The Proposed Rule includes two new provisions for expanded data
collection
and disclosure. We believe that these proposals will improve access
to
affordable capital. The Home Mortgage Disclosure Act (HMDA) has
contributed significantly to reducing discrimination in housing finance,
and similar disclosure for small business lending can help ensure
fair and
equal access to credit for small businesses. Separate reporting of
high
cost loans and of loan purchases will better measure banks' service
to
low-income consumers. The agencies should use this new data in assigning
CRA ratings. Banks should receive more credit for loan originations
than
for purchases, and for prime (or the equivalent for business loans,
when
that data is available) loans versus high-cost loans.
Missed Opportunities to Enhance CRA and Community Reinvestment
The 1999 Gramm-Leach-Bliley
Act "modernized" the financial
services
industry without commensurate reform to community reinvestment
requirements. In order for CRA to keep pace with the financial services
industry, two important reforms are necessary.
1. Expand CRA coverage to all financial service institutions that
receive
direct or indirect taxpayer support or subsidy. After passage of
the 1999
Gramm-Leach-Bliley Act, banks became nearly indistinguishable from
finance
companies, insurance and securities firms, and other “parallel
banks.” However, CRA covers only banks, and therefore only
a
fraction of a financial institution’s lending. To keep
CRA in step
with financial reform, it should be extended to all financial services
companies that receive direct or indirect taxpayer support or subsidy.
We strongly urge regulatory agencies to mandate that all lending
and
banking activities of non-depository affiliates must be included
on CRA
exams, and that small banks that are part of large holding companies
not
be treated as small banks. This change would accurately assess the
CRA
performance of banks that are expanding their lending activity to
all
parts of their company, including mortgage brokers, insurance agents,
and
other non-traditional loan officers.
2. A bank’s
assessment area should be determined by how a bank
defines its market. Under CRA, banks are required to provide
non-discriminatory access to financial services in their market and
assessed according to where they take deposits. In 1977, taking deposits
was a bank’s primary function. In 2004, banks no longer
just accept
deposits, they market investments, sell insurance, issue securities
and
are rapidly expanding the more profitable lines of business. In addition,
the advent and explosion of Internet and electronic banking has blurred
the geographic lines by which assessment areas have been typically
defined.
Presently, CRA
exams scrutinize a bank’s performance in
geographical
areas where a bank has branches and deposit-taking ATMs. Defining
CRA
assessment areas based on deposits is at odds with the way financial
institutions now operate. Moreover, it disregards the spirit of the
CRA
statute, which sought to expand access to credit by ensuring that
banks
lent to their entire markets.
We recommend simplifying the definition of CRA assessment area according
to a financial institution’s customer base. For instance,
if a
Philadelphia bank has credit card customers in Oregon, it also has
CRA
obligations there. The obligations ought to be commensurate with
the
level of business in any market.
Conclusion
The Community Reinvestment Act has channeled billions of dollars
into
underserved markets and fostered new, productive partnerships between
banks and community organizations. We certainly know from our own
situation in New Hampshire that we simply could not have accomplished
half
of what we have done without the strong, CRA-inspired support of
the
banking community. The regulators must not roll back these gains
in
providing access to capital. Improved and enhanced data disclosure
is an
important step, but other aspects of the proposal threaten the expansion
of capital and credit in underserved communities. We urge you to:
• Maintain
an investment test as part of banks' CRA performance by
maintaining the current "small bank" definition. •
Continue to hold
banks that are part of large holding companies to the "large
institution"
standards. • Institute a strong, comprehensive predatory
lending
standard and ensure that abusive lending counts against an institution's
CRA rating. • Expand CRA so that it better reflects changes
in the
financial services industry brought about by market shifts, technology
advances, and financial modernization legislation.
Thank you for the opportunity to comment.
Sincerely,
Alan M. Cantor, Vice President, New Hampshire Community Loan Fund
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