Housing Research & Advocacy Center
August 27, 2004
Mr.
Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW
Washington, DC 20429
Dear Mr. Feldman: As
a member of the National Community Reinvestment Coalition, The Housing
Research & Advocacy Center urges you to withdraw your
proposed changes to the Community Reinvestment Act (CRA) regulations.
The Housing Research and Advocacy Center has been involved with
fair lending issues for the last twenty (20) years. The lack of credit
or toxic credit has an enormous impact upon historically underserved
neighborhoods in Cleveland as well as throughout the State of Ohio.
Our Agency has documented racial disparity trends in lending for
a number of years and has challenged mergers in the past. In addition
to analytical analysis and GIS work, the Housing Center has been
involved in fair lending testing for the past two (2) years. We have
recently received a new Fair Housing Initiatives Program (FHIP) enforcement
grant and will continue to focus our attention on testing lending
institutions for equal access to credit.
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. Your
proposed changes are contrary to the CRA statute and Congress' intent
because they will slow down, if not halt, the progress made in community
reinvestment.
The proposed changes will thwart the Administration's goals of improving
the economic status of immigrants and creating 5.5 million new minority
homeowners by the end of the decade. Since FDIC Chairman Powell,
a Bush Administration appointee, is proposing the changes, the sincerity
of the Administration's commitment to expanding homeownership and
economic development is called into question. How can an administration
hope to promote community revitalization and wealth building when
it proposes to dramatically diminish banks' obligation to reinvest
in their communities?
Under the current CRA regulations, 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 state-charted banks with assets
between $250 million and $1 billion. In place of the investment and
service parts of the CRA exam, the FDIC proposes to add a community
development criterion. The community development criterion would
require banks to offer community development loans, investments or
services.
The community development criterion would be seriously deficient
as a replacement for the investment and service tests. Mid-size banks
with assets between $250 million and $1 billion would only have to
engage in one of three activities: community development lending,
investing or services.
Currently, mid-size
banks must engage in all three activities. Under your proposal,
a mid-size bank can now choose a community development
activity that is easiest for the bank instead of providing an array
of comprehensive community development activities needed by low-
and moderate-income communities.
The proposed community development criterion will result in significantly
fewer loans and investments in affordable rental housing, Low-Income
Housing Tax Credits, community service facilities such as health
clinics, and economic development projects. It will be too easy for
a mid-size bank to demonstrate compliance with a community development
criterion by spreading around a few grants or sponsoring a few homeownership
fairs rather than engaging in a comprehensive effort to provide community
development loans, investments, and services.
Your proposal would make 879 state-chartered banks with over $392
billion in assets eligible for the streamlined and cursory exam.
In total, 95.7 percent or more than 5,000 of the state-charted banks
your agency regulates have less than $1 billion in assets. These
5,000 banks have combined assets of more than $754 billion. The combined
assets of these banks rival that of the largest banks in the United
States, including Bank of America and JP Morgan Chase. Your proposal
will drastically reduce, by hundreds of billions of dollars, the
bank assets available for community development lending, investing,
and services.
Greater Cleveland
and specifically the City of Cleveland has benefited from comprehensive
community reinvestment agreements between the
City of Cleveland and local lenders. Quite literally, billions of
dollars have been reinvested in historically underserved neighborhoods
in the City of Cleveland. Whole neighborhoods have been revitalized
including Church Square, which stood on the corner of a vacant and
weed-filled lot at E. 79th & Euclid Avenue. The CRA is a powerful
tool to bring capital into neighborhoods and create public/private
partnerships that are important to the revitalization of all neighborhoods.
In addition to the flow of capital, fair housing issues and fair
lending, are an important part of CRA.
The elimination of the service test will also have harmful consequences
for low- and moderate-income communities. CRA examiners will no longer
expect mid-size banks to maintain and/or build bank branches in low-
and moderate-income communities. Mid-size banks will no longer make
sustained efforts to provide affordable banking services, and checking
and savings accounts to consumers with modest incomes. Mid-size banks
will also not respond to the needs for the growing demand for services
needed by immigrants such as low cost remittances overseas.
Banks eligible
for the FDIC proposal with assets between $250 million and $1 billion
have
7,860 branches. All banks regulated by the FDIC
with assets under $1 billion have 18,811 branches. Your proposal
leaves banks with thousands of branches "off the hook" for
placing any branches in low-and moderate-income communities.
Another destructive element in your proposal is the elimination
of the small business lending data reporting requirement for mid-size
banks. Mid-size banks with assets between $250 million and $1 billion
will no longer be required to report small business lending by census
tracts or revenue size of the small business borrowers. Without data
on lending to small businesses, it is impossible for the public at
large to hold the mid-size banks accountable for responding to the
credit needs of minority-owned, women-owned, and other small businesses.
Data disclosure has been responsible for increasing access to credit
precisely because disclosure holds banks accountable. Your proposal
will decrease access to credit for small businesses, which is directly
contrary to CRA's goals.
Lastly, to make matters worse, you propose that community development
activities in rural areas can benefit any group of individuals instead
of only low- and moderate-income individuals. Since a
significant number of rural residents are affluent, your proposal
threatens to divert community development activities away from
the low- and moderate-income communities and consumers that CRA
targets. Your proposal for rural America merely exacerbates the
harm of your proposed streamlined exam for mid-size banks. Your
streamlined exam will result in much less community development
activity. In rural America, that reduced amount of community development
activity can now earn CRA points if it benefits affluent consumers
and communities. What's left over for low- and moderate-income
rural residents are the crumbs of a shrinking CRA pie of community
development activity.
In sum, your proposal is directly the opposite of CRA's statutory
mandate of imposing a continuing and affirmative obligation to meet
community needs. Your proposal will dramatically reduce community
development lending, investing, and services. You compound the damage
of your proposal in rural areas, which are least able to afford reductions
in credit and capital. You also eliminate critical data on small
business lending. Two other regulatory agencies, the Federal Reserve
Board and the Office of the Comptroller of the Currency, did not
embark upon the path you are taking because they recognized the harm
it would cause.
If your agency was serious about CRA's continuing and affirmative
obligation to meet credit needs, you would be proposing additional
community development and data reporting requirements for more banks
instead of reducing existing obligations. A mandate of affirmative
and continuing obligations implies expanding and enlarging community
reinvestment, not significantly reducing the level of community reinvestment.
CRA is too vital to be gutted by regulatory fiat and neglect. If
you do not reverse your proposed course of action, we will ask that
Congress halt your efforts before the damage is done.
Sincerely,
Charles H. Bromley
Director
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