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FDIC Federal Register Citations
Vermont
PIRG
From:
Theresa@vpirg.org [mailto:Theresa@vpirg.org]
Sent: Monday, October 18, 2004 9:45 AM
To: Comments
Subject: VPIRG Opposes CRA Rule Change
18 Oct 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
RIN number 3064-AC50, Oppose Proposal To Weaken CRA
The Vermon Public Interest Research Group is a non-profit and non-partisan
organization with members across the state of Vermont and a deep and
abiding concern that federally-insured banks make available fairly priced
loans and other financial services in the communities where they are
chartered. We would like to add our voice to the massive number of voices
against your proposed Community Reinvestment Act (CRA) rule change. The
state PIRGs have long supported the CRA, a simple law that has had tremendously
positive results.
The costs of this ill-advised change to affected consumers and communities
far outweigh its alleged and largely spurious claimed benefits; these
costs to consumers and communities have not been adequately measured;
therefore, it is not in the public interest to go forward with a rule
that will so badly injure so many consumers (including many thousands
of members of protected classes as well as other low and moderate income
Americans) and communities (including many economically-impoverished
inner cities and rural areas).
Your proposal will drastically reduce, by hundreds of billions of dollars,
the bank assets available for community development lending, investing,
and services.
We urge the Federal Deposit Insurance Corporation (FDIC) to withdraw
the proposed rule changes to the Community Reinvestment Act (CRA). These
changes, along with similar new rules recently adopted by the Office
of Thrift Supervision, would have a devastating impact on access to credit
and affordable banking services for residents of low and moderate income
in urban and rural communities.
You should not weaken standards when communities across America have
witnessed dramatic increases in predatory lending and other abusive financial
services practices that thrive due to the lack of mainstream bank activity.
By quadrupling to $1 billion the minimum asset size that triggers a more
stringent CRA review, you will leave an additional 900 banks exempt from
well-established, more comprehensive CRA standards that have had a demonstratively
positive impact on affected consumers and communities. The proposal,
if adopted, would mean that only about 4% of FDIC-supervised banks (223
of 5,291), and only 1% of banks in rural areas would undergo the full
CRA examination.
Unfortunately, PIRG research and the research of other advocacy organizations
has shown that when regulated and insured financial institutions no longer
serve a community, under-regulated and largely predatory lenders take
over. We expect that the big winners from these rule changes will not
be the community banks that will supposedly save a few cents on regulatory
costs. Instead, the payday lenders, who charge triple-digit interest
rates, and other fringe financial service providers, who provide exorbitantly
priced services to those consumers who have nowhere else to turn, will
be the winners.
Consumers in affected communities will be the losers.
The current federal CRA statute has worked well. It is one of the greatest
success stories Congress has ever had—CRA is a clearly written,
simple and effective law that provides strong positive benefits without
restricting the creativity and flexibility of financial institutions
to develop new and innovative ways to comply. Amending a law that works
well, to exempt so many institutions without cause, would be a grave
mistake that the agency cannot justify.
CRA reaffirms the obligation of banks to serve all segments of their
communities, including low and moderate-income areas. For banks with
assets over $250 million the present CRA exam is comprised of a three-pronged
test that looks at a bank's record of providing lending, services, and
investments to their local communities.
Yet, your proposal dramatically weakens the lending testing and completely
eliminates the service and investment tests for banks with assets between
$250 million and $1 billion.
Among other things, the proposed change deletes any regulatory incentive
for these banks to open and maintain branches and ATM machines serving
low and moderate income geographies, to provide affordable banking services
and checking and savings accounts necessary for bringing the millions
of unbanked households into the financial mainstream and to offer money
transfer and remittance services, which are particularly important to
new immigrants and ethnically diverse communities.
The current "service test" is intended to encourage banks to
become more active in tending to essential retail banking services needs
of low- and moderate- income consumers. Yet you propose to eliminate
it for hundreds of banks.
Your proposal would mean that federal examiners for CRA purposes would
stop reviewing the retail transaction account services provided by the
exempted banks. FDIC has proposed a weak and totally inadequate "community
development criterion" to serve as a substitute for the elimination
of the present service and investment tests (these two tests together
presently comprise 50% of a bank's CRA grade). However, retail services
are not addressed at all in the proposal.
You have given no indication that you even considered the negative impacts
that this proposal will have on the critical needs of underserved consumers
and communities. By any standard, your decision to go forward with this
rule without considering the draconian negative impact it will have on
consumers and communities is arbitrary and capricious.
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 also 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.
Worse, your proposal’s goals are directly opposite to the 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. Indeed, 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.
For these and many other reasons, on behalf of our members and all consumers,
we again respectfully urge withdrawal of this proposal.
Sincerely,
Theresa Cassiack
Public Health/Consumer Advocate
VPIRG
141 Main Street, Suite 6
Montpelier, VT
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