Neighborhood
Economic Development Advocacy Project
April 6, 2004
Docket No. 04-06
Communications Division
Public Information Room, Mailstop 1-5
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
email: 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
email: regs.comments@federalreserve.gov
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
email: comments@fdic.gov
Regulation Comments, Attention: No. 2004-04
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street NW
Washington, DC 20552
email: regs.comments@ots.treas.gov
Dear Officials of Federal Bank and Thrift Agencies:
The Neighborhood Economic Development Advocacy Project (NEDAP) joins
community organizations, elected officials, and community financial
institutions from around the country in calling on your agencies
to withdraw the proposed changes to the Community Reinvestment Act
(CRA) regulations. For the reasons set forth below, NEDAP urges your
agencies not to implement the proposed changes. Taken as a whole,
we regard the proposal as contrary to the CRA.
Our comments address each of the following three proposed regulatory
changes:
• A doubling of the definition of “small bank” from
$250 million to $500 million;
• A provision that evidence of abusive lending by the bank,
and possibly its affiliates, could adversely affect the bank’s
CRA evaluation; and
• Improved
disclosure of small business lending data, by calling for public
disclosure
of census tracts in which banks make small
business loans, and a distinction between loans purchased and loans
originated by a bank.
NEW SMALL BANK DEFINITION WOULD UNDERMINE THE CRA
The proposed change to the small bank definition would constitute
further erosion of the CRA, by eliminating investment and service
parts of the CRA exam for approximately 1,100 banks and thrifts
that fall above the current $250 million threshold. This change
could have seriously negative consequences for communities throughout
the country. More than a thousand bank and thrifts would no longer
be held accountable under CRA for investing in Low Income Housing
Tax Credits, for example, which have been a major source of affordable
rental housing. 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.
The agencies
set forth in their preamble several explanations for the proposed
new small
bank definition. These explanations focus
on reducing CRA’s burden to banks that fall just above the
current definition but must compete with considerably larger institutions.
We question this rationale, among other reasons, given the very purpose
of the performance context, which ostensibly takes all these considerations
into account.
PREDATORY LENDING STANDARD
We applaud the agencies for addressing abusive mortgage lending under
the proposed CRA amendments. As all of the federal banking agencies
know, predatory lending has become a pervasive problem in too many
low income communities and neighborhoods of color, throughout the
country. It not only devastates homeowners’ lives but also
harms entire communities, and we agree with your agencies that
it is appropriate to apply CRA standards in this realm.
The standards proposed, however, strike a group like ours, which
has been working for years to combat predatory lending, as simply
inadequate. We are concerned it could effectively give cover to banks
and their affiliates that actually engage in abusive lending but
not necessarily in ways described in the regulation.
If the agencies were serious about cracking down on predatory lending,
they would not propose such weak standards. Also, as a matter of
public policy, we see no reason why the regulators would not automatically
reduce a CRA rating based upon a finding that the bank or its affiliates
engaged in discriminatory or abusive lending, particularly where
regulators find a pattern and practice thereof. From one point
of view, predatory lending is the moral opposite of CRA lending.
As our colleagues
have commented, the proposed CRA changes contain an anti-predatory
screen
that could actually perpetuate abusive lending.
That is, the standard of unaffordability for collateral-based loans
is itself problematic, as it would apply only when the loan has led
to delinquency or foreclosure. We recognize the affordability standard
is cited as an example, but the proposal fails to take into account
a long list of predatory and abusive practices that strip homeowners’ equity,
such as excessive fees, high prepayment penalties, loan flipping,
or junk products.
We urge the agencies
to apply any anti-predatory lending standard to all loans made
by
the bank and all of its affiliates, not just
real-estate secured loans issued by the bank in its "assessment
area," as currently proposed.
ENHANCED DATA DISCLOSURE
NEDAP generally supports the proposed disclosure of census tracts
in which a bank makes or purchases small business loans. Indeed,
the small business lending data now disclosed under CRA is notoriously
limited and opaque. It is extremely difficult for the public to
use the data to evaluate whether banks are serving small businesses
in historically underserved neighborhoods.
Although we support the additional disclosure item, we do not believe
that it cures the many limitations that characterize small business
lending disclosure under CRA. We would encourage the regulators to
include standards for using the new data in CRA exams, and to afford
greater weight to small business loans originated than to those purchased.
Despite the value of enhanced small business lending data disclosure,
NEDAP urges the regulators to withdraw their proposal. We regret
that the agencies also failed to take the opportunity to close gaping
loopholes in the CRA regulation. Banks may still elect to include
affiliates on CRA exams at their option, and can thereby continue
to manipulate their CRA exams by excluding affiliates not serving
low- and moderate-income borrowers and affiliates engaged in predatory
lending. We continue to urge the regulators to require that all affiliates
be included in CRA exams. Finally, the proposed changes do not address
the need to update assessment areas to include geographical areas
beyond bank branches.
Thank you for your attention to this critical matter.
Sincerely,
Sarah Ludwig
Executive Director
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