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TISHOMINGO COUNTY DEVELOPMENT FOUNDATION
September 10, 2004
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW
Washington, DC 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
ECD/HOPE, a community development finance institution that has
assisted 1,600 businesses and generated $100 million in financing
throughout the rural Mid-South, is writing to express its grave concern
over the Federal Deposit Insurance Corporation (FDIC) proposed rule
changes to the Community Reinvestment Act (CRA). The proposed policies
threaten to stunt rural development efforts and to increase rural
predatory lending activity.
Below you will find ECD/HOPE's comments to each of the proposed rule
changes:
1) The FDIC seeks comment on whether the small bank definition
threshold of less than $1 billion is appropriate.
In the Mid South (AR, LA and MS), the proposed rule change will curb the
community reinvestment activity of approximately of 506 bank branches
that hold roughly $13.8 billion in deposits. Of the 506 bank branches
that would fall under the new "small bank" definition, roughly 325 serve
rural areas).
Under the proposed rule change the 325 branches serving rural areas
would have significantly fewer requirements to engage in affordable home
lending, to invest in small businesses and to educate consumers about
managing their finances. Additionally, rural consumers often face fewer
banking choices than their urban counterparts. As rural banks scale back
community investments to the regulatory minimum, the proposed policy
will create an environment where rural consumers increasingly turn to
subprime and predatory financial institutions to conduct financial
transactions.
Given the suggested policy's potential to diminish access to affordable
financial products in rural areas, ECD/HOPE deems that the proposed
"small bank" definition threshold of less than $1 billion is
inappropriate, harmful and disproportionately targeted towards rural
consumers with fewer banking choices. ECD/HOPE therefore recommends that
the FDIC maintain its current bank size definitions.
2) The FDIC seeks comment on whether or not a community development
performance criterion that offers choices to banks should be included in
future CRA exams.
In the FDIC notice of proposed rulemaking, the FDIC recommends a
community development criterion that the banks would choose "based on
the opportunities in the market and the banks' own strategic strengths."
ECD/HOPE deems the proposed community development criterion as a weak
recommendation and a smoke screen for medium sized banks to engage in
activities that require the least amount of human capital, the least
amount of expense and, ultimately, the least amount of community
investment.
Given the prevalence of medium size banks in rural areas, especially
in the Mid South where 97.7% of the rural institutions have assets of
less than $1 billion, ECD/HOPE strongly recommends that the FDIC
maintain its current bank size definitions. Many low- and
moderate-income rural consumers depend on medium sized banks for housing
and financial services. Medium sized banks must be held accountable for
all three components of the current CRA test – community development
lending, investing and services provided.
3) The FDIC proposes to change the definition of community
development in rural areas from a definition that "focuses on activities
that benefit low- and moderate-income individuals" to a definition that
defines community development as "activity [that] could benefit either
low-and moderate-income individuals or individuals who reside in rural
areas"
Essentially, by expanding the definition of rural community
development to include "individuals who reside in rural areas" the FDIC
has elected to use semantics to accomplish community reinvestment in
rural areas. Under the proposed definition, banks would receive equal
CRA credit for a home loan to a wealthy rural land owner residing in a
high income census tract and a first time minority homeowner living in a
low-income rural community. Given the equal credit of the two examples,
banks would naturally gravitate towards home and commercial lending
deals with perceived less risk in high income areas. Over time, low-and
moderate-income rural consumers, entrepreneurs and homeowners would
effectively be totally written out of rural bank priorities.
ECD/HOPE views the recommendation as preposterous and strongly urges
the FDIC not to adopt the expanded rural community development
definition. One possible way to increase community investment in rural
areas could be to heavily rate community development partnerships that
occur between banks, nonprofits and government entities to increase
homeownership and small business opportunities for low and moderate
income residents.
Contrary to the concerns of mid-sized banks, the CRA paperwork is not
an undue burden. Over time, the CRA is an instrument that will improve
the overall performance of banks. For example, rural banks that make
affordable housing a realistic goal for residents will experience an
increased demand for services. Unfortunately, perceptions and a history
of policies designed to limit access prevent this from happening in the
absence of the CRA. The FDIC has exhibited strong leadership in
the Mid South by reaching out to unbanked and under banked populations
through its commitment to the Money Smart program. ECD/HOPE strongly
urges the FDIC to avoid hypocrisy by saying one thing and doing another.
The FDIC should continue its leadership in the Mid South by withdrawing
the proposed rule changes and supporting the CRA in its current form.
Sincerely,
Gary Matthews, Executive Director
Tishomingo County Development Foundation
Iuka, MS |
