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WESTCHESTER HOUSING FUND
From: Kim Jacobs
[mailto:kjacobs@bestweb.net]
Sent: Saturday, March 20, 2004 8:48 AM
To: Comments
Subject: Interagency Notice of Proposed Rulemaking, Community
Reinvestment Act
Kim Jacobs
14 Saw Mill River Road
Hawthorne, NY 10532
March 20, 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:
Westchester Housing 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 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. 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,
Kim Jacobs
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