Appleseed Foundation
From: Skyler
Badenoch [mailto:SBadenoch@appleseeds.net]
Sent: Friday, September 17, 2004 2:31 PM
To: Comments
Subject: RIN 3064-AC50
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: RIN3064-AC60
September 14, 2004
Dear Mr. Feldman,
The Appleseed
Foundation, a non-profit, non-partisan organization committed to
positive social
change in the United States, is concerned
about the proposed rules that would change the definition of “small
bank” and thus impact the Community Reinvestment (CRA) obligation
of a number of banks that currently serve both urban and rural areas.
Many of the states in which we work have seen dramatic increase in
predatory lending in the past decade. We believe that any measure
that would reduce access to credit and services for lower-income
individuals will only exacerbate that disturbing trend.
We are concerned
about increasing the “small bank” asset
limit to $1 billion and reducing the CRA obligations of banks that
fall into the $250 million to $1 billion basket. This policy would
only hurt large and growing low- to moderate-income individuals that
include people in economically struggling rural areas, new immigrants,
and the working poor. The FDIC has made great strides in working
with financial institutions to serve new immigrants, and it is in
that context that this policy proposal is particularly surprising.
This proposal would reduce incentives for financial institutions
to reach out to marginalized communities, particularly with respect
to smaller community banks whose entire CRA business model involves
targeting this growing market.
Your sister financial regulators, the Board of Governors of the
Federal Reserve System and the Office of the Comtroller of the Currency
have both already rejected similar proposed rules. It is unclear
to us why the FDIC would want to pursue such a policy on its own
despite significant evidence that the policy would divert much needed
investment and product innovation to serve our poorest communities.
We respectfully urge you to maintain consistency in the CRA regulatory
scheme.
We fear that
creating a disparate regulatory burden based on the identity of
a financial
institution’s primary federal regulator
will cause a race to the bottom as many banks rush to find a banking
agency with the lowest common denominator for CRA compliance. The
large number of local and national banks would simply change their
CRA compliance obligations by withdrawing from the Federal Reserve
system. The merits and demerits of membership in the Federal Reserve
system is a weighty topic whose debate is beyond the scope of this
letter, but we believe that in no event should the CRA become the
deciding factor in a financial institution’s decision to join
or withdraw.
Three other components
of the proposed rule concern us: the broad definition of “rural community,” the
reduced reporting requirements for banks with assets between $250
million and $1 billion,
and the overly flexible system for assessing bank community development
activities.
The proposed community development criteria provide CRA credit for
serving any individual residing in a rural community. There is no
focus on low- to moderate-income rural residents, which is the community
in greatest need and with the fewest financial service options. Allowing
credit for generally serving rural communities would allow banks
to serve the most profitable rural community members and businesses
and receive CRA credit, which goes against the sprit of the Community
Reinvestment Act.
The elimination
of certain reporting requirements for banks that would benefit
from the new “small bank” definition
will hinder transparency in banking practices. It is important
to have
key community development information available so that local areas
can assess how well their banks are serving their communities. Without
sufficient statistical information, it is difficult for a community
to analyze and understand how much effort a bank is making to serve
the needs of lower income community members.
Finally, the
new system for assessing a bank’s community development
activities is overly flexible and encourages banks to focus on the
easiest activities rather than those that are most beneficial to
the less privileged members of the community the bank serves. It
is necessary for banks to support community organizations serving
lower income population groups. These activities are crucial, but
cannot have a significant impact without banks expanding reasonably
priced lending opportunities for low- and moderate- income individuals
and providing innovative financial service products to make mainstream
financial services both accessible and affordable for all Americans.
It is the sum of efforts rather than any individual part that creates
true community impact.
The FDIC has launched a wonderful financial education campaign focused
on banking the unbanked and creating more sophisticated financial
service consumers. The impact of the new rules would be to reduce
financial service options for those benefiting from the FDIC financial
education program. It is beneficial to teach people new information,
but with that information must come possibilities. Any community
development test should assess all of the aspects of community development
and require that banks do their best to serve the financial service
and lending needs of their entire community.
Our organization believes strongly that profit and community benefit
can coexist. The Community Reinvestment Act is a perfect example
of how the government can positively impact communities while preserving
the need of banks to be profitable and sound. Adopting the proposed
rule would tip the balance to the side of profit, leaving communities
to suffer. Such a policy may be beneficial to banks in the short
term, through cutting expenses related to the CRA examination process.
In the long term, it has great potential to decrease asset building
for lower income Americans, limiting the number of people moving
out of the low- to moderate-income category. The effect of this policy
will end up hurting banks by shrinking the potential future upper
income customer base.
We thank you for the opportunity to weigh in on this important issue,
and hope that you will give serious consideration to our comments.
The CRA has proved to be an effective tool in building low-income
communities. Why change something that is working?
Sincerely,
Skyler Guard Badenoch
The Appleseed Foundation
727 15th Street, NW
11th Floor
Washington, DC
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