UNITED STATES SENATE
May 17, 2004
The Honorable Alan Greenspan
Chairman, Federal Reserve Board of
Governors
20th Street and Constitution Avenue, NW
Washington,
DC 20551
Re: Community
Reinvestment Act Regulations
Dear Chairman Greenspan:
We are writing to express our strong opposition to the recently
published interagency proposal revising the Community Reinvestment
Act (CRA) regulations. This proposal dramatically weakens the effectiveness
of CRA, develops a weak predatory lending compliance standard, and
will have a negative impact on economic development and access to
low-cost services in low-and moderate-income neighborhoods across
our nation. We urge you to withdraw this proposal.
CRA was enacted to encourage federally-insured financial institutions
to meet the credit needs of the communities they serve, especially
low- and moderate-income communities. Prior to CRA, many financial
institutions failed to provide appropriate credit opportunities to
all the communities they served. The cost of denying private mortgage
credit and business lending to low-and moderate income neighborhoods
was devastating. In too many neighborhoods, property values and business
activity plummeted over time while crime and poverty escalated. Since
1977, CRA has been critical to increasing access to homeownership
and expanding access to capital which have improved the economic
status of millions of Americans across the nation. It is estimated
that since the inception of the CRA, banks and thrifts have made
more than $1 trillion in loan pledges to low- and moderate-income
areas.
The 1995 revisions to the CRA regulations strengthened the law by
emphasizing performance over process, adopting a comprehensive examination
of a bank's lending, investment and service activities, and addressing
the regulatory burdens of the smallest institutions. These changes
have led to increased investment in distressed communities and breathed
new life into low- and moderate-income neighborhoods across the United
States. Unfortunately, the current proposed regulations, if adopted,
will likely undo much of the progress that has taken place since
1995 by reducing the obligation of institutions to invest in low-
and moderate-income communities and by failing to ensure that CRA
remains relevant in the changing financial services arena.
Revision
of the "Small Bank" Definition
We believe the
1995 regulatory revisions properly addressed the regulatory burdens
imposed on
the smallest institutions and oppose
the current proposal to amend the regulatory definition of "small
institution" to include banks and thrifts with up to $500 million
in assets without regard to any holding company assets. The proposed
change will greatly diminish the obligation of more than a thousand
CRA regulated institutions to meet the convenience and needs of their
communities and is in conflict with the most recent legislative definition
of small institution contained in the 1999 Financial Services Modernization
Act. Congress grappled with the issue of small banks that year and
agreed that $250 million was the appropriate point to divide small
institutions from large institutions.
Under the current
CRA regulations, a "small institution" is
defined as having less than $250 million in assets and not affiliated
with a holding company that has at least $1 billion in assets. Increasing
the threshold from $250 to $500 million in assets as well as eliminating
the holding company limitation for small banks would cut in half
the number of banks and thrifts subject to the large retail institution
CRA performance test developed under the 1995 regulations. More than
1,100 additional banks and thrifts with approximately $384 billion
in assets will be allowed to receive a streamlined CRA examination
which focuses solely on lending and does not seek information concerning
investment and service to the community. Further, the CRA lending
examination will be far less stringent than under current requirements.
We are concerned that the proposed regulation would eliminate the
responsibility of many banks to invest in the communities they serve
through programs such as the Low Income Housing Tax Credit or provide
critically needed services such as low-cost bank accounts for low-
and moderate-income consumers. This is especially true for rural
areas where access to financial services is already limited. Moreover,
the proposed change would limit the amount of small business, small
farm and community development lending data which is critical to
determining whether every American is receiving equal access to financial
services. Under the proposal, fewer than 12% of banks will be required
to report such lending or be responsible for investing or providing
services to low- and moderate-income communities.
We are particularly
disturbed that the agencies have proposed this change without undertaking
an independent study of the regulatory
burdens and costs associated with the large bank examination compliance
or an analysis of the community impact of banks exempted from providing
certain lending data or undergoing the service and investment tests.
It is difficult to believe that a small bank that is part of a sizable
bank holding company structure finds addressing its CRA responsibilities "no
less burdensome than does a similarly-sized institution without a
sizable holding company." We urge you to retain the current
threshold for the streamlined examination.
Predatory Lending Standard
We are concerned about recent increases in predatory mortgage lending
that threaten to undermine efforts to revitalize neighborhoods and
expand homeownership opportunities across the nation and agree that
a bank's CRA rating should be adversely affected if it engages in
predatory lending practices. However, we oppose the proposal to incorporate
an inadequate predatory lending standard into the CRA regulations.
Responsible sub-prime lending to borrowers who are considered greater
credit risks has allowed millions of Americans to refinance their
homes and become part of the economic mainstream. Unfortunately,
too many Americans continue to be victimized by equity stripping
activities. The proposal contains a useless and harmful standard
for determining predatory lending and could actually result in an
increase in abusive lending practices. A bank or thrift's CRA evaluation
would only be adversely effected if the institution made loans based
predominantly on the foreclosure or liquidation value of the home
rather than on the ability of the borrower to repay the loan. The
predatory lending standard does not address other serious and more
common equity stripping abuses by lenders that have been identified
by the bank regulatory agencies, the Department of the Treasury,
and the Federal Trade Commission. These include packing of high fees
into mortgage loans, high prepayment penalties, balloon payments,
loan flipping, and mandatory arbitration. This proposal would give
the appearance of holding financial institutions accountable for
predatory practices while in fact allowing them to continue their
predatory lending abuses. We urge you to withdraw this proposed revision.
Discriminatory and Abusive Credit Practices by Affiliates
We believe that discriminatory and abusive credit practices by affiliates
should adversely impact a bank or thrift's CRA rating. Unfortunately,
the proposed rule will at best result in a marginal increase in oversight
of affiliate lending practices. The proposal would amend the CRA
regulations to provide that an institution's CRA rating will be adversely
affected by evidence of discriminatory or other abusive credit practices
by an affiliate, if and only if, the bank elects to have at least
one of its affiliates considered for the CRA evaluation and if the
affiliate's loans are made in a bank's assessment area. It does little
to further limit a bank's ability to shield abusive lending by affiliates
from CRA review.
It is our understanding that under existing regulatory practice
when a bank elects to have one of its affiliate's lending lines (i.e.
mortgages) considered for CRA evaluation, similar lending lines (i.e.
mortgages) by all other affiliates in the bank's assessment area
will be included. The proposed rule would merely expand the CRA evaluation
to include all other lending lines (i.e. credit cards and consumer
lending) in the bank's assessment area. A bank may continue to immunize
its affiliates from review by merely electing not to include any
affiliate in the review.
More importantly, under this proposal, it will remains possible
for a bank to receive an "Outstanding" CRA rating even
if one or more of its lending affiliates have engaged in abusive
and predatory lending activities outside of the assessment area.
In order to be meaningful, the proposal would have to also mandate
the inclusion of all affiliate lending outside of the assessment
area. This will allow regulators to more accurately assess the CRA
performance of a bank within a holding company that conducts significant
lending through other nondepository lending entities.
Enhanced
CRA Disclosure Statement
We believe that
the proposal to enhance the detail of the information contained
in the CRA Disclosure Statement that agencies prepare for
an institution's public file would be a positive step. Under the
proposed regulation, the CRA Disclosure Statements will contain the
number and amount of an institution's small business and farm loans
by census tract. According to data from the Federal Financial Institutions
Examination Council (FFIEC), CRA reporting lenders made more than
$38 billion in small business loans and approximately $2.4 billion
in small farm loans in low- and moderate-income communities in 2002.
However, much more needs to be done. The disaggregated information
will be critical to helping regulators and the public assess whether
a particular bank or thrift is meeting its CRA obligation to serve
all of the communities where it is located. We believe that the proposed
revisions properly balance the benefits of public disclosure against
any risk of unwarranted disclosure of otherwise private information.
We agree that the risk of revealing private information about small-business
and small-farm borrowers is likely very small and outweighed by the
public benefit of the data.
However, we are disappointed that the proposed regulation does not
similarly require disclosure of the number, amount of, or purpose
of an institution's community development lending by census tract.
CRA covered lenders made more than $27.8 billion in community development
loans in 2002. Unfortunately, many communities continue to suffer
from disinvestment. As with small farm and small business lending,
detailing community development lending will provide the public with
the information needed to ensure that particular banks are helping
to meet the convenience and needs of their communities.
Conclusion
Overall, we believe
that the interagency proposal would reduce the effectiveness of
CRA, establish an inappropriate predatory lending
compliance standard and deny many lower- income communities in urban
and rural areas access to low-cost financial services business capital
and mortgage lending. The small positive benefit of the enhanced
CRA Disclosure Statement and the modified affiliate rule do not begin
to outweigh the damaging consequences of the rest of the proposal.
We urge you to withdraw the proposal.
Thank you in advance for your consideration of this request.
Sincerely,
Paul S. Sarbanes |
Christopher J. Dodd |
Jack Reed |
Charles Schumer |
Debbie Stabenew |
Jon Corzine |
John F. Kerry |
Tom Harkin |
Frank Lautenberg |
Barbara Boxer |
John Edwards |
Patty Murray |
Hillary Rodman Clinton |
Patrick Leahy |
Daniel K. Akaka |
Barbara A. Mikulski |
Richard J. Durbin |
Edward M. Kennedy |
Mark Dayton |
Bill Nelson |
Maria Cantwell |
Carl Levin |
Daniel Inouye |
John D. Rockefeller, IV |
Jeff Bingaman |
Ron Wyden |
James M.
Jeffords |
Joseph Biden |
Dianne Feinstein |
Ernest F. Hollings |
Joseph I. Lieberman |
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