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CONSUMERS UNION
September 7, 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:
Consumers Union, the nonprofit publisher of Consumer Reports,1 urges
the FDIC to withdraw the proposed changes to the Community Reinvestment
Act (CRA) regulations. The CRA is a key tool to increase low- and
moderate-income homeownership, increase affordable rental housing stock,
promote economic development in low-income communities, and in providing
credit to small businesses in minority, immigrant, and low- and
moderate-income communities. The FDIC’s proposed changes will impede
progress in those areas.
Under the existing CRA regulations, banks with assets of at least
$250 million are rated using performance evaluations that scrutinize
their level of lending, investing, and services to low- and
moderate-income communities. While we and others have in the past
criticized these exams as too easy for the financial institutions to
pass, the regular CRA examination covering each of the three areas does
give an institution some incentive to provide services, credit, and
capital to low-income communities. The proposed changes will eliminate
the investment and service parts of the CRA exam for state-chartered
banks with assets between $250 million and $1 billion. Instead, the FDIC
proposes to add a so-called “community development” criterion.
Unfortunately, the “community development” criterion cannot
adequately replace the investment and service tests. Mid-size banks,
with assets between $250 million and $1 billion would have to engage in
only one of three activities: community development lending, investing
or services. Currently, mid-size banks should engage in all three
activities. The FDIC proposal would permit a mid-size bank to select a
community development activity that is easiest for the bank, regardless
of the level of community need for community development lending,
investing and services activities.
We believe that the FDIC’s proposed community development criterion
will result in significantly fewer loans and investments in affordable
rental housing, community service facilities, and job-creating economic
development projects. It will be too easy for a mid-size bank to
demonstrate compliance with a community development criterion by
sponsoring discrete services such as a series of homeownership fairs,
rather than engaging in a sustained and integrated effort to provide
loans, investments, and services needed by low- and moderate-income
communities.
According to statistics prepared by the National Community
Reinvestment Coalition, the FDIC proposal would offer this more cursory
CRA examination to the 879 state-chartered banks, which the FDIC
regulates, that hold less than $1 billion in assets; yet the combined
asset base of these institutions exceeds $754 billion. America’s
struggling low- to moderate-income communities need these financial
institutions to be fully engaged in neighborhood economic development,
promoting homeownership, financing affordable rental housing, and
developing lower-cost services for the unbanked. Streamlining the CRA
examination and making it easier to pass it without a significant
program serving varied needs is unlikely to improve the quality or
quantity of participation in the community.
Consumers Union has been a long-time member of the California
Reinvestment Coalition (CRC). In this work, we have seen first hand the
benefits of CRA to urban and rural consumers. According to CRC, 84% of
California’s state-chartered banks located within urban areas would be
eligible for a more cursory exam under the new rule as well as 89% of
California’s state-chartered rural financial institutions. The potential
for this proposal to cause harm in rural communities is even higher
because the proposal would count as CRA activities, even activities that
fail to benefit low- or moderate-income consumers or communities. Home
mortgages for high-end houses in rural areas are likely to squeeze, not
help, lower-wage workers whose families may have lived in the area for
generations. Rural America can least afford a loss of true CRA activity.
The elimination of the services test will also have harmful
consequences for low- and moderate-income communities. CRA examiners
would no longer expect mid-size banks to maintain and/or build bank
branches in low- and moderate-income communities. Mid-size banks would
no longer have a regulatory incentive to provide affordable banking
services such as low-balance, low-fee checking and saving accounts to
consumers with modest incomes. The regulatory impetus to develop new
ways to serve the unbanked would be eliminated for many financial
institutions. Finally, the regulatory impetus to site and maintain
branches in low-income neighborhoods would be lost.
For these reasons, we ask you to withdraw this proposal.
Very truly yours,
Gail Hillebrand
Consumers Union
West Coast Office
1535 Mission St.
San Francisco, CA 94103
1 Consumers Union is a nonprofit membership organization
chartered in 1936 under the laws of the State of New York to provide
consumers with information, education and counsel about goods, services,
health, and personal finance; and to initiate and cooperate with
individual and group efforts to maintain and enhance the quality of life
of consumers. Consumers Union’s income is solely derived from the sale
of Consumer Reports, its other publications and from noncommercial
contributions, grants and fees. In addition to reports on Consumers
Union’s own product testing, Consumer Reports with approximately 4
million paid circulation, regularly carries articles on health, product
safety, marketplace economics and legislative, judicial and regulatory
actions which affect consumer welfare. Consumers Union’s publications
carry no advertising and receive no commercial support.
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