| Montecito Bank &Trust April 6, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street N.W.
Washington, DC 20429
RE: Community Reinvestment Act Regulations Dear Mr. Feldman:
Montecito Bank & Trust submits the following comments on the
interagency Joint Notice of Proposed Rulemaking amending Community
Reinvestment Act ("CRA") regulations, published February 6, 2004, at 69
Federal Register 5729 (the "Proposal"). Montecito Bank & Trust is a
community bank with $580 million in assets, serving Santa Barbara
County, California. We appreciate the opportunity to comment on the
Proposal.
Our principal concern with the Proposal regards the expansion of
§345.28(c), regarding assignment of a bank's CRA rating. Section
345.28(c) currently states:
Evidence of discriminatory or other illegal credit practices
adversely affects the FDIC's evaluation of a bank's performance. In
determining the effect on the bank's assigned rating, the FDIC considers
the nature and extent of the evidence, the policies and procedures that
the bank has in place to prevent discriminatory or other illegal credit
practices, any corrective action that the bank has taken or has
committed to take, particularly voluntary corrective action resulting
from self-assessment, and other relevant information.
The Proposal expands this section to further provide that the FDIC's
evaluation of a bank's CRA performance will be adversely affected by
violations by the bank of additional various lending laws, specifically:
• Violations of the Home Ownership and Equity Protection Act (high
rate home equity loans)
• Violations of Section 5 of the Federal Trade Commission Act (unfair
and deceptive credit practices)
• Violations of Section 8 of the Real Estate Settlement Procedures Act
(payment of unearned referral fees for mortgage transactions)
• Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission
We oppose that portion of the Proposal that would expand §345.28(c)
for the following reasons:
1) It eliminates examiner discretion in determining whether isolated
violations of certain lending laws should adversely impact a bank's CRA
performance;
2) It would result in duplicative supervisory enforcement for the same
infractions; and
3) It exceeds the statutory authority of the Community Reinvestment Act
and other statutes.
Removal of Examiner Discretion
Current regulations state that evidence of discriminatory or other
illegal credit practices adversely affects the FDIC's evaluation of a
bank's CRA performance. In determining the affect on a bank's assigned
rating, the FDIC considers the nature and extent of the evidence, the
policies and procedures that the bank has in place to prevent such
practices, and any corrective action the bank has taken or committed to
take, particularly voluntary corrective action resulting from
self-assessment.
Under the present regulations, CRA examiners are allowed discretion
in determining whether: 1) a bank's violation of lending laws and
regulations constitutes a "practice", and 2) such practice has the
effect of reducing the availability of credit within the bank's
assessment area including low- and moderate-income areas. We believe the
proposed language in §345.28(c)(1) removes such discretion and requires
the examiner to regard even an isolated, inadvertent infraction of any
of the listed laws as adversely affecting the bank's record of making
loans throughout the community.
For example, we do not understand how an isolated, inadvertent
violation of the Truth in Lending Act regarding right of rescission,
such as a minor error in the expiration date of the rescission period,
is a reflection of a bank's record of extending credit throughout its
entire assessment area. We further believe that a seasoned examiner
would not consider such a violation as having any impact on the bank's
CRA performance. However, under the proposed language of §345.28(c)(1),
the examiner would have no discretion and would be required to consider
it adversely in evaluating the bank's CRA performance.
Duplicative Supervisory Enforcement
We believe that requiring violations of certain statutes to adversely
affect the FDIC's evaluation of the bank's CRA performance constitutes
duplicative supervisory enforcement and penalties for the same
violation, a "double jeopardy" of sorts. Some of the statutes listed in
§345.28(c)(1) and their accompanying regulations already provide for
penalties and sanctions, some of which are quite severe. For example,
violation of Section 8 of the Real Estate Settlement Procedures Act can
result in a fine of $10,000 and imprisonment of up to one year (12 USC
§2607(d)).
Even where the listed statutes and their accompanying regulations do
not expressly prescribe penalties, banks already are subject to normal
supervisory enforcement for violations of those statutes and
regulations. Such enforcement actions can take the form of more frequent
examinations, quarterly reporting, a Memorandum of Understanding, or, in
egregious cases, a Cease and Desist Order. Community groups advocating
duplicative supervisory enforcement through the CRA rating are not
knowledgeable about how such supervisory enforcement creates significant
business hardship on a bank for the duration of the increased
supervision. Adverse impact on a bank's CRA rating is not a necessary incentive for banks
to avoid violations of the listed statutes.
Exceeds the Statutory Authority
We believe §345.28(c)(1) of the Proposal exceeds the authority of the
Community Reinvestment Act of 1977 (the "Act"). Section 804(a) of the
Act requires a bank's supervisory agency to:
1) Assess the institution's record of meeting the credit needs of its
entire community, including low- and moderate-income neighborhoods,
consistent with safe and sound operation of such institution; and
2) Take such record into account in its evaluation of an application for
a deposit facility by such institution.
Other than in paragraph (2) of Section 804(a), the Act contains no
enforcement provisions. Throughout the Act's history, banks and
community groups have been at odds about how the Act should be
"enforced," absent statutory enforcement provisions. When the CRA's
implementing regulations underwent major revision in 1995, the
evaluation criteria were significantly quantified to emphasize actual
lending performance and geographic loan dispersion by a bank within its
assessment area(s). Much of the subjectivity and evaluation
inconsistencies that had long pervaded the CRA examination process were
removed. However, at that time, it was generally agreed that violations
of fair lending laws were sufficiently relevant to a bank's performance
in extending credit throughout its community so as to appropriately
adversely impact the examiners' (subjective) evaluation of a bank's CRA
performance.
However, the Proposal's expansion of §345.28(c) goes much too far in
creating enforcement criteria without sufficient statutory authority,
either under the Community Reinvestment Act or under any other statutes
listed in the Proposal. We do not find where the Equal Credit
Opportunity Act, Fair Housing Act, Home Ownership and Equity Protection
Act, Federal Trade Commission Act, Real Estate Settlement Procedures
Act, or Truth in Lending Act provide for adverse impact on a bank's CRA
rating as an enforcement measure. We therefore believe the Proposal's
broadening of §345.28(c) is an unauthorized expansion of existing
statutory authority.
We oppose the Proposal's expansion of §345.28(c) for the reasons
stated above. We appreciate the opportunity to provide comments and
thank you for your consideration of our concerns. Please feel free to
contact me at (805) 564-0200 or the bank's Compliance Officer, Carla St.
Romain, at (805) 564-0282 with any questions.
Sincerely,
Rodney K. Brown
President and CEO
cc: California Bankers Association
American Bankers Association |
