NATIONAL COMMUNITY INVESTMENT FUND
April 5, 2004
Docket No. 04-06
Communications Division
Public Information Room, Mailstop 1-5
Office of the Comptroller of the Currency
250 E St. SW,
Washington 20219
Docket No. R-1181
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington DC 20551
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
Regulation Comments, Attention: No. 2004-04
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street NW
Washington DC 20552
Dear Officials of Federal Bank and Thrift Regulatory Agencies:
National Community Investment Fund (NCIF) appreciates the opportunity
to comment upon on the proposed changes to the Community Reinvestment
Act (CRA or Act) regulations published in the Federal Register on
February 6, 2004.
NCIF is a certified
community development financial institution (CDFI) and community
development
entity (CDE) whose mission is to
increase the number and effectiveness of domestic, depository institutions
that are both effective agents of local community development in
distressed markets and sound financial institutions. NCIF invests
in institutions located in the range of urban, rural, and reservation
distressed markets. Among NCIF’s current portfolio, 70% of
institutions are in urban and 40% in rural and reservation markets
(with some in both); 82% percent are minority-focused and 67% of
dollars invested in minority-owned institutions. Those institutions
that are not minority-focused are located in rural, underserved markets.
Since NCIF began tracking in 1999, its portfolio institutions have
generated almost $1 billion in over 11,000 loans that are geocoded
to low income communities or low income borrowers. That is in addition
to the quality retail financial services most provide to their low
to moderate income, mostly minority and quite frequently unbanked
local customer base. The average size of all loans of under $50,000--and
of both small business and mortgage loans of under $100,000--is well
below that of conventional financial institutions.
The majority
of the depositories in which NCIF invests are small banks. However,
some are required
to participate in large bank CRA
tests due to their asset size or holding company ownership. NCIF
supports effective CRA regulations as one tool to increase the flow
of capital and financial services in to all of the nation’s
communities, regardless of income levels or historic marginalization.
NCIF submits that the Notice of Proposed Rulemaking (NPR) misses
the opportunity to increase the effectiveness of CRA regulations
and may jeopardize current effectiveness. NCIF urges regulators to
revisit the proposal to address our concerns following:
Definition of
Small Bank. The proposal to provide streamlined and cursory exams
for banks
with assets between $250 million and $500
million will significantly reduce the number of banks that is required
to meet the investment and services tests and to disclose CRA small
business and HMDA data. Regarding the investment test, NCIF appreciates
the difficulty that some small banks have generating attractive CRA
investment opportunities within their marketplaces. We suggest that,
where performance context indicates that the available demand for
CRA investments is already met, the regulation should allow banks
to more readily obtain get CRA credit for investments in qualifying
statewide, regional or national vehicles that can direct capital
to where it is most needed regionally and nationwide. Regarding the
services test, with an estimated 50 million unbanked individuals
in the United States, NCIF believes the services test remains an
important stimulus for increased supply of fairly priced banking
services to customers who otherwise can become hostage to local predatory
providers. Regarding disclosure of CRA small business and HMDA data,
we believe that the information tracked by small institutions is
vital in helping bankers and policymakers understand and best meet
local demand. While the NPR states that the proposed change will
not affect a substantial portion of the nation’s banking assets,
it will affect a significant number of institutions, a disproportionate
number of which will be in rural and small town locations. We believe
that such markets frequently already lack competitive banking services.
Relaxing CRA compliance expectations in these markets will further
threaten the availability of quality services, particularly for harder
to serve customers.
Predatory Lending Standard. We commend the NPR for addressing the
issue of predatory lending in regulatory text. However, we believe
that the proposed anti-predatory screen does not go far enough. An
effective standard would examine not only liquidation value of the
loan and ability of the borrower to repay, but also whether the loan
will be wealth building or wealth stripping for the borrower. As
a result of excessive fees or unnecessary products, predatory lending
can be wealth stripping without leading to delinquency or foreclosure.
In order to stem the increase of predatory lending, CRA exams must
include both rigorous analyses of loans to determine whether they
are predatory, as well as severe penalties when they are. In addition,
such standards should be applied to all loans made by a bank and
its affiliates, not just those that are real estate secured in a
defined assessment area.
Enhanced data disclosure. We commend the increased CRA small business
loan and HMDA disclosure proposed in the NPR. However, we caution
that these benefits are largely negated if the proposed change
in the definition of small bank is enacted. We add that the new
data must not only be collected, but must also be tied to CRA ratings.
Missed Opportunity to Update Exam Procedures. Given significant and
ongoing changes in the structure of the financial services industry
since 1995, we believe that the NPR could greatly strengthen CRA
by taking the changes into account. By allowing affiliate reporting
to be at the option of the bank, and by retaining an approach to
assessment area that ignores the increasingly regional or national
reach of many banks, we believe this opportunity is missed.
From NCIF’s vantage point, there remain tremendous gaps in
the availability of fairly priced capital, credit and financial services
across the nation’s low income, minority and rural communities.
CRA provides a time tested framework for mitigating these gaps by
encouraging a range of large and small banks to provide investment,
credit and services in underserved markets. We believe the regulations
should continue to encourage this increased flow of capital, including
by banks under $500 million in assets, which are often in markets
most in need of banking services. The regulations can best achieve
the aims of CRA by increasing rigor and flexibility, rather than
by simplifying. Thus heightened rigor is needed in the analysis of
predatory loans, and increased flexibility is needed in the geographic
scope of permissible CRA investments, provided that local needs are
met.
We trust that these comments will be useful as the agencies finalize
proposed changes to CRA. We would be delighted to meet or provide
further information if this would be helpful in the process.
Sincerely,
Lisa Richter
Fund Advisor
National Community Investment Fund
312-543-8385
|
