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New Hampshire Community Loan Fund



From: Alan Cantor [mailto:acantor@nhclf.org]
Sent: Tuesday, April 06, 2004 11:34 AM
To: Comments
Subject: Interagency Notice of Proposed Rulemaking, Community Reinvestment Act

Alan Cantor
7 Wall Street
Concord, NH 03304


April 6, 2004

Federal Deposit Insurance Corp
Robert Feldman, Executive Secretary
550 17th Street NW
Washington, DC 20429


Dear Insurance Corp:

Docket No. 04-06
Office of the Comptroller of the Currency

Docket No. R-1181
Board of Governors of the Federal Reserve System

Attention: Comments
Federal Deposit Insurance Corporation

Regulation Comments
Office of Thrift Supervision


To Whom it May Concern:

The New Hampshire Community Loan Fund appreciates the opportunity to
comment on the Joint Notice of Proposed Rulemaking regarding the Community
Reinvestment Act (CRA) [69 FR 5729].

While we commend your efforts regarding the expansion of data collection,
the other two proposed changes—definition of “small
banks” and predatory lending standards—will undermine the
intent of the law in providing equitable lending in underserved
communities. We cannot support these proposals in their current form and
we strongly urge you to withdraw the proposed definition of small banks
and expand the predatory lending standards, as well as include additional
provisions to bring CRA in line with changes in the financial services
industry.


Change in the Definition of "Small Banks"

The agencies propose to make approximately 1,100 banks subject to less
rigorous CRA exams by changing the "small bank" limit from $250 million to
$500 million. The long history of partnership between banks and CDFIs
indicates that investment opportunities are available to banks of all
sizes and in all regions. The proposal would particularly impact rural
communities, where the number of institutions subject to complete CRA
exams would decline by an estimated 73%.

We in New Hampshire certainly know this to be the case. We currently have
13 banks that have invested in our organization, for a total of over $7
million. These monies are, in turn, being leveraged into many times that
in new jobs, better housing, and home ownership for lower-income New
Hampshire Families. And the majority of the banks we have partnered with
have been of the size that would be affected by this decision.

We strongly urges you to withdraw this proposed change from consideration
to ensure continued inclusion of "investment" and "service" tests in the
CRA exams of a maximum number of banks.


Predatory Lending Standards

The provisions regarding predatory lending standards in the proposal are
insufficient to protect consumers from abusive lending and could actually
perpetuate the practice. The proposal rightly targets loans made without
regard for the borrower's ability to repay, but fails to incorporate other
instances of predatory practices, including fee packing, prepayment
penalties, and loan "flipping." Without a comprehensive standard, the
inclusion of anti-predatory provisions into CRA becomes nearly meaningless
and, in fact, could allow CRA ratings to cover up for abusive practices.
We recommend that this proposal be strengthened significantly, and that
the agencies develop a more meaningful plan to stop predatory lending.


Enhanced Data Disclosure

The Proposed Rule includes two new provisions for expanded data collection
and disclosure. We believe that these proposals will improve access to
affordable capital. The Home Mortgage Disclosure Act (HMDA) has
contributed significantly to reducing discrimination in housing finance,
and similar disclosure for small business lending can help ensure fair and
equal access to credit for small businesses. Separate reporting of high
cost loans and of loan purchases will better measure banks' service to
low-income consumers. The agencies should use this new data in assigning
CRA ratings. Banks should receive more credit for loan originations than
for purchases, and for prime (or the equivalent for business loans, when
that data is available) loans versus high-cost loans.

Missed Opportunities to Enhance CRA and Community Reinvestment

The 1999 Gramm-Leach-Bliley Act "modernized" the financial services
industry without commensurate reform to community reinvestment
requirements. In order for CRA to keep pace with the financial services
industry, two important reforms are necessary.

1. Expand CRA coverage to all financial service institutions that receive
direct or indirect taxpayer support or subsidy. After passage of the 1999
Gramm-Leach-Bliley Act, banks became nearly indistinguishable from finance
companies, insurance and securities firms, and other “parallel
banks.” However, CRA covers only banks, and therefore only a
fraction of a financial institution’s lending. To keep CRA in step
with financial reform, it should be extended to all financial services
companies that receive direct or indirect taxpayer support or subsidy.

We strongly urge regulatory agencies to mandate that all lending and
banking activities of non-depository affiliates must be included on CRA
exams, and that small banks that are part of large holding companies not
be treated as small banks. This change would accurately assess the CRA
performance of banks that are expanding their lending activity to all
parts of their company, including mortgage brokers, insurance agents, and
other non-traditional loan officers.

2. A bank’s assessment area should be determined by how a bank
defines its market. Under CRA, banks are required to provide
non-discriminatory access to financial services in their market and
assessed according to where they take deposits. In 1977, taking deposits
was a bank’s primary function. In 2004, banks no longer just accept
deposits, they market investments, sell insurance, issue securities and
are rapidly expanding the more profitable lines of business. In addition,
the advent and explosion of Internet and electronic banking has blurred
the geographic lines by which assessment areas have been typically
defined.

Presently, CRA exams scrutinize a bank’s performance in geographical
areas where a bank has branches and deposit-taking ATMs. Defining CRA
assessment areas based on deposits is at odds with the way financial
institutions now operate. Moreover, it disregards the spirit of the CRA
statute, which sought to expand access to credit by ensuring that banks
lent to their entire markets.

We recommend simplifying the definition of CRA assessment area according
to a financial institution’s customer base. For instance, if a
Philadelphia bank has credit card customers in Oregon, it also has CRA
obligations there. The obligations ought to be commensurate with the
level of business in any market.


Conclusion

The Community Reinvestment Act has channeled billions of dollars into
underserved markets and fostered new, productive partnerships between
banks and community organizations. We certainly know from our own
situation in New Hampshire that we simply could not have accomplished half
of what we have done without the strong, CRA-inspired support of the
banking community. The regulators must not roll back these gains in
providing access to capital. Improved and enhanced data disclosure is an
important step, but other aspects of the proposal threaten the expansion
of capital and credit in underserved communities. We urge you to:

• Maintain an investment test as part of banks' CRA performance by
maintaining the current "small bank" definition. • Continue to hold
banks that are part of large holding companies to the "large institution"
standards. • Institute a strong, comprehensive predatory lending
standard and ensure that abusive lending counts against an institution's
CRA rating. • Expand CRA so that it better reflects changes in the
financial services industry brought about by market shifts, technology
advances, and financial modernization legislation.

Thank you for the opportunity to comment.

Sincerely,

Alan M. Cantor, Vice President, New Hampshire Community Loan Fund

 

 

Last Updated 04/20/2004 regs@fdic.gov

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