From: Dawn Moskowitz
Sent: Thursday, March 25, 2004 9:59 AM
To: Comments
Subject: Interagency Notice of Proposed Rulemaking, Community Reinvestment
Act
Dawn Moskowitz
112 Hayward Street
Burlington, VT 05401
March 25, 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:
[NAME OF ORGANIZATION] 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 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. 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,
Dawn Moskowitz
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