Enterprise
Foundation
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
To Whom It May Concern:
The Enterprise Foundation appreciates this opportunity to comment
on the Notice of Proposed Rulemaking for revising the regulations
for the Community Reinvestment Act (CRA). Enterprise and its subsidiary
organizations, primarily the Enterprise Social Investment Corporation,
have invested more than $5 billion to support more than 160,000 affordable
homes in low-income communities across the country. Many of our partners
are depository institutions covered by the CRA. There is no federal
policy more important to expanding housing and economic opportunity
to low-income families and communities than the CRA.
Page Two
April 6, 2004
We commend the agencies for taking a thoughtful, deliberative approach
to the sensitive and complex task of revising the CRA regulations.
We appreciate the opportunity to discuss with agency staff our specific
recommendations (submitted jointly with the Local Initiatives Support
Corporation) for strengthening bank community reinvestment.
We are disappointed
that the agencies declined to accept our recommendations, especially
our recommendations to provide a new Community Development
Test for large retail institutions comprising at least 35 percent
to 40 percent of such institutions’ overall CRA rating, and
to allow those institutions to receive CRA credit outside their assessment
areas, provided they are adequately serving their assessment areas
under the CRA. We believe these provisions would have made the CRA
an even more effective policy for strengthening communities.
Certainly, it
is critical that the CRA continue to encourage bank investment
in low-income
areas, especially through bank investments
in tax credits such as the Low Income Housing, New Markets and Historic
Tax Credits. (We commend the Office of the Comptroller of the Currency
for its December 2003 letter to the Community Development Financial
Institutions Fund stating that an institution’s investment
in connection with the New Markets Tax Credit program in a Community
Development Entity (CDE), or a loan by a financial institution CDE
to a qualified low-income community business or another CDE, would
receive favorable CRA consideration, and the apparent concurrence
with that letter by the other agencies.)
We appreciate
the agencies’ commitment to providing additional
guidance on the CRA investment test. The issues the agencies have
identified for clarification are all appropriate and we look forward
to working with the agencies on the specifics of additional investment
test policy. In particular, we believe it is imperative to revisit
the utility of including as investment test criteria the extent to
which investments are “innovative” and “complex.” Those
well-intentioned terms may have outlived their usefulness and may
in fact engender perverse effects in the community development finance
system. In general, we believe that more emphasis should be placed
on the extent to which investments meet community development needs
and less on their structural attributes. Within that context, it
would be possible, and desirable, to provide special consideration
for investments that are also “innovative,” especially
in ways
that could be expanded and replicated, as well as responsive to
community needs.
Page Three
April 6, 2004
The agencies also have taken steps in the revised regulations to
combat predatory lending. Specifically, the regulations would clarify
that loans based on the foreclosure value of the collateral, instead
of the ability of the borrower to repay, can result in downgrades
in CRA ratings. While this minor modification is a step in the right
direction, we are very concerned that it does not go far enough and
may have the effect of protecting from sanction lenders that engage
in other (perhaps worse) forms of predatory lending, such as unnecessarily
high and/or hidden fees, mandatory arbitration and other abusive
practices.
We encourage the agencies to examine other approaches to ensuring
that CRA-regulated institutions do not engage in, or otherwise support,
predatory lending. We believe the overwhelming majority of institutions
do not. We strongly encourage the agencies to work with these institutions,
their partners and advocates to develop additional policy that strikes
the appropriate balance between enabling banks to serve subprime
borrowers efficiently and effectively, while not allowing predators
to take undue advantage of broad regulatory requirements to harm
low-income people and communities.
Sincerely,
F. Barton Harvey III
Chairman of the Board and
Chief Executive Officer
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