April 20, 2004
Public Information
Room
Office of the Comptroller of the Currency
250 E Street, S.W.
Mailstop 1-5
Washington, D.C. 20219
Docket Number 04-05
Via email: regs.comments@occ.treas.gov
Ms. Jennifer
J. Johnson
Secretary, Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Docket No. R-1180
Via email: regs.comments@federalreserve.gov
Mr. Robert E.
Feldman
Executive Secretary
Attention: Comments, Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Via email: comments@fdic.gov
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
Docket Number 2003-67
Via email: regs.comments@ots.treas.gov
RE: The Economic
Growth and Regulatory Paperwork Reduction Act of 1996
Dear Regulator:
I am writing
to you on behalf of the Greater Rochester Community Reinvestment
Coalition (GRCRC) to comment in response to the Notice of Regulatory
Review as required by the Economic Growth and Regulatory Paperwork
Reduction Act (EGRPRA) of 1996. In response to the second series, “Consumer
Protection: Lending-Related Rules,” we respectively request
that the federal banking agencies retain their regulations concerning
Fair Housing, Equal Credit Opportunity Act (ECOA), Home Mortgage
Disclosure Act (HMDA), Truth in Lending Act (TILA) and Unfair or
Deceptive Acts or Practices. These rules are critical to giving
consumers fair access to credit and to protecting consumers from
predatory practices by unscrupulous lenders.
GRCRC was convened in 1993 to generate discussion about the lending patterns
in Rochester. Since then, the Coalition has released six analyses of home mortgage,
small business and subprime lending data. We have used the analyses to identify
strengths and weaknesses in lending patterns and to generate ongoing discussion
with the banks in question. The Coalition also submits comments, based on the
data, to the appropriate Federal regulators who have oversight of the banks.
GRCRC has a membership
of over 40 locally based not-for-profits and individuals. GRCRC
monitors the lending and investment performance of Charter One
Bank, M&T, Fleet, HSBC, Chase, Citigroup and Canandaigua National
Bank.
GRCRC favors
expanding data reporting requirements that will assist in achieving
the goals of the above fair lending statutes and substantially
benefit consumers with little regulatory burden. Under EGRPRA,
the federal agencies must identify “outdated” regulations.
The incomplete data collection under HMDA and ECOA is outdated
and frustrates the purpose of the statutes to prevent discrimination.
While increasing data reporting requirements, the federal agencies
must not limit the consumer protections currently available under
the regulations. Any streamlining of the protections would interfere
with the agencies’ ability to fulfill their statutory obligations.
A series of federal
statutes including the Fair Housing Act, the Home Mortgage Disclosure
Act, the Equal Credit Opportunity Act, and the Truth-in-Lending
Act have established a solemn Congressional intent and purpose
of eliminating abusive and discriminatory lending. In light of
the recent decision by the Office of the Comptroller of the Currency
to preempt all state anti-predatory lending legislation, federal
protections against abuse and discrimination have become even more
important to consumers. GRCRC does not believe these federal statutes
provide enough protection now. Therefore, any regulatory streamlining
would further put consumers at risk.
Home Mortgage
Disclosure Act
Enacted by Congress
in 1975, the Home Mortgage Disclosure Act (HMDA) requires banks,
savings and loans associations, credit unions, and other financial
institutions to publicly report detailed data on their home lending
activity. In the HMDA statute (12 USC Section 2801), Congress found
that financial institutions contributed to the decline of certain
geographical areas by their failure to provide adequate home financing
on reasonable terms and conditions. Accordingly, a major purpose
of HMDA was to provide citizens and public officials with sufficient
information to determine whether institutions are filling their
obligations to serve the housing needs of communities and neighborhoods
in which they are located. Banker suggestions to exempt more institutions
will thwart HMDA’s purpose of determining if institutions
are serving credit needs.
In the HMDA statute,
Congress expressed its will that institutions must provide loans
on reasonable terms. As a step towards this Congressional objective,
regulators need to update HMDA to include pricing information on
all loans, critical loan terms (existence of prepayment penalties,
for example), and key underwriting variables such as loan-to-value
ratios and debt-to-income ratios. HMDA is becoming increasingly “outdated” as
the industry adopts automated underwriting and risk-based pricing.
At the same time, HMDA lacks key variables that enable the general
public to assess if lenders are applying their sophisticated technology
to provide credit that is priced fairly and has reasonable terms.
The regulators
should also end the exemptions of certain lenders from HMDA and
improve the existing data. Currently, small lenders (with assets
under $33 million) and lenders with offices in non-metropolitan
areas are exempt from HMDA data reporting requirements. Data for
rural areas is also incomplete, particularly information on the
census tract location of loans. If banks and thrifts have assets
under $250 million dollars (or are part of holding companies under
$1 billion dollars), they do not have to report the census tract
location for loans in metropolitan areas in which they do not have
any branch offices nor do they have to report the census tract
location for loans rural, non-metropolitan areas. In addition,
demographic information on the race, income level, and gender of
borrowers is missing from loans that lenders purchase. If lenders
receive credit on their CRA and fair lending exams for purchasing
loans made to low-moderate income and/or minority borrowers, then
this information should be made available to the public via HMDA
data.
Technology has
improved to such an extent that even small lenders would be confronted
with minimal burden in collecting HMDA data. Also, all lenders
would be able to readily collect additional data items. Overall,
the benefits of expanded HMDA data requirements would greatly outweigh
the burdens and would be true to HMDA’s statutory purpose
of assessing the extent to which credit needs are met.
Equal Credit
Opportunity Act
The Equal Credit
Opportunity Act and Regulation B prohibits discrimination against
an applicant because of the applicant’s race, color, sex,
religion, national origin, marital status, age or receipt of public
assistance. Currently, the Federal Reserve’s Regulation B
prohibits lenders from collecting demographic data including race
and gender of business owners seeking small business loans, expect
for limited self-assessment purposes. The Federal Reserve has asserted
that their regulation guarantees that the loan process remains
colorblind for all applicants. In reality, however, this regulation
has become a shield behind which some banks hide their lack of
serving women and minority-owned businesses. The publicly available
data provided by HMDA has been instrumental in increasing access
to home loans for formerly neglected borrowers. Likewise, the federal
agencies would achieve ECOA’s statutory purpose of combating
discrimination if they require banks to collect (voluntarily from
the borrower) and report information on the demographics of their
small business borrowers.
The total number
of small business loans increased 24 percent from 2001 to 2002.
However, despite the overall increase, the number of small business
loans made to businesses with revenue under $1 million continues
to plummet. Lenders issued about 31 percent of their loans to businesses
with revenues under $1 million in 2002. This is a substantial decrease
from 40 percent in 2001 and 60 percent in 1999. Similarly, lending
to businesses in low- and moderate- income census tracts remains
stagnant as the percent of loans made to businesses in these communities
either decreased or remained the same over each of the last few
years.
The situation
is similar in Rochester, NY. From 2001 to 2002 the number of small
business loans increased by 11 percent overall but only by 2 percent
in low-moderate income census tracts. For business with gross revenue
under $1 million the number of loans decreased by 21 percent and
for businesses with gross revenue under $1 million in low-moderate
income census tracts the number of loans decreased by 27 percent.
As a percentage of all loans, the number of loans to business in
low-moderate income census tracts increased slightly from 16 percent
to 17 percent. However, the share of loans for business with gross
revenue of under $1 million decreased form 45 percent to 32 percent,
while the share for businesses with gross revenue under $1 million
located in low-moderate census tracts remained the same at 5 percent.
GRCRC believes that just like improvements to HMDA, enhancements
to ECOA that allows lenders to collect demographic data will expand
lending to traditionally underserved communities and borrowers.
In Conclusion
Finally, in 2001,
the Federal Reserve Board made valuable improvements to their regulation
implementing the Home Ownership and Equity Protection Act (HOEPA),
which amended TILA. Among other benefits, the changes applied HOEPA’s
protections to more subprime loans, including most loans with single
premium credit insurance.
The Public Interest
Law Office of Rochester, a member of the GRCRC, has represented
many clients whose predatory loans were restructured thanks to
the new HOEPA protections. One such case was of a Vietnamese couple
with three young children who had a good mortgage on their home
and a small amount of credit card debt. A high-cost lender persuaded
them to refinance their prime mortgage and their credit card debt
into two separate secured loans that raised their monthly payments
by over $100 and the total cost of their debt by $111,000.
Before 2001,
the two loans would not come under HOEPA regulations because separately
they did not exceed the required points and fees. However, with
the new HOEPA regulations the lenders cannot originate two loans
on the same day in the same transaction to avoid HOEPA, which we
believe was the lenders intent in this particular case. The advantage
under the new HOEPA regulations allowed PILOR to restructure the
loan on terms that are more advantageous for the client because
the lender did not provide proper HOEPA disclosure. Since abusive
lending continues to increase, the federal agencies must preserve
the changes to HOEPA.
Likewise, the
agencies must not weaken HMDA, ECOA, TILA, or protections in regulations
implementing laws against unfair and deceptive practices and acts.
Data disclosure under these laws must become more comprehensive
in order to identify and uproot discrimination.
Sincerely,
Ruhi Maker, Esq.
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