Coalition of Community Development Financial Institutions
From: Jordan Hamory
[mailto:hamory@cdfi.org]
Sent: Monday, April 05, 2004 10:53 AM
To: Comments
Subject: Attention: Comments, CRA Regulations
Docket No. 04-06
Communications Division
Public Information Room - Mailstop 1-5
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Docket No. R-1181
Ms. Jennifer Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Attention: Comments
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
April 6, 2004
To Whom It May Concern:
The Coalition of Community Development Financial Institutions (CDFI
Coalition) appreciates the opportunity to comment on the proposed
revisions to the regulations implementing the Community Reinvestment Act
(CRA). The CDFI Coalition represents a national network of 1,000
community development financial institutions providing capital and
credit in economically distressed rural and urban communities in all 50
states. A listing of our member organizations is enclosed for your
information.
CDFI partnerships with mainstream institutions are vital to maximize
the availability of financial services and credit in America’s
disinvested neighborhoods. CRA has been instrumental in facilitating
these partnerships and providing community-based and community-run
financial institutions access to mainstream sources of capital,
primarily through the large bank Investment test. Unfortunately, both
the proposed changes to the definition of “small banks” and the proposed
predatory lending standards threaten to both significantly diminish
mainstream financial institutions’ investments in and partnerships with
CDFIs, as well as tear down and drain assets from the very markets that
CDFIs are working hard to build.
The CDFI Coalition feels that the proposed changes to the CRA
regulation will significantly roll back policy essential for community
reinvestment. We urge you to reject the proposed change to the
definition of small banks and strengthen the proposed predatory lending
standards.
Small Bank Limits
Under the current CRA regulations, large banks with assets of at
least $250 million are evaluated under a three-part test that
scrutinizes their level of funding, investing, and services to low- and
moderate- income communities. The Investment part of this tripartite
examination provides banks a favorable rating for their investments in
community development financial institutions. These partnerships with
mainstream financial institutions are an important source of capital for
CDFIs, and provide support for the affordable housing and community
facilities financing, homeownership and mortgage assistance, small
business lending, retail financial services and products, and financial
literacy training and technical assistance that CDFIs provide in
low-income communities. The CDFI Data Project estimates that 18% of all
CDFI debt capital, shares, and deposits come from mainstream banks,
thrifts, and credit unions. When the subset of community development
loan funds is considered, this figure jumps to 39%--the largest
portion--of their debt capital, shares, and deposits.[1]
Changing the definition of small banks to include all institutions
with less than $500 million in assets regardless of holding company size
will severely diminish many banks’ regulatory incentive to invest in
CDFIs. Over 1,100 banks will now be subject to a streamlined CRA
examination that does not include a separate Investment test.
Consequently, residents of low income neighborhoods served by CDFIs will
see a decrease in their access to financial services, capital, and
credit. This diminished investment will be particularly felt in small
cities and rural areas where the number of institutions covered by the
comprehensive CRA exam is estimated to decline by nearly 73%.[2] A
majority of CDFIs, 59%, serve low income populations in small cities and
rural areas.[3] In these already struggling communities, banks will be
less compelled to provide support to CDFIs for their innovative
investment opportunities and services.
Predatory Lending Standards
The proposed predatory lending standard is insufficient to protect
consumers from abusive lending and may actually perpetuate the practice.
The proposed standard states that loans based on the foreclosure value
of collateral, rather than the borrower’s ability to repay, can
negatively affect a bank’s CRA exam. This standard misses numerous
predatory practices such as packing exorbitant fees onto mortgage loans,
loan flipping, charging high prepayment penalties, and mandatory
arbitration that can strip equity from homeowners and trap borrowers in
abusive loans. These practices prey upon the very low-income customers
that CDFIs are trying to serve, and further reduce the limited assets of
distressed communities.
Of particular concern, many small banks are facilitating payday
lending in states where payday lending is illegal by “renting” their
charter to the payday lenders. In such cases of charter abuse, designed
to circumvent state law, the partnering banks should have their CRA
rating negatively affected regardless of the bank’s size. Bank
participation in payday lending is unseemly at best. A bank’s CRA rating
should reflect that behavior.
Data Disclosure
The CDFI Coalition supports additional data disclosures in CRA exams.
Reporting the census tract location of an institution’s small business
loans will allow for greater understanding of how banks serve
traditionally underserved communities, and help CDFIs identify
opportunities in low-income communities where their services are needed
to fill the gaps in the services offered by mainstream institutions.
However, the benefit of this additional data is partly offset by the
loss of data for banks that would be considered “small” under the new
criteria. These lenders are significant providers of small business
loans; therefore excluding them will create a significant gap in the
data collected.
Likewise, adding data to CRA exams that differentiates between the
share of bank and affiliate loans that are originated and purchased and
those which are high interest rate and HOEPA loans is a positive step.
However, the regulators must not merely require banks to report the new
data on CRA exams, but must use the new data to provide less weight on
CRA exams to high cost loans than prime loans, and assign less weight
for purchases than loan originations.
Missed Opportunities to Enhance CRA and Community Reinvestment
Regulators missed a significant opportunity to modernize CRA by not
requiring affiliate lending to be considered in CRA exams. As bank
holding companies increasingly use non-depository affiliates such as
insurance agents and other non-traditional loan officers to originate
mortgages and other loans, it is critical that all lending affiliates be
required to report lending in an institution’s CRA exam. These
affiliates represent a significant source of potential investments in
low-income communities. As currently stated, CRA allows banks to
manipulate their CRA exams by excluding affiliates not serving low- and
moderate- income borrowers and excluding affiliates engaged in predatory
lending. In order to strengthen community reinvestment, it is critical
that this loophole be closed and all lending affiliates be considered in
CRA exams.
Additionally, the proposed changes do not address the need to update
assessment areas to include geographical areas beyond bank branches. As
technology and regulatory policy has advanced to allow financial
institutions to conduct business through channels other than traditional
bank branches, CRA has not advanced with it. Many banks make
considerable portions of their loans beyond their branches; this
non-branch lending activity will not be scrutinized by CRA exams.
Updating assessment area criteria would facilitate bank partnerships
with CDFIs in all communities where banks do business and expand the
availability of capital and credit to more underserved Americans.
Conclusion
The CDFI Coalition supports an effective, well-enforced Community
Reinvestment Act. CRA has spurred billions of dollars of bank investment
in low income communities and fostered valuable partnerships between
banks and CDFIs. We applaud the regulators for maintaining the
Investment test for large institutions and requiring additional data
disclosure on CRA exams. However, we fear that these positive steps
forward will be overshadowed by the aspects of the proposal that reduce
the number of smaller banks subject to the Investment test and establish
weak predatory standards. In order to ensure that the CRA maximizes its
effectiveness and keeps pace with changes to the financial service
industry, we urge you to:
▪ Maintain the investment test for the over 1,100 banks with assets
between $250 and $500 million by preserving the current definition of
small bank.
▪ Enact strong predatory lending standards, and at a minimum deduct
points on CRA exams for banks partnering with payday lenders.
▪ Expand and modernize CRA to include all bank affiliates. Update
assessment areas to include geographical areas beyond bank branches.
Thank you again for the opportunity to submit comments on the
proposed revisions to CRA regulations. Please feel free to contact me at
vasiloff@cdfi.org or 703-894-0475 to further discuss the CDFI
Coalition’s comments.
Sincerely,
Jennifer A. Vasiloff
Executive Director
Enclosure: CDFI Coalition Member Organizations
CDFI Coalition Member Organizations and Board of Directors
Association for Enterprise Opportunity Michelle Levy-Benitez, Research
and Policy Manager ▪ Arlington, VA
The national trade association representing microenterprise development
programs.
Community Capital Bank Gina Bolden Rivera, Senior Vice President ▪
Brooklyn, NY
A New York City-wide community development bank.
Community Development Venture Capital Alliance Kerwin Tesdell, President
▪ New York, NY
A certified CDFI intermediary that serves community development venture
capital funds through training, financing, consulting, research, and
advocacy.
First Nations Oweesta Corporation Elsie Meeks, Executive Director ▪
Kyle, SD
A certified national Native CDFI intermediary that brings together CDFIs
serving Native (Native American, Alaskan Native and Native Hawaiian)
communities and reservations through research, training, technical
assistance and investments.
National Community Capital Association Mark Pinsky, President and CEO ▪
Philadelphia, PA
A national membership network that finances, trains, consults with, and
advocates for CDFIs.
National Community Investment Fund Lisa Richter, Fund Advisor ▪ Chicago,
IL
A certified CDFI channeling equity, debt and information to
locally-owned banks, thrifts and selected credit unions with a primary
purpose of community development.
National Congress for Community Economic Development Carol Wayman,
Policy Director ▪ Washington, DC
A national group representing community development corporation-based
lenders and investors.
National Federation of Community Development Credit Unions Cliff
Rosenthal, Executive Director ▪ New York, NY
A certified CDFI intermediary that serves more than 200 low-income
credit unions across the USA
Self-Help David Beck, Policy Director ▪ Durham, NC
A North Carolina-based CDFI accepting deposits and providing loans to
small businesses, non-profits, and homeowners nationwide.
Shorebank Corporation Fran Grossman, Executive Vice President ▪ Chicago,
IL
The holding company for community development finance interventions in
Chicago, Cleveland, Detroit, Upper Peninsula Michigan, and the Pacific
Northwest which provides, on a domestic and international basis,
advisory relationships.
Southern Development Bancorporation Joe Black, Vice President ▪
Arkadelphia, AR
A community development bank holding company servicing rural Arkansas
and the Mississippi Delta.
Woodstock Institute Malcolm Bush, President ▪ Chicago, IL
A policy, research, and technical assistance organization specializing
in community development lending, community reinvestment and economic
development.
CDFI Coalition
1601 N. Kent Street, Suite 803
Arlington, VA 22209
(703) 894-0475
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[1] FY 2002 survey results of 442 CDFIs conducted by the CDFI Data
Project.
[2] Source FDIC Institution Directory. Current as of February 2004.
[3] FY 2002 survey results of 442 CDFIs conducted by the CDFI Data
Project.
