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FDIC Federal Register Citations

January 9, 2006

Robert E. Feldman
Executive Secretary
Attention: Comments, RIN 3064-AC97
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington DC 20429

To Whom It May Concern:

 CFED appreciates the opportunity to comment on the Interagency Questions and Answers
 (Q & A) Notice published in the Federal Register on November 10, 2005.

    As a leader in asset-building and economic development strategies, CFED works at the national,
 regional, state and local levels to help people acquire assets, build businesses, and create healthy communities. 
    Based on our nearly 30 years of experience, we know that a strong Community Reinvestment Act (CRA) 
    services test ensures that low-income individuals and families can begin a relationship with a financial institution. 
    Accessing financial services helps low-income individuals enter the financial mainstream which enables 
    them to save money and build assets.

Financial Institution Branches are Critical to Meeting Community Needs

The Q & A Notice lists many examples of community development services. CFED urges that the final Q & A Notice and other regulations clarify that the provision of financial services to low- and moderate-income individuals through branches and other facilities in low- and moderate-income communities is of utmost importance for any community development exam (the first bullet in the draft Q & A Notice).

We concur with the National Community Reinvestment Coalition that the final Q & A Notice should clarify that the community development exam criterion includes an examination of the number and percent of branches in low- and moderate-income communities. Placing branches in low- and moderate-income communities is vital: a recent Federal Reserve study shows that there is less racial disparity in high cost lending when banks conduct the lending through branches as opposed to using brokers.

While we strongly support the other examples of community development services mentioned in the draft Q & A Notice, particularly the provision of individual development accounts, technical assistance, international remittances, credit counseling, serving on loan review committees, lending staff, and other assistance, we believe these services should be considered as part of the larger goal of ensuring that financial institutions meet a community’s banking needs. Whether financial institutions are, in fact, meeting a community’s banking needs should be assessed by analyzing the opening and closing of retail banking service locations in comparison by income geographies. Further, this analysis should continue to include the availability and effectiveness of alternative systems for delivering retail banking services (e.g., ATMs, ATMs not owned or operated by or exclusively for the bank, banking by telephone or computer, loan production offices, and bank-at-work or bank-by-mail programs) in low- and moderate-income geographies and to low- and moderate-income individuals; and the range of services provided in low-, moderate-, middle-, and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies.

In addition, we recommend that the final Q &A Notice provide CRA points for the provision of low-cost banking services. CRA exams should also penalize banks for abusive products such as bounce protection, the wealth stripping features of which are not advertised clearly to consumers.

CFED encourages the use of impact data in exams whenever possible. For example, a financial institution that could demonstrate a dramatic increase in low- and moderate-income households with savings accounts should be rewarded for its effort. CFED’s 2005 Assets and Opportunity Scorecard: Financial Security Across the States provides state rankings on accessing financial services. It may be of assistance in benchmarking particular communities to the state overall. It is available at

Expand Assistance for Federal Home Loan Banks’ Activities

CFED supports technical assistance for organizations applying for loans or grants under the Federal Home Loan Banks’ Affordable Housing Program (AHP). We would urge that final Q & A Notice also include assistance for other programs provided by the Federal Home Loan Banks. The AHP is a relatively small program (10 percent of the Banks’ profits). Financial institutions should be encouraged to use the other programs as well. These include the Community Investment Program, the Community Investment Cash Advance, and other advance and grant programs offered by an individual Bank.

Support Partnerships for Credit Counseling

The final Q & A Notice should clarify that a financial institution is not required to directly provide the credit counseling, homebuyer and home-maintenance counseling, financial planning, or other financial services education to promote community development and affordable housing. In many cases, it may be preferable for a financial institution to partner with a nonprofit organization to provide these services. In addition, the final Q & A Notice should state that any partner credit counseling agency should provide affordable and appropriate services. Unfortunately, there has been a recent rash of predatory credit counseling programs. The regulatory agencies should work to mitigate their spread by including this language in the final Q & A Notice.

Include Individual Development Accounts

Please include Individual Development Accounts as examples of “other financial services with the primary purpose of community development (12(j)). CFED has had tremendous success in promoting matched-savings accounts (called individual development accounts or IDAs) as an asset-building tool for low- and moderate-income people. Nationwide, there are 500 programs providing accounts to 50,000 savers. The majority of IDA programs partner with financial institutions to provide the accounts. These partnerships are proving beneficial for the financial institution as they bring in new customers who tend to be loyal and use other financial institution services, such as mortgages and car loans.

Ensure Focus on Low- and Moderate-Income Families is Preserved in Natural Disasters

CFED supports financing community development activities in geographical areas impacted by natural disasters. While we are pleased that the federal agencies direct banks to focus on low- and moderate-income families in areas impacted by disasters, we are concerned that some of questions in the draft Q & A Notice divert bank financing to middle- and upper-income housing. The agencies must implement CRA in a manner that maintains the law's central objective of ending redlining and expanding access to credit for low- and moderate-income families and communities.

CFED is pleased that the agencies are proposing that banks will receive points on their CRA exams for financing community development in geographical areas impacted by disasters for a longer period of time. CFED supports the proposal to provide CRA points financial institutions for supporting development up to one year after the expiration of official federal or state designation of disaster status. Community development financing takes considerable time to plan and implement. We also applaud the agencies for providing more "weight" or points to community development activities that are most responsive to the needs of low- and moderate-income individuals that have been impacted by the natural disaster. The proposal to provide CRA points for investments that benefit families displaced by disasters promises to be very beneficial to areas receiving a large influx of families resettling in the wake of Hurricane Katrina and future natural calamities.

Promote Mixed-Income Housing

CFED concurs with the National Community Reinvestment Coalition in its opposition to assigning CRA points for financing middle- and upper-income housing developments in distressed rural middle-income census tracts. The Q &A document provides points for mixed-income housing developments. Mixed-income housing helps to overcome segregation by income and is an activity worthy of CRA points if the housing contains a significant number of low- and moderate-income families. We therefore urge you to eliminate the possibility that banks will receive significant CRA points for financing middle- and upper-income housing. We urge you instead to provide points for mixed-income housing.

Encourage Community Development Loans

For nearly 30 years, CFED has promoted small business growth. We recognize the importance of small and micro-enterprise business activity to a community’s vitality and to the individual entrepreneur’s assets. Thus, we are pleased that the draft Q & A Notice reiterates that mid-size banks must offer community development loans, investments and services. Mid-size banks cannot ignore one or more of these activities. We also recognize that qualitative factors on CRA exams can be important; however, we ask that the final Q & A Notice include a provision stating that examiners are not permitted to substitute qualitative factors for low levels of community development lending, investments or services.

Include Anti-Predatory Lending Provisions

Finally, CFED encourages the regulators to add an anti-predatory lending provision to the CRA regulations that will penalize banks for illegal, abusive, and discriminatory loans. We ask that the final Q & A Notice state that a bank will automatically undergo a fair lending exam to test for compliance with federal anti-predatory and anti-discrimination law when the bank or one of its affiliates makes a high concentration of sub-prime loans to minorities, the elderly, women, low-income borrowers or to communities recovering from natural disasters and experiencing shortages of credit.

The Q&A adopts amendments to the regulations to address the impact on a bank's CRA rating of evidence of discrimination or other credit practices that violate an applicable law, rule or regulation. This is farther than the regulators have gone before and is a positive step and we commend the regulators for taking it.

The most effective way to expand access to credit to underserved borrowers is to implement rigorous and comprehensive CRA exams that maintain the focus on meeting the credit and deposit needs of low- and moderate-income borrowers and communities. If you are responsive to our comments on the proposed Q & A Notice, CRA exams will become more rigorous.

Thank you for consideration of our comments.

Andrea Levere




Last Updated 01/10/2006

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