Federal Deposit
Insurance Corporation

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 other proposed questions 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.

We are 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 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, meaning that the one year of additional time is important for geographical areas like the Gulf Coast region that have been devastated by natural disasters. We also applaud the agencies for providing more “weight” or credit 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. Your 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.

The proposed questions on community development services provide an important emphasis on low-cost banking services for low- and moderate-income consumers. Low-cost checking accounts, electronic transfers, and remittances provide critical alternatives to payday loans and other high cost fringe products. Low cost banking services enable low-income consumers to save and build wealth in contrast to usurious products that strip wealth. Once these proposed questions are finalized, we hope that the agencies provide CRA points for low cost banking services and also penalize banks on CRA exams for abusive products such as bounce protection, whose wealth stripping features are not advertised clearly to consumers.

I also ask that you clarify the CRA exam criterion for mid-size banks with assets between $250 million to $1 billion that assesses their provision of services through branches and other facilities. It must be clarified that this 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 since a recent Federal Reserve study shows that racial disparities in high cost lending is less when banks conduct the lending through branches as opposed to using brokers.

The National Urban League opposes the proposed question and answer that provides CRA points for financing middle- and upper-income housing developments in distressed rural middle-income census tracts. Elsewhere in the existing Question and Answer document and in your proposed questions, the agencies provide credit 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 possibilities of banks receiving significant CRA points for financing middle- and upper-income housing. We urge you instead to provide points for mixed-income housing.

We applaud your proposed question and answer that 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, but we ask that you add a provision to your proposed questions stating that qualitative factors will not be employed by examiners to excuse low levels of community development lending, investments or services.

Finally, the National Urban League applauds your decision to add an anti-predatory provision to the CRA regulations that will penalize banks for illegal, abusive, and discriminatory loans. We ask that you add a Question and Answer indicating 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 subprime loans to minorities, the elderly, women, low-income borrowers or to communities recovering from natural disasters and experiencing shortages of credit.

The National Urban League believes strongly that strengthening the Community Reinvestment Act (CRA) is a key component to the National Urban League’s agenda for increasing business development and entrepreneurship, and closing the black/white home ownership gap in African American and other urban communities. The National Urban League is a partner in an Urban Entrepreneur Partnership which brings together the resources of the Federal Government (represented by the White House National Economic Council), the Ewing Marion Kauffman Foundation and the Business Roundtable to further support the development of Economic Empowerment Centers in 5 cities to provide small business development services. To date, three centers have launched and are currently operational in Kansas City, Cleveland and Atlanta.

The National Urban League believes that the most effective way to expand access to credit to underserved borrowers is implementing rigorous and comprehensive CRA exams that maintain the focus on meeting the credit and deposit needs of low- and moderate-income borrowers and communities. Your positive response to our comments on the proposed Question and Answers will help insure that CRA exams will become more rigorous.

Thank you for considering our comments. If you care to reach me, please contact me at 212-558-5336 or Stephanie Jones, Executive Director of our National Urban League Policy Institute in Washington, D.C., 202-898-1604 ext. 15.

Sincerely,

Marc H. Morial
President and CEO, National Urban League
Chairman, Urban Entrepreneur Partnership