ENTERPRISE
CORPORATION OF THE DELTA
HOPE COMMUNITY CREDIT UNION
September 13, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit
Insurance Corporation
550 17th St. NW
Washington, DC 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
ECD/HOPE, a community development finance institution that has assisted
1,600 businesses and generated $100 million in financing throughout
the rural Mid-South, is writing to express its grave concern over
the Federal Deposit Insurance Corporation (FDIC) proposed rule changes
to the Community Reinvestment Act (CRA). The proposed policies threaten
to stunt rural development efforts and to increase rural predatory
lending activity.
Below you will find ECD/HOPE's comments to each of the proposed
rule changes:
1) The
FDIC seeks comment on whether the small bank definition threshold
of less than $1 billion is appropriate.
In the Mid South
(AR, LA and MS), the proposed rule change will curb the community
reinvestment
activity of approximately of 506
bank branches that hold roughly $13.8 billion in deposits. Of the
506 bank branches that would fall under the new "small bank" definition,
roughly 325 serve rural areas.1
Under the proposed rule change the 325 branches serving rural areas
would have significantly fewer requirements to engage in affordable
home lending, to invest in small businesses and to educate consumers
about managing their finances. Additionally, rural consumers often
face fewer banking choices than their urban counterparts. As rural
banks scale back community investments to the regulatory minimum,
the proposed policy will create an environment where rural consumers
increasingly turn to subprime and predatory financial institutions
to conduct financial transactions.
Given the suggested
policy's potential to diminish access to affordable financial products
in
rural areas, ECD/HOPE deems that the proposed "small
bank" definition threshold of less than $1 billion is. inappropriate,
riate, harmful and disproportionately targeted towards rural consumers
with fewer banking choices. ECD/HOPE therefore recommends that the
FDIC maintain its current bank size definitions.
2) The FDIC seeks comment on whether or not a community development
performance criterion that offers choices to banks should be included
in future CRA exams.
In the FDIC notice
of proposed rulemaking, the FDIC recommends a community development
criterion that the banks would choose "based
on the opportunities in the market and the banks' own strategic strengths." ECD/HOPE
deems the proposed community development criterion as a weak recommendation
and a smoke screen for medium sized banks to engage in activities
that require the least amount of human capital, the least amount
of expense and, ultimately, the least amount of community investment.
Given the prevalence
of medium size banks in rural areas, especially in the Mid South
where
97.7% of the rural institutions have assets
of less than $1 billion, ECD/HOPE strongly recommends that the FDIC
maintain its current bank size definitions. Many low- and moderate-income
rural consumers depend on medium sized banks for housing and financial
services. Medium sized banks must be held accountable for all three
components of the current CRA test — community development
lending, investing and services provided.
3)
The FDIC proposes to change the definition of community development
in rural areas
from a definition
that "focuses on activities
that benefit low- and moderate-income individuals" to a definition
that defines community development as "activity [that] could
benefit either low-and moderate-income individuals or individuals
who reside in rural areas"
Essentially,
by expanding the definition of rural community development to include "individuals who reside in rural areas" the
FDIC has elected to use semantics to accomplish community reinvestment
in rural areas. Under the proposed definition, banks would receive
equal CRA credit for a home loan to a wealthy rural land owner residing
in a high income census tract and a first time minority homeowner
living in a low-income rural community. Given the equal credit of
the two examples, banks would naturally gravitate towards home and
commercial lending deals with perceived less risk in high income
areas. Over time, low-and moderate-income rural consumers, entrepreneurs
and homeowners would effectively be totally written out of rural
bank priorities.
ECD/HOPE views the recommendation as preposterous and strongly urges
the FDIC not to adopt the expanded rural community development definition.
One possible way to increase community investment in rural areas
could be to heavily rate community development partnerships that
occur between banks, nonprofits and government entities to increase
homeownership and small business opportunities for low and moderate
income residents.
Contrary to the concerns of mid-sized banks, the CRA paperwork is
not an undue burden. Over time, the CRA is an instrument that will
improve the overall performance of banks. For example, rural banks
that make affordable housing a realistic goal for residents will
experience an increased demand for services. Unfortunately, perceptions
and a history of policies designed to limit access prevent this from
happening in the absence of the CRA.
The FDIC has exhibited strong leadership in the Mid South by reaching
out to unbanked and under banked populations through its commitment
to the Money Smart program. ECD/HOPE strongly urges the FDIC to
avoid hypocrisy by saying one thing and doing another. The FDIC
should continue its leadership in the Mid South by withdrawing
the proposed rule changes and supporting the CRA in its current
form.
__________________________________________________
1 Source: FDIC Summary of Deposits and Statistics on Depository
Institutions databases.
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