October 6, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
The undersigned organizations urge you to withdraw the proposal of
the Federal Deposit Insurance Corporation to quadruple (to $1 billion)
the minimum asset size for applying the full Community Reinvestment Act
(CRA) exam to state chartered non-member banks. This proposed change in
the CRA regulations would have a devastating impact on lending, housing,
and access to financial services in urban and rural communities across
America.
CRA has been instrumental in increasing homeownership, boosting
economic development, and expanding small businesses in the nation’s
minority, immigrant, and low- and moderate-income communities. The FDIC
proposal would dramatically diminish banks’ obligation to reinvest in
their communities. It revises the CRA rules to make the less rigorous
CRA exam applicable to an additional 900 banks with assets totaling $401
billion. Adoption of the FDIC measure is likely to mean the loss of
hundreds of millions of dollars in loans, investments, and services for
local communities and would disproportionately impact rural areas and
small cities where the market presence of these mid-sized banks is often
great.
FDIC rulemaking on this matter is flawed both in terms of procedure
and substance. The draft proposal was adopted on a divided vote at a
board meeting that was called on unusually short notice, and that
provided some board members with only limited opportunity for prior
review. The board provided a minimal 30-day public comment period. A few
days before the schedule end of the comment period on September 20, the
FDIC granted a 30-day extension. While the extension provides a needed
additional opportunity for public comment, we cannot condone the “go it
alone” course the FDIC has charted as an acceptable substitute for the
joint rulemaking approach traditionally employed by the banking agencies
for the promulgation of CRA regulations. Furthermore, the federal
agencies have also held public hearings across the country when they
have proposed changes of this magnitude to CRA and other fair lending
laws.
The FDIC rule, as proposed, would greatly weaken or eliminate
extremely important standards necessary to ensure that CRA is effective.
The proposed change would weaken the lending test and also eliminate the
investment and service parts of the CRA exam for FDIC supervised banks
that have assets between $250 million and $1 billion.
The FDIC’s plan to add a weak and trivial community development
criterion in lieu of the investment and service tests applicable today
(that collectively count for 50 percent of a bank’s CRA grade) is a
wholly inadequate substitute for the present exam standards. The new
factor permits these banks to satisfy the community development
criterion by choosing whether to provide community development loans,
investments or services instead of assessing their performances for all
three categories, as is currently required. This change is likely to
result in a significant drop-off of lending, investments and services
for affordable housing development, Low Income Housing Tax Credits,
community service facilities, such as clinics, and economic development
projects.
Another harmful element in the proposal is the dramatic weakening of
the lending test for midsize banks which could decrease access to credit
for many Americans. Under the proposal banks with assets between $250
million and $1 billion will no longer be subject to the rigorous
examination of their mortgage, small business, small farm, and consumer
lending. Further, these banks would no longer be required to collect and
report essential lending information such as small business lending by
census tracts or revenue size of the small business borrowers. Without
data on lending to small businesses and small farms, it is impossible
for the public to know how well these midsize banks help to meet the
credit needs of their local communities.
We also fear that the elimination of the service test will have
harmful consequences for low- and moderate-income consumers. It takes
away the regulatory incentive for midsize banks to maintain and open new
branches and ATM machines serving low-and moderate-income geographies.
It is also likely to undercut the extent to which these banks provide
checking and savings accounts for low- and moderate-income consumers,
affordable banking services necessary for bringing unbanked households
into the financial mainstream, or money transfer and remittance
services, which are particularly important to new immigrants and
ethnically diverse communities.
According to the FDIC data, the rule change would mean that only 223
of 5,291 (about 4%) of all FDIC-supervised banks would continue to
receive the full CRA exam. It would affect some parts of the U.S. more
drastically than others. Ninety-nine percent of rural FDIC-supervised
banks would be exempted from full coverage. We calculate that no
FDIC-supervised banks in eight states (Alaska, Arizona, Idaho,
Minnesota, Montana, New Mexico, West Virginia and Wyoming) would be
fully covered by CRA. Thirty-six other states would have five or fewer
banks facing full CRA scrutiny.
In addition, this proposal would broaden the definition of community
development in rural areas so that all FDIC-supervised banks could
receive CRA “credit” even if these activities are not particularly
directed at serving the needs of low- and moderate-income households, as
is presently required. The proposal would be particularly harmful to
rural counties, which already have fewer banks. Rural counties have 4.3
banks compared to 10.9 banks in urban counties, on average.
The FDIC proposal and the rule recently adopted by the OTS diminish
the CRA requirements for midsize banks and work at cross purposes with
the Act’s statutory mandate. As you know, this mandate requires that
banks, regardless of their asset size, have a continuing and affirmative
obligation to serve the credit and deposit services needs of their local
communities, including low- and moderate-income areas.
We urge you to withdraw this proposal. When you are counting the
number of comments, please consider this a comment from each of us,
meaning that this letter consists of the views of 53 organizations, not
the views of just one letter writer. In other words, 53 organizations
are on the record as opposing the proposed changes.
Sincerely,
AARP
ACORN
AFL-CIO
American Corn Growers Association
The American Council of the Blind
Catholic Migrant Farmworker Network
Center for Community Change
Center for Rural Strategies
Coalition for Responsible Lending
Coalition of Community Development Financial Institutions
Community Development Venture Capital Alliance
Consumer Federation of America
Consumers Union
Enterprise Foundation
Federation of Southern Cooperatives
Housing Assistance Council
Lawyers' Committee for Civil Rights Under Law
Leadership Conference on Civil Rights
Local Initiatives Support Corporation
Migrant Legal Action Program
NAACP
NAAHL
National Association of Consumer Advocates
National Association of Counties
National Association of Housing and Redevelopment Officials
National Association of Social Workers
National Catholic Rural Life Conference
National Center for Healthy Housing
National Community Action Foundation
National Community Capital Association
National Community Development Association
National Community Reinvestment Coalition
National Congress of American Indians
National Congress for Community Economic Development
National Consumer Law Center
National Council of La Raza
National Fair Housing Alliance
National Family Farm Coalition
National League of Cities
National Low Income Housing Coalition
National People’s Action (NPA)
National Training and Information Center (NTIC)
National Tribal Development Association
National Women's Law Center
National Urban League
Pride At Work, AFL-CIO
Rural Coalition/Coalición Rural
Stand Up for Rural America
Unitarian Universalist Association of Congregations
United Auto Workers
United Steelworkers of America
U.S. Conference of Mayors
U.S. Public Interest Research Group
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