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FDIC Federal Register Citations

Appleseed Foundation

From: Skyler Badenoch [mailto:SBadenoch@appleseeds.net]
Sent: Friday, September 17, 2004 2:31 PM
To: Comments
Subject: RIN 3064-AC50

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

RE: RIN3064-AC60

September 14, 2004

Dear Mr. Feldman,

The Appleseed Foundation, a non-profit, non-partisan organization committed to positive social change in the United States, is concerned about the proposed rules that would change the definition of “small bank” and thus impact the Community Reinvestment (CRA) obligation of a number of banks that currently serve both urban and rural areas. Many of the states in which we work have seen dramatic increase in predatory lending in the past decade. We believe that any measure that would reduce access to credit and services for lower-income individuals will only exacerbate that disturbing trend.

We are concerned about increasing the “small bank” asset limit to $1 billion and reducing the CRA obligations of banks that fall into the $250 million to $1 billion basket. This policy would only hurt large and growing low- to moderate-income individuals that include people in economically struggling rural areas, new immigrants, and the working poor. The FDIC has made great strides in working with financial institutions to serve new immigrants, and it is in that context that this policy proposal is particularly surprising. This proposal would reduce incentives for financial institutions to reach out to marginalized communities, particularly with respect to smaller community banks whose entire CRA business model involves targeting this growing market.

Your sister financial regulators, the Board of Governors of the Federal Reserve System and the Office of the Comtroller of the Currency have both already rejected similar proposed rules. It is unclear to us why the FDIC would want to pursue such a policy on its own despite significant evidence that the policy would divert much needed investment and product innovation to serve our poorest communities. We respectfully urge you to maintain consistency in the CRA regulatory scheme.

We fear that creating a disparate regulatory burden based on the identity of a financial institution’s primary federal regulator will cause a race to the bottom as many banks rush to find a banking agency with the lowest common denominator for CRA compliance. The large number of local and national banks would simply change their CRA compliance obligations by withdrawing from the Federal Reserve system. The merits and demerits of membership in the Federal Reserve system is a weighty topic whose debate is beyond the scope of this letter, but we believe that in no event should the CRA become the deciding factor in a financial institution’s decision to join or withdraw.

Three other components of the proposed rule concern us: the broad definition of “rural community,” the reduced reporting requirements for banks with assets between $250 million and $1 billion, and the overly flexible system for assessing bank community development activities.

The proposed community development criteria provide CRA credit for serving any individual residing in a rural community. There is no focus on low- to moderate-income rural residents, which is the community in greatest need and with the fewest financial service options. Allowing credit for generally serving rural communities would allow banks to serve the most profitable rural community members and businesses and receive CRA credit, which goes against the sprit of the Community Reinvestment Act.

The elimination of certain reporting requirements for banks that would benefit from the new “small bank” definition will hinder transparency in banking practices. It is important to have key community development information available so that local areas can assess how well their banks are serving their communities. Without sufficient statistical information, it is difficult for a community to analyze and understand how much effort a bank is making to serve the needs of lower income community members.

Finally, the new system for assessing a bank’s community development activities is overly flexible and encourages banks to focus on the easiest activities rather than those that are most beneficial to the less privileged members of the community the bank serves. It is necessary for banks to support community organizations serving lower income population groups. These activities are crucial, but cannot have a significant impact without banks expanding reasonably priced lending opportunities for low- and moderate- income individuals and providing innovative financial service products to make mainstream financial services both accessible and affordable for all Americans. It is the sum of efforts rather than any individual part that creates true community impact.

The FDIC has launched a wonderful financial education campaign focused on banking the unbanked and creating more sophisticated financial service consumers. The impact of the new rules would be to reduce financial service options for those benefiting from the FDIC financial education program. It is beneficial to teach people new information, but with that information must come possibilities. Any community development test should assess all of the aspects of community development and require that banks do their best to serve the financial service and lending needs of their entire community.

Our organization believes strongly that profit and community benefit can coexist. The Community Reinvestment Act is a perfect example of how the government can positively impact communities while preserving the need of banks to be profitable and sound. Adopting the proposed rule would tip the balance to the side of profit, leaving communities to suffer. Such a policy may be beneficial to banks in the short term, through cutting expenses related to the CRA examination process. In the long term, it has great potential to decrease asset building for lower income Americans, limiting the number of people moving out of the low- to moderate-income category. The effect of this policy will end up hurting banks by shrinking the potential future upper income customer base.

We thank you for the opportunity to weigh in on this important issue, and hope that you will give serious consideration to our comments. The CRA has proved to be an effective tool in building low-income communities. Why change something that is working?

Sincerely,

Skyler Guard Badenoch
The Appleseed Foundation
727 15th Street, NW
11th Floor
Washington, DC


 

Last Updated 09/28/2004 regs@fdic.gov

Last Updated: August 4, 2024