NCRC Alert on Attack on CRA

[jsilver at essential.org]

NCRC Alert: Community Reinvestment Act in Danger.
Act Now to Oppose Financial Modernization and anti-CRA Bills


Dear Friends of Community Reinvestment:


Small business, affordable housing, and economic development lending and
investing will decline if Congress enacts so-called financial modernization
legislation without major changes recommended by the National Community
Reinvestment Coalition (NCRC). Please use the talking points below to
start visiting and calling your Senators and Representatives to oppose this
legislation. The full Senate is expected to consider financial
modernization legislation in early May. The House will not be too far
behind.

The House and Senate are considering different versions of financial
modernization legislation. The House's version is called HR 10, while the
Senate is considering two versions of financial modernization legislation.
The House Banking Committee did a mark-up and approved HR 10 on March
11(during a mark-up, a committee considers amendments to a bill). The next
stop for HR 10 is the House Commerce Committee in early to mid-May. On the
House side, it is particularly important to contact Representatives on the
Commerce Committee and the House Leadership (see below).

The Senate Banking Committee did a mark-up and approved a bill on March 4.
Action on the Senate bill is expected in early to mid-April. The bill
authored by Senator Phil Gramm (R-TX) is much worse than the House bill; it
would cripple CRA if it was passed. The President has pledged to veto the
bill, but we will need your help in defeating this destructive bill. It
would be dangerous for the Senate to pass the bill and then have a
House-Senate conference committee consider it. Meanwhile, the Senate
Democratic leadership has introduced an alternative, S. 753. This bill
removes the destructive provisions of Senator Gramm's bill, but it has the
same shortcomings as H.R. 10.

The National Community Reinvestment Coalition (NCRC) is the nation's CRA
trade association of more than 690 community organization members. Please
call us on (202) 628-8866 if you have any questions. Also, please carbon
copy us in any letters you write on financial modernization legislation.
Our fax number is (202) 628-9800, our web site is ncrc.org, and our mailing
address is 733 15th St. NW, Suite 540, Washington DC 20005.


Senate Bill Worse than the House Bill: Attacks Core of CRA

The Senate Banking Committee approved a bill, the Financial Services
Modernization Act of 1999, on March 4 (bill does not yet have a number).
Senator Phil Gramm (R-TX) is the author of the bill. Below are the major
provisions of the Senate bill that attack CRA:

… Safe Harbor Provision: A bank or thrift is designated as complying with
CRA if its ratings during the last three years are Satisfactory and above.
A community group commenting on a merger application or any other bank
application bears the burden of proof in demonstrating that CRA performance
is below Satisfactory. If the community group is unable to do so, its
comments on the pending merger would not be considered valid by the federal
banking agency considering the merger.

… This version of safe harbors makes it nearly impossible to comment on
pending mergers. For example, if a large bank has an overall Satisfactory
or Outstanding rating, its performance across states or metropolitan areas
is still likely to be uneven. It may have received a "low Satisfactory"
as its rating in a particular state or it may have a failing rating on one
of the tests in the CRA exam (large banks have separate tests looking at
their record in lending, making investments, and offering services to low-
and moderate-income borrowers and neighborhoods). An overall grade of
Satisfactory or Outstanding hides these areas of weaknesses. Community
groups should have every right to request that regulatory agencies address
areas of weakness, and should not be prevented from doing so by an overall
grade of Satisfactory or Outstanding.

… Small Bank CRA Exemption: The bill exempts rural banks under $100
million in assets from CRA. More than 3,870 banks and thrifts would be
exempted. This equals 72 percent of all small banks located in
non-metropolitan areas. In many rural states, the proportion of CRA-exempt
banks would be even higher. In Iowa, for example, 85 percent of the
lenders in non-metropolitan areas would be exempt. Low- and
moderate-income populations in small towns and rural areas would be
particularly hard hit. Many rural small banks enjoy a near monopoly in
their service areas. They will have little incentive to serve minorities
and working class customers if CRA obligations are removed.

… Small Banks Have not Earned a CRA Examption: Senator Richard Shelby
(R-AL), the author of the small bank exemption to Senator Gramm's bill,
claims that small banks must make loans in their communities if they wish
to stay in business. CRA ratings, however, suggest that a disproportionate
number of small banks are not fulfilling their community reinvestment
obligations. From 1990 through 1998, 90 percent of the worst ratings,
substantial non-compliance were received by small banks (26 out of 29
substantial noncompliance ratings). Small banks received 70 percent of the
needs-to-improve ratings (211 out of 297 needs-to-improve ratings according
to the web page of the Federal Financial Institutions Examination Council).
All small banks (both rural and metropolitan) are 60 percent of the banks
in the country.

… Senator Gramm's bill also removes the modest requirement now in the House
bill that a bank must have at least a Satisfactory rating in order to
engage in insurance and securities activities. Less than 2 percent of
banks and thrifts evaluated under CRA in the last few years have received
failing ratings. These banks are truly not performing. It is not fair to
communities nor to banks with passing ratings to let the failing banks
enjoy new powers and enter new markets.


Talking Points on HR 10 (the bill on the House Side)

… HR 10 is very similar to the Democrat alternative on the Senate side, S.
753, that is sponspored by Senators Daschle (D-SD), Sarbanes (D-MD), Dodd
(D-CT), Kerry (D-MA), Bryan (D-NV), Johnson (D-SD), Reed (D-RI), Schumer
(D-NY), Bayh (D-IN), and Edwards (D-NC). Minor differences between S. 753
and HR 10 will be noted below.

… Financial modernization legislation such as HR 10 would allow banks,
insurance companies, and securities firms to own each other. Currently,
there are limits on cross-industry ownership. HR 10 and S. 753 would wipe
out the limits.

… HR 10 weakens CRA since it does not expand CRA-like obligations to
insurance companies, securities firms, mortgage companies, and other
financial companies allowed to affiliate with banks. Holding companies can
shift their assets from banks and thrifts to the CRA-exempt affiliates and
subsidiaries. Banks will have fewer resources with which to make home and
small business loans to minority and working class borrowers.

… HR 10 does expand CRA to wholesale financial institutions (known as
woofies). A woofie is a new type of investment bank that would not be
federally-insured and could only accept deposits greater than $100,000.
This is positive, but remember that wholesale financial institutions are
only one of the financial companies that would be allowed to affiliate with
banks under HR 10. On the Senate side, the Democrat alternative bill, S.
753, would apply only to a subset of woofies, namely woofies that are owned
by banks, and not those owned by non-depository institutions.

… Holding companies are now shifting bank products, as well as assets to
non-depository institutions. Over the next few years, State Farm's 16,000
insurance agents throughout the country will make loans on behalf of State
Farm's new thrift. The Office of Thrift Supervision claims that it does not
have the statutory authority to apply CRA beyond the headquarters office of
State Farm's thrift in Bloomington, Illinois. If financial modernization
does not expand CRA to cover the banking activities of insurance companies
and other non-depository institutions, HR 10 will result in CRA covering a
shrinking amount of traditional banking activities.

… HR 10 and S. 753 would permit most mergers (under $40 billion in assets)
between banks and non-depository institutions to occur without an
application requirement to federal banking agencies. Federal banking
agencies would be unable to review the safety and soundness or CRA issues
of these mergers. Community groups would not be able to comment to federal
agencies at all on these mergers.

What a Pro-CRA Bill Would Include

… Expand CRA to all companies allowed to affiliate with banks: CRA and
community reinvestment obligations must be expanded to all financial
companies allowed to affiliate with banks, including mortgage companies,
insurance firms, and securities firms. This would prevent the shifting of
assets and products from banks into firms exempt from CRA. Also, access to
insurance policies, mutual funds, and other capital accumulation tools will
be increased for low- and moderate-income people and communities if
CRA-like obligations are expanded broadly to all segments of the financial
industry.

… Expand CRA to all non-bank affiliates that offer loans and other bank
services: CRA will cover a much smaller portion of the lending activity in
the country if it remains confined to banks while insurance agents,
mortgage companies, and other financial companies continue to expand their
lending business. It is feasible for federal regulatory agencies to
construct CRA exams covering the lending, investing, and service activities
of mortgage companies and other non-depository institutions engaged in
banking.

… Require insurance companies to disclose data: The HMDA (Home Mortgage
Disclosure Act) data has been instrumental in helping banks and community
groups identify missed market opportunities in minority and working class
neighborhoods. Like banks, insurance companies must be required to
publicly disclose data on the characteristics of their customers including
race, income, and the neighborhoods in which they reside. Data disclosure
will tremendously increase access to home, automobile, and small business
insurance products for traditionally underserved people.

… Merger Application Requirement: A key time for CRA enforcement occurs
when banks seek permission from federal regulatory agencies to merge. The
agencies must consider community group comments on the CRA records of
banks. The comment process has been instrumental in securing CRA
agreements and bank commitments to make specific dollar amounts of loans
and investments in minority and working class neighborhoods in future time
periods. The financial modernization bills currently exempt most mergers
between banks and non-depository institutions (such as insurance companies)
from application requirements that involve reviews of CRA performance. Any
bill must have application requirements for all types of mergers.


Proof that CRA Works

… CRA has led to dramatic gains in reinvestment. In the last twenty years,
community organizations and banks have negotiated more than 360 agreements
totaling more than $1 trillion of loans and investments for minority and
working class neighborhoods. Most of these agreements were in the last five
years, or during the most profitable era of banking in the United States.
CRA loans are profitable, and are now being sold on Wall Street. CRA is a
win-win for banks and neighborhoods.

… Home purchase lending has increased dramatically. Low- and
moderate-income borrowers received 28 percent of all home purchase loans in
1997 - up from 18 percent in 1990. Blacks and Hispanics received 14
percent of home mortgage loans - up from 10 percent in 1990.

… Add some data and information you have about local CRA success stories.
Share these with NCRC.


Who to Contact in the House and Senate

… The capitol hill switchboard number is (202) 224-3121.

… On the Senate side: All 100 Senators must hear from us. Important
leaders include Senator Paul Sarbanes (D-MD), who is the ranking member of
the Banking Committee. Democrats will take their cue from Senator Sarbanes
on banking issues. The Senator must stand firm against the anti-CRA
provisions now in the Senate bill. In addition, Majority Leader Trent Lott
(R-MS) must hear from us; he may not schedule the bill for a floor vote if
he believes it is controversial. Also, Senator Thomas Daschle (D-SD) is
the Democratic Leader in the Senate.

… On the House side: The House leadership must start hearing from us.
This includes Speaker of the House J. Dennis Hastert (R-IL), House Majority
Whip Tom Delay (R-TX), Minority Leader Dick Gephardt (D-MO), and Democratic
Whip David E. Bonior (D-MI). The Commerce Committee is the next stop for
HR 10. See the list below for their membership.

… Call us on (202) 628-8866 if you have any questions, and please carbon
copy us on any letters you write.


April x, 1999

SAMPLE LETTER TO CONGRESS
(Please modify and put on your stationary)

Dear Member of Congress:

As a community development (advocacy, fair housing, etc.) organization, we
urge you to protect and modernize the Community Reinvestment Act (CRA). We
particularly urge you to make sure that any financial modernization
legislation that comes before Congress this year expands CRA rather than
weakens it. A strong and vibrant CRA has meant that hundreds of billions
of dollars worth of new home mortgage and small business loans have been
made in the low- and moderate-income urban and rural communities of our
nation during the past several years.

We appreciate the attention that CRA has received from House Banking
Chairman Leach and Ranking Democrat LaFalce as the House Banking Committee
has considered HR 10. We also appreciate that the S. 753, put forward by
the Senate Demcrats, is much like HR 10 and is an alternative to the
anti-CRA bill authored by Senator Phil Gramm (R-TX).

While HR 10 and S. 753 have modest CRA provisions, they fail to deal with a
fundamental problem of financial modernization; the ability of financial
conglomerates to offer loans through their holding company affiliates,
without that activity being covered by CRA. Under current law, a holding
company can own a depository institution, whose lending is covered by CRA,
while also owning a mortgage company or a subprime home equity lender whose
activities are not covered by CRA. Financial modernization, in its current
form, will only exacerbate this problem as insurance companies and
securities firms also begin lending in our communities without a fully
effective CRA covering their activities.

While CRA is meant to give all Americans fair and equal access to credit,
many of us are also becoming increasingly concerned by unfairness in the
insurance industry. Discrimination in the provision of insurance can be as
damaging to our communities as discrimination in lending has been.

The insurance industry will reap tremendous benefits with the passage of a
bill like H.R. 10. In exchange for expanding their ability to conduct
business, we believe it is fair to require insurance companies to collect
and make public Home Mortgage Disclosure Act-like information on policy
underwriting. Data disclosure requirements help communities, insurance
companies, and public agencies identify missed market opportunities and
eliminate discriminatory practices.

Financial modernization legislation must include a vigorous application and
public comment process for mergers within the financial industry. On a
practical level, full enforcement of the Community Reinvestment Act depends
on the ability of citizens to intervene in the application process and
bring information forward that the regulators are unable to gather on their
own.

Mergers and acquisitions can disrupt the lives of thousands of citizens in
a community through job losses, closing of offices, decreases in lending,
and higher fees. Affected citizens ought to have the right to speak up and
have their concerns addressed before a merger application is approved.
H.R. 10 and S. 753, in their present form, would exempt mergers between
banks and non-depository institutions that involve less than $40 billion in
assets from application requirements. Any version of financial
modernization must include application requirements, public comment
periods, and CRA reviews for all proposed mergers.

We have found little demand for financial modernization among the
constituencies that we serve and represent. We have, however, found many
citizens increasingly concerned about anti-competitive impacts of large
bank mergers. Financial modernization may in fact multiply these problems
for our communities, while primarily providing benefits for the wealthiest
people in our country.

Finally, we urge you to be vigilant and fight against any direct attacks on
CRA. The bill passed by the Senate Banking Committee is totally
unacceptable. It exempts small, rural banks under $100 million from CRA
altogether. Almost 40 percent of all lenders in the country will then have
no obligation to serve minority and working class neighborhoods. Seventy
two percent of all rural banks would be exempt from CRA. Moreover, the
Senate bill contains a "safe harbor" provision making it nearly impossible
for community organizations, elected officials, and ordinary citizens to
comment to federal banking agencies on pending bank mergers that would
affect their communities.

Congress has required that banks serve "the convenience and needs" of the
communities in which they are chartered because of the vital role they play
in our lives. We believe that this same standard should be applied to the
entire financial industry. The Community Reinvestment Act has expanded the
American Dream of home and small business ownership for millions of
minority and working class Americans. A financial modernization bill that
carefully modernizes the Community Reinvestment Act to the entire financial
industry could have a profound effect in democratizing access to credit and
capital accumulation tools in our society. That would be good for America.

We urge you to protect and modernize the Community Reinvestment Act.

Sincerely,




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