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HR 10 on the floor of the House!
LEGISLATIVE ALERT: H.R. 10 IS BACK AND IT'S BAD FOR CRA
March 30, 1998
Dear Community Leader:
WE NEED YOUR HELP IMMEDIATELY. Affordable lending, access to credit,
community development investments, the Community Reinvestment Act (CRA) --
all are in jeopardy because of HR 10 (the Financial Services Act of 199.
HR 10 is scheduled to go to the floor of the House of Representatives
tommorrow, Tuesday, March 31.
The National Community Reinvestment Coalition (NCRC) requests that you
contact your Representatives and tell them to just say no to H.R. 10 or the
Financial Services Act of 1998.
H.R. 10 will have profound impacts on community reinvestment by radically
altering the landscape of banking and finance The bill would allow banks,
insurance companies, and securities firms to own each other. Because the
bill provides few consumer protections and few new reinvestment
obligations, the progress in community reinvestment could be halted or
reversed. In addition, the bill could lead to new monopolies that charge
exorbitant fees and cut service. Not only does the bill allow broad
affiliations among financial companies, it also allows bank holding
companies to own a substantial number of non-financial corporations engaged
in anything from data processing to manufacturing.
When you talk to your Representatives, you may hear that amendments will be
introduced to add consumer protections and community reinvestment
provisions. For example, we understand that Rep. Luis Gutierrez (D-IL) and
Rep. Carolyn Kilpatrick (D-MI) will try to attach an amendment that would
require that the new financial conglomerates engage in reinvestment
activities in order for them to have permission to commence securities and
insurance operations. While NCRC urges you to support this amendment, we
still oppose HR 10 because it does not explicity extend the Community
Reinvestment Act (CRA) to financial companies that would be allowed to
affiliate with banks. You will hear about other amendments that are
consumer and community friendly, but none of them will have the teeth to
offer solid protections to underserved neighborhoods. You can tell you
Representative that you support the amendments, but still oppose the bill.
Finally, you will hear that a bill extending the Community Reinvestment Act
(CRA) to credit unions will be attached to HR 10. Thanks to Rep. Joe
Kennedy (D-MA) the bill explicitly says that credit unions must serve their
entire field of membership, including low- and moderate-income individuals.
Again, you can be supportive of that bill, HR 1151, without supporting HR
Below is a fact sheet with talking points that you can use when you contact
your Representative. In addition to contacting your Representatives, we
urge you to contact Speaker of the House Newt Gingrich and Majority Leader
Richard Gephardt. You can reach the Capitol Hill switchboard by calling
(202) 225-3121. Please send us copies of any letters or inform us of any
communications you have with your Representatives on this issue.
If you need more information, please call NCRC Vice President of Research
Josh Silver or Research Analyst Lou Green at (202) 628-8866. Our fax
number is (202) 628-9800.
FACTS ABOUT H.R. 10 AND HOW IT WOULD HURT CRA
The Community Reinvestment Act applies to federal insured depository
institutions - that is to banks and savings and loans. It states that
depository institutions have an affirmative obligation to serve the credit
needs of all the communities - including low- and moderate-income
communities - in which they are chartered.
Since 1977, community organizations and lenders have signed 352 CRA
agreements for a total of nearly $400 billion. In the last seven years,
the average annual amount of CRA agreements has been $55 billion. CRA
agreements are multi-year pledges of loans, investments, and services for
lower income and minority residents of underserved neighborhoods. H.R. 10
could slow down the remarkable increases of reinvestment dollars of the
last few years.
CRA would not be expanded to insurance companies, securities firms,
mortgage companies, and other financial institutions that would be allowed
to affiliate with banks and thrifts under H.R. 10. Thus, H.R. 10 would
allow huge new financial conglomerates (technically called financial
holding companies) without expanding CRA to all of the assets of these
institutions. These new institutions would shift assets out of banks and
thrifts into their affiliates that would be exempt from CRA.
So what's the big deal about asset shifting? Well, the result is a giant
sucking sound of credit and capital from neighborhoods. Affordable
lending and community investment programs will decrease. The new financial
behemoths will claim that their CRA-covered banks and thrifts do not have
the assets (financial wherewithal) to engage in these programs anymore.
CRA cannot stop asset shifting because federal regulatory agencies measure
CRA performance against the available assets of banks and thrifts.
The merger application process is a key time for CRA enforcement when banks
and thrifts are required to explain to the public how they plan to abide by
their CRA obligations after they merge with other insitutions. H.R. 10
would allow the new financial conglomerates to acquire mortgage companies,
insurance firms, and other non-depository institutions without even
submitting an application and explaining how they will satisfy their CRA
This automatic approvals process would be available to holding companies if
all of their banks and thrifts have Satisfactory or Outstanding CRA
ratings. This would qualify virtually all banks and thrifts, since more
than 98 percent of them have received these two ratings in the last few
years. Community reinvestment organizations can testify that this high
number of lenders has not been adhering to their CRA obligations and should
not receive automatic approvals.
To add insult to injury, financial holding companies would have a 24 month
grace period if any of their subsidiaries have a below Satisfactory CRA
rating. So the automatic approval process would be available to holding
companies with subsidiaries failing to serve credit needs of lower income
communities as long as they submit a plan detailing to their regulator how
they will improve their failing performance during the next 2 years.
H.R. 10 will permit a mixing of banking and commerce. In other words, the
new financial conglomerates could own manufacturing companies and other
non-financial corporations as long as the revenues of these companies do
not exceed 5 percent of the revenues of the financial companies. (Some
holding companies would enjoy grandfather clauses if they acquire
securities or insurance firms that already have up to 15 percent of their
revenues derived from non-financial corporations)
It will be harder for small businesses in minority and lower income
communities to get a loan from banks that own their own small businesses.
Renowned economists including former Federal Reserved Chairman Paul Volcker
believe that a mixing of banking and commerce will prevent the impartial
allocation of credit and thus retard overall economic productivity and
The current version of H.R. 10 eliminates a provision included in an
earlier version that would have stopped any discriminatory practices of
insurance companies. The deleted provision would have prohibited
affiliations among banks and insurance companies if the insurance companies
discriminated in the sale of policies in violation of the Fair Housing Act.
The current version of H.R. 10 waters down a life-line banking requirement.
An earlier version reported out of the House Banking Committee would have
prevented cross-ownership among banks, insurance, and securities firms
unless the parent company demonstrated that all of its bank subsidiaries
were actually providing low-cost banking accounts to lower income
customers. The current version merely states that the parent company has
to self-certify that they offer life-line accounts.
H.R. 10 will extend CRA obligations to wholesale financial institutions (a
new non-federally insured entity which could only accept deposits of over
$100,000) that would be allowed to affiliate with financial holding
companies. While NCRC would support this extension of CRA, remember that
H.R. 10 would not expand CRA to mortgage companies, credit unions,
securities firms, insurance companies, and other financial entities that
would be allowed to affiliate with financial holding companies.
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