14 Oct 2004

Mr. Robert E. Feldman

Executive Secretary

Attention: Comments/Legal ESS

Federal Deposit Insurance Corporation

550 17th St. NW 20429

RIN number 3064-AC50, Oppose Proposal To Weaken CRA

The U.S. Public Interest Research Group  -- a non-profit and non-partisan organization serving as the national association of state PIRGs – would like to add its voice to the massive number of voices against your proposed Community Reinvestment Act (CRA) rule change. The state PIRGs have long supported the CRA, a simple law that has had tremendously positive results.

The costs of this ill-advised change to affected consumers and communities far outweigh its alleged and largely spurious claimed benefits; these costs to consumers and communities have not been adequately measured; therefore, it is not in the public interest to go forward with a rule that will so badly injure so many consumers (including many thousands of members of protected classes as well as other low and moderate income Americans) and communities (including many economically-impoverished inner cities and rural areas).

Your proposal will drastically reduce, by hundreds of billions of dollars, the bank assets available for community development lending, investing, and services.  

We urge the Federal Deposit Insurance Corporation (FDIC) to withdraw the proposed rule changes to the Community Reinvestment Act (CRA). These changes, along with similar new rules recently adopted by the Office of Thrift Supervision, would have a devastating impact on access to credit and affordable banking services for residents of low and moderate income in urban and rural communities.

You should not weaken standards when communities across America have witnessed dramatic increases in predatory lending and other abusive financial services practices that thrive due to the lack of mainstream bank activity.

By quadrupling to $1 billion the minimum asset size that triggers a more stringent CRA review, you will leave an additional 900 banks exempt from well-established, more comprehensive CRA standards that have had a demonstratively positive impact on affected consumers and communities. The proposal, if adopted, would mean that only about 4% of FDIC-supervised banks (223 of 5,291), and only 1% of banks in rural areas would undergo the full CRA examination.

Unfortunately, PIRG research and the research of other advocacy organizations has shown that when regulated and insured financial institutions no longer serve a community, under-regulated and largely predatory lenders take over. We expect that the big winners from these rule changes will not be the community banks that will supposedly save a few cents on regulatory costs. Instead, the payday lenders, who charge triple-digit interest rates, and other fringe financial service providers, who provide exorbitantly priced services to those consumers who have nowhere else to turn, will be the winners.

Consumers in affected communities will be the losers.

The current federal CRA statute has worked well. It is one of the greatest success stories Congress has ever had—CRA is a clearly written, simple and effective law that provides strong positive benefits without restricting the creativity and flexibility of financial institutions to develop new and innovative ways to comply. Amending a law that works well, to exempt so many institutions without cause, would be a grave mistake that the agency cannot justify.

CRA reaffirms the obligation of banks to serve all segments of their communities, including low and moderate-income areas. For banks with assets over $250 million the present CRA exam is comprised of a three-pronged test that looks at a bank's record of providing lending, services, and investments to their local communities.

Yet, your proposal dramatically weakens the lending testing and completely eliminates the service and investment tests for banks with assets between $250 million and $1 billion.

Among other things, the proposed change deletes any regulatory incentive for these banks to open and maintain branches and ATM machines serving low and moderate income geographies, to provide affordable banking services and checking and savings accounts necessary for bringing the millions of unbanked households into the financial mainstream and to offer money transfer and remittance services, which are particularly important to new immigrants and ethnically diverse communities.

The current "service test" is intended to encourage banks to become more active in tending to essential retail banking services needs of low- and moderate- income consumers. Yet you propose to eliminate it for hundreds of banks.

Your proposal would mean that federal examiners for CRA purposes would stop reviewing the retail transaction account services provided by the exempted banks. FDIC has proposed a weak and totally inadequate "community development criterion" to serve as a substitute for the elimination of the present service and investment tests (these two tests together presently comprise 50% of a bank's CRA grade). However, retail services are not addressed at all in the proposal.

You have given no indication that you even considered the negative impacts that this proposal will have on the critical needs of underserved consumers and communities. By any standard, your decision to go forward with this rule without considering the draconian negative impact it will have on consumers and communities is arbitrary and capricious.

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.  Your proposed changes are contrary to the CRA statute and Congress’ intent because they will slow down, if not halt, the progress made in community reinvestment.

The proposed changes will also thwart the Administration’s goals of improving the economic status of immigrants and creating 5.5 million new minority homeowners by the end of the decade.

Worse, your proposal’s goals are directly opposite to the CRA’s statutory mandate of imposing a continuing and affirmative obligation to meet community needs.  Your proposal will dramatically reduce community development lending, investing, and services.  You compound the damage of your proposal in rural areas, which are least able to afford reductions in credit and capital.  You also eliminate critical data on small business lending.  Indeed, two other regulatory agencies, the Federal Reserve Board and the Office of the Comptroller of the Currency, did not embark upon the path you are taking because they recognized the harm it would cause.

For these and many other reasons, on behalf of the members of U.S. PIRG and all consumers, we again respectfully urge withdrawal of this proposal.


Edmund Mierzwinski

Consumer Program Director,

U.S. Public Interest Research Group

202-546-9707x314, (ed@pirg.org)