Senator Clinton Calls on Office of Thrift Supervision to Withdraw Proposed Changes to Community Reinvestment Act

Senator Clinton Calls on Office of Thrift Supervision to Withdraw Proposed Changes to Community Reinvestment Act

Opposes changes to vital federal program that ensures financial institutions meet the credit needs of low and moderate income communities

Senator Hillary Rodham Clinton called on the Office of Thrift Supervision (OTS) to withdraw its proposal to change the Community Reinvestment Act (CRA), the federal law that requires banks to make investments in low- and moderate- income communities. In a letter sent on Friday to Mr. James E. Gilleran, Director of OTS, Senator Clinton argued that the proposed changes would dramatically weaken the effect of the CRA and have a negative impact on economic development and access to low-cost services in low and moderate income neighborhoods as well as areas affected by natural disaster across New York State.

"The Community Reinvestment Act ensures that banks and other financial institutions provide access to capital to everyone -- from small business loans to low-income mortgages. Access to financial capital for low and moderate income families is critical to the future of our communities and our economy," Senator Clinton said.

"I urge the OTS to re-think its proposed changes to this valuable program. The social and economic cost of denying credit to moderate and low-income communities could be devastating, but that is exactly what these changes would do," Senator Clinton said. "This is a law with proven results. The last thing we should be doing is taking away economic opportunities from those who need them the most."

The Community Reinvestment Act, passed by Congress in 1977, was enacted to encourage federally insured financial institutions to meet the credit needs of the communities they serve, especially low- and moderate- income communities. Prior to the CRA, many financial institutions failed to provide appropriate credit opportunities to all the communities they served, denying private mortgage credit and business lending to low- and moderate- income neighborhoods. Since 1977, the CRA has been critical in increasing access to homeownership and expanding access to capital. It is estimated that since the inception of the CRA, banks and thrifts have made more than $1 trillion in loan pledges to low- and moderate- income areas.

Currently, the Community Reinvestment Act monitors how well banks and savings and loans are helping meet the credit needs of their communities, especially low- and moderate- income areas. Under the law, the performance of every bank and thrift in meeting these needs is regularly evaluated and rated, and this rating is available to the public. Large thrifts with more than $1 billion in assets have a CRA exam that consists of a lending test, an investment test, and a service test.

In her letter, Senator Clinton argued that under the proposed changes large thrifts would have the choice of eliminating investment and service tests, thus only having to pass a lending test. This choice would likely lead to the decision by thrifts to eliminate branches in low- and moderate- income communities and ignore the needs for remittances and other low-cost services.

Yet another serious concern Senator Clinton pointed out was the fact that this proposal would reduce opportunities for community groups and thrifts to meet with the OTS to discuss CRA and anti-predatory lending matters when thrifts merge. "The minimization of community input would effectively shut out the voices of New Yorkers," Senator Clinton wrote in her letter.

In May of last year, Senator Clinton joined her Senate colleagues in writing to Alan Greenspan, Chairman of the Federal Reserve, protesting the proposed changes. In October of last year Senator Clinton also wrote to Donald Powell, Chairman of the Federal Deposit Insurance Corporation (FDIC), to voice her serious concerns regarding the proposed revisions to the CRA.

[A copy of Senator Clinton's letter is below]

The Honorable James E. Gilleran
Director
Office of Thrift Supervision
1700 G Street, N.W.
Washington, DC 20552

Dear Director Gilleran:

I am writing to you with serious concerns over the Office of Thrift Supervision's proposal regarding the treatment of large thrifts under the of Community Reinvestment Act (CRA) evaluations.

As you know, large thrifts with more than $1 billon in assets have a "three-part" CRA exam that consists of a lending test, an investment test, and a service test. Under the OTS proposal, a large thrift can choose to eliminate its investment and service tests, and thus only have to pass a lending test. Or it can choose to have nominal investment and service tests, meaning that the lending test counts for most of the total grade.

In New York State, thrifts with assets over $1 billion control over 84% of all thrift assets in the state. According to your proposal, these thrifts, with the great majority of the assets in the state, would be allowed to design their own CRA exams.

The unacceptable risk the OTS proposal presents is that large thrifts would be permitted to neglect pressing community needs. If a thrift chooses to eliminate the investment test, it will not be required to finance affordable housing by means of the Low Income Housing Tax Credit or finance small business through equity investments or investments in New Markets Tax Credits. Likewise, a thrift could choose to eliminate the service test and not be subject to the requirement of placing or maintaining branches in low- and moderate --income communities. Similarly, with no service test, a thrift could ignore the needs for remittances and other low-cost banking services. Ultimately, thrifts will likely reduce their provision of basic banking services. I fear that this situation could lead to an increase in the amount of abusive payday lending, check cashing, and other high cost services in low- and moderate-income communities.

I am also concerned about the proposal's treatment of rural areas and areas affected by natural disasters. Congress enacted CRA in order to stop redlining and disinvestment from low- and moderate-income communities. Under the OTS proposal, large thrifts will suffer no CRA penalty if they provide community development financing to affluent communities, while avoiding low- and moderate-income communities in rural areas and areas affected by natural disasters.

I am particularly concerned with the impact your proposal will have on rural communities where private financial institutions are the main source of capital for domestic economic development, housing, and community revitalization. New York's upstate communities and low-wealth urban neighborhoods have a deep need for investment capital. The OTS proposal virtually guarantees less capital will flow to these areas.

Finally, your proposal would reduce opportunities for community groups and thrifts to meet with your agency to discuss CRA and anti-predatory lending matters when thrifts merge. As you know, under current regulations, the OTS is required to hold two meetings to try to ensure that the consequences of proposed mergers are fully, fairly and thoroughly evaluated. The current proposal would allow the OTS, at its own discretion, to hold only one meeting or decline to hold a meeting at all. The minimization of community input would effectively shut out the voices of New Yorkers, whereas in fact the OTS should make every effort to ensure that local community members' voices are heard.

In short, by permitting large thrifts to design watered-down CRA exams, the proposal would undermine the purpose of the CRA. It would likely reduce significantly the amount of community development financing and thrift services in low- and moderate-income communities and would likely allow savings and loans to serve affluent neighborhoods, and neglect low- and moderate-income neighborhoods in rural areas and areas affected by natural disasters. Given the deleterious effect your proposal would have on low income communities throughout New York State, I believe it is important that OTS withdraw this proposal and give all due consideration to the comments submitted on this issue.

Thank you for your attention to this matter and please contact Michael Szymanski of my staff at 202-224-4451 should you need any further information regarding my position on this issue.

Sincerely yours,

Hillary Rodham Clinton

http://clinton.senate.gov/~clinton/news/2005/2005126709.html