NCRC Alert: House Poised to Vote on H.R. 10 Soon! Act Now to Save the Community Reinvestment Act (CRA)

Dear Friends of Community Reinvestment:

The House of Representatives is likely to vote on H.R. 10, the Financial Services Act of 1999, by Thursday July 1. It is imperative that your Representative hear from you immediately!

H.R. 10 will dramatically increase the market power of the largest financial companies by allowing banks, securities firms, and insurance companies to own each other outright. In order to prevent decreases in loans and increases in fees for America's working class and minority communities, community and consumer protections must be strengthened.

In particular, the Community Reinvestment Act (CRA) will cover considerably less of the lending activity in the nation if CRA is not updated as the financial industry is modernized. Currently, CRA applies to only banks and thrifts. After financial modernization is passed, mortgage companies, insurance firms, and other affiliates of banks will be conducting a significant amount of lending. CRA's effectiveness in leveraging affordable housing, small business, and community development lending will be substantially reduced if CRA is not extended to all of the affiliates of the new conglomerates that will be lending and conducting other banking services.

The Senate has passed a bill S. 900, authored by Senator Phil Gramm (R-TX) that would cripple the Community Reinvestment Act (CRA). S. 900 would exempt more than 70 percent of the small, rural banks in the country from CRA. Also, it would make it nearly impossible for community groups, Mayors, religious leaders, and others to offer comments on banks' CRA performance when lenders ask federal regulatory agencies for permission to merge with each other.

In order to counter the Senate bill, we need a House bill that includes strong community reinvestment provisions (if the House passes H.R. 10, a House-Senate conference would reconcile differences between the bills). Representative Luis Gutierrez (D-IL) and Thomas Barrett (D-WI) want to offer two pro-community reinvestment amendments on the House floor. One amendment would apply CRA to all affiliates of holding companies including mortgage companies that conduct lending activity. The other amendment would require insurance company affiliates of banks to report data on the race and income of their policyholders. Like HMDA (Home Mortgage Disclosure Act) data on home lending, this data would help insurance firms, community groups, and local public agencies identify missed market opportunities in traditionally underserved communities.

ACTION NEEDED:

The House plans to vote on July 1. Over the next few days, we ask you to contact your Representative and explain the importance of CRA to your community. Inform your Representative about the Gutierrez and Barrett amendments and how they are needed to protect the gains in community reinvestment made possible by CRA. Ask your Representative to vote against H.R. 10 if it does not include the Gutierrez and Barrett amendments. The Capital Hill Switchboard number is (202) 224-3121. Please keep the National Community Reinvestment Coalition (NCRC) on (202) 628-8866 informed of the results of your important work. In addition please do the following:

1) Contact members of the House Rules Committee

Before any amendment can be considered on the House floor, it needs to be approved by the House Rules Committee. Please contact the following Democrats on the Committee to encourage them to support the Gutierrez and Barrett amendments. Please let NCRC know the results of your contacts with members of the Rules Committee.

Rep. Joseph Moakley (D-MA) - ranking minority member, will co-sponsor the Gutierrez/Barrett amendments Rep. Tony Hall (D-OH) Rep. Martin Frost (D-TX) Rep. Louise Slaughter (D-NY)

We will need the votes of at least three Republican members of the Rules Committee. We have identified the following Republicans who are possible swing votes:

Rep. Porter Goss (R-FL) Rep. Lincoln Diaz-Balart (R-FL) Rep. Deborah Pryce (R-OH) Rep. Sue Myrick (R-NC)

2) Contact Blue Dog Democrats

The list below contains the members of the Blue Dog Coalition, which is a grouping of conservative Democrats. A number of these Democrats are receptive to small bank exemptions from CRA since they represent rural areas with many small banks and relatively few community organizations. It is very important to contact these Democrats, and make sure they do not support anti-CRA amendments. Also, see how receptive they are to the Gutierrez and Barrett amendments.

The Blue Dog Coalition

Co-chairs

Rep. Bud Cramer (D-AL) Rep. Chris John (D-LA) Rep. Charlie Stenholm (D-TX)

Members

Rep. Marion Berry (D-AR) Rep. Sanford Bishop (D-GA) Rep. Allen Boyd (D-FL) Rep. Gary Condit (D-CA) Rep. Pat Danner (D-MO) Rep. Virgil Goode (D-VA) Rep. Ralph Hall (D-TX) Rep. Baron Hill (D-IN) Rep. Tim Holden (D-PA) Rep. Bill Lipinski (D-IL) Rep. Kent Lucas (D-KY) Rep. Mike McIntyre (D-NC) Rep. David Minge (D-MN) Rep. Dennis Moore (D-KS) Rep. Collin Pterson (D-MN) Rep. David Phelps (D-IL) Rep. Owen Pickett (D-VA) Rep. Lorreta Sanchez (D-CA) Rep. Max Sandlin (D-TX) Rep. Ronnie Shows (D-MS) Rep. Norm Sisisky (D-VA) Rep. John Tanner (D-TN) Rep. Ellen Tauscher (D-CA) Rep. Gene Taylor (D-MS) Rep. Mike Thompson (D-CA) Rep. Jim Turner (D-TX)

Financial Modernization Bills and How They Hurt Communities

How the House and Senate Bills Weaken CRA

… Reduces CRA coverage: Allows banks to affiliate with insurance companies, securities firms, and mortgage companies without expanding CRA to the non-bank financial companies. The non-bank companies could conduct much of the lending and offer many of the bank services on behalf of the bank. CRA can end up covering much less of the lending and banking activity in this country. A vivid example of this is State Farm's new thrift; a substantial number of State Farm's 16,000 insurance agents will be lending on behalf of the thrift. In a speech last week, the Office of Thrift Supervision's Director Ellen Seidman admitted that CRA's current regulation and examination methods would be transcended by non-traditional lenders like State Farm.

… Exempts most mergers between banks and non-bank financial companies from application requirements to federal regulatory agencies. Community groups would not be able to comment to regulators on the CRA performance of companies involved in these mergers. H.R. 10 exempts mergers of this type when combined assets of the merging parties are less than $40 billion. S. 900 does not have any application requirement for these mergers

… No Data Disclosure Requirement for Insurance Companies. Insurance companies affiliating with banks should be required to submit data on the race and income of their borrowers.

How Senator Gramm's Bill Cripples CRA

… Same problems as in the House bill, and much more.

… Exempts small banks in rural areas under $100 million from CRA. This amounts to more than 3,800 banks or 72 percent of the rural banks in the country! In rural areas and towns, small banks often enjoy a near monopoly. Since competition is not a spur to serving all customers, CRA is the primary incentive for banks in these communities to serve low- and moderate-income customers.

… "Safe Harbor" provision makes it nearly impossible for community groups, public officials, and citizens to offer comments during the merger process if the bank has a Satisfactory or Outstanding CRA rating. Any person commenting would have to prove that the banks in question no longer deserve Satisfactory or Outstanding ratings. This is virtually impossible since most large banks operate in several states. A person commenting from a particular locality will not know the record of the bank in all of its market areas. Yet, the person commenting would have pertinent information about how planned branch closings and other changes due to the merger would affect his or her community. These concerns must always be heard by the federal banking agencies during the merger approval process.

… So-Called Sunshine Provision is One Sided - Nonprofit organizations would have to report annually to federal banking agencies any fees, payments, or loans received pursuant to CRA. The provision includes any funding over $10,000. Would Community Development Loan Funds and nonprofit intermediaries that offer loans to poor neighborhoods on behalf of banks now have a new reporting requirement, and lose access to bank financing if they fail to report exactly as required by the provision? Meanwhile, the sunshine provision includes no enforcement or oversight powers for federal banking agencies to make sure banks fulfill promises to lend or invest as part of CRA agreements and pledges.

… S. 900 Removes Modest Community Reinvestment Requirement for New Financial Conglomerates - H.R. 10 has a requirement that a bank must have a Satisfactory or Outstanding CRA rating if it wants to merge with an insurance company or a securities firm. S. 900 deletes this requirement. Since more than 98 percent of banks and thrifts have passing ratings, this provision ensures that those lenders that truly fail to abide by CRA do not enjoy new powers granted by a financial modernization bill.

… S. 900 Removes CRA for Wholesale Financial Institutions - H.R. 10 expands CRA to wholesale financial institutions (which would be newly authorized by the legislation and would be non-federally insured investment banks that would only accept deposits of more than $100,000). S. 900 removes this modest extension of CRA. Neither H.R. 10 nor S. 900 extends CRA to the many other companies that would be engaged in lending.

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. We have a CRA Success Story publication that we would be happy to share with you.