October 19, 2004
FDIC Proposes Rule Watering Down Community Reinvestment Act Requirements
by William Baue
The SaveCRA.org website promotes opposition to the rule change, posting information and a sample
letter to file with the FDIC before the end of the comment period tomorrow.
In the St. Louis Presidential debate, President George W. Bush characterized himself as a champion
of small business, claiming Senator John Kerry's proposed tax hike only on those earning over
$200,000 a year would also raise taxes on 900,000 small businesses. Besides being an almost
doubled exaggeration (according to the nonpartisan Tax Policy Center, Sen. Kerry's proposal would
raise taxes on 471,000 small employers), the support Pres. Bush cited applies only to businesses
run by the wealthy. Meanwhile, the Federal Deposit Insurance Corporation (FDIC) under the Bush Administration has proposed a relaxation of
Community Reinvestment Act (CRA)
requirements for banks to support small businesses in low- and middle-income communities.
The rule change applies to 879 medium-sized banks (with between $250 million and $1
billion in assets) that are currently required to offer community development loans, investments,
and services to low- and middle-income communities. Under the proposed rule change, these
banks would be able to choose one of these three activities to fulfill CRA requirements,
which support not only small business but also affordable housing and other community development
To counter this proposal's erosion of CRA, which Congress enacted in 1977 to
require banks to provide credit to low- and middle-income communities where they operate, a
coalition of community investment advocates has launched the SaveCRA.org website.
"The Bush Administration's move to
weaken the oversight of bank lending to working-class Americans calls into serious question
President Bush's promises to increase small business lending and homeownership for all Americans,"
said John Taylor, president and CEO of the National Community Reinvestment Coalition (NCRC).
"For poor and struggling urban and
rural areas across America, the FDIC rule is a real problem," added Mark Pinsky, president and CEO
of the National Community Capital Association (NCCA). NCRC and NCCA collaborated in launching the
SaveCRA.org website. "We want to make sure that all people understand what is at stake and that
they have a chance to speak up about it."
Toward this end, the website has posted a sample
letter for those concerned about the rule change to send to Robert Feldman, executive secretary of
the FDIC, which is accepting public commentary on the issue through tomorrow only.
understand it, the Community Reinvestment Act was made law to require lenders to meet community
needs," the sample letter states. "Your rule proposal flies directly in the face of this
A number of community investment advocates, including Coastal Enterprises
Inc. (CEI), ShoreBank, and the New Hampshire Community Loan Fund
(NHCLF), have already filed comment letters
opposing the rule change.
"This proposal throws the baby out with the bathwater," said
Alan Cantor, NHCLF's vice president for philanthropy, who acknowledged problems in the way the
current rules apply to giants such as Citibank (ticker: C) and smaller local banks alike.
"There could undoubtedly be ways to relieve some of the regulatory burden on these mid-sized banks
without essentially removing them completely from CRA requirements, as this proposal does."
"This change would be particularly devastating in rural areas," Mr. Cantor continued. "This
would result in some rural states having only one or two--or in some cases, zero--banks subject to
comprehensive CRA requirements, and it would redefine any rural investment or loan as
meeting CRA requirements, regardless of the income level of the beneficiary."
the SaveCRA.org website, FDIC data indicate that 90 percent or more of FDIC-regulated banks in 37
states have assets of under $1 billion. These banks would thus qualify for fulfilling the proposed
single CRA requirement only, instead of the more comprehensive triple CRA mandate (loans,
investments, and services) currently required. FDIC data also indicate that all
FDIC-regulated banks in eight states (Alaska, Arizona, Idaho, Minnesota, Montana, New Mexico, West
Virginia, and Wyoming) have assets under $1 billion and would be exempt from comprehensive CRA