30 April 2004
From: Executive Director, Malcolm Rich 
To: Members and Friends of the Chicago Council of Lawyers and the Chicago Appleseed Fund For Justice

• From Chicago Appleseed:  Financial Education Project -- Comments Submitted in Response to Proposed Changes to the Community Reinvestment Act

Financial Education Project -- Comments Submitted in Response to Proposed Changes to the Community Reinvestment Act.

Chicago Appleseed Fund For Justice is participating in a nationwide, collaborative project with Appleseed Centers in Kansas, Nebraska, and Texas on the subject of bringing banking services and financial education to the immigrant population in Chicago.  Locally, Chicago Appleseed is partnering with the Sargent Shriver National Center on Poverty Law on a project focusing on education and advocacy.  As part of this local partnership, Chicago Appleseed will be sponsoring "train the trainer" sessions through which representatives of nonprofit organizations wil be trained to provide subsequent training to members of the community on financial literacy, including banking products available in Chicago.  

The advocacy component of this project will include research and issuing of public comment under the Community Reinvestment Act in an effort to ensure that Chicago-area banks are delivering quality financial products  and financial education in non-discriminatory ways.

We also intend to work with the Sargent Shriver National Center on Poverty Law in examining the relationship between increased productivity of an employer's workforce and providing financial education and benefits to that workforce. 

As part of the education component of the project, Chicago Appleseed will sponsor its first train the trainer session in May, 2004.  In response to proposed changes to the Community Reinvestment Act, Chicago Appleseed submitted the following commentary on April 5, 2004 to the U.S. Office of Thrift Supervision, the Comptroller of the Currency, the Federal Reserve Board of Governors, and the Federal Deposit Insurance Corporation:

I am writing from the Chicago Appleseed Fund For Justice (Chicago Appleseed) to comment on the proposed changes to the regulation of the Community Reinvestment Act (CRA). Chicago Appleseed is an affiliate of the Appleseed Foundation and is a participant in a multi-site, nationwide effort aimed at improving financial education in the immigrant community. We feel that the proposed changes to the CRA regulation will significantly roll back policy essential for community reinvestment and miss a critical opportunity to close loopholes and modernize the CRA regulation.

Small Bank Limits
The proposed CRA regulation would change the definition of "small bank" from any institution with less that $250 million in assets and not part of a holding company with over $1 billion in assets to include all institutions with less than $500 million in assets regardless of holding company size. This change will dramatically increase the number of banks considered "small" that, for CRA purposes, are not examined for their levels of community investment and services under the streamlined small bank CRA examination. This will disproportionately affect rural communities and small cities where smaller institutions have significant market share. In Illinois, it will reduce the number of institutions covered by the comprehensive CRA exam by 63 percent, from 198 banks to 74.

Another concern is that by removing the holding company threshold from the definition of small bank, regulators will not only reduce the number of institutions covered by comprehensive CRA, but will also have created a potential loophole for large holding companies to exploit when trying to evade CRA compliance. This change raises the possibility that large holding companies will re-form their banking subsidiaries as a series of local "small banks" to avoid comprehensive CRA examinations.

Chicago Appleseed feels expanding the definition of "small bank" disproportionately harms rural communities and creates a loophole for larger financial institutions to exploit in getting around full CRA compliance.

Affiliate Lending
Regulators missed a significant opportunity to modernize CRA by not requiring affiliate lending to be considered in CRA exams. As bank holding companies increasingly use non-bank lenders to originate mortgages, it is critical that all lending affiliates be required to report lending in an institution's CRA exam. As currently structured, the CRA regulation allows banks to choose which affiliate loans in a given assessment area they want to apply toward the lending test. This allows institutions to cherry-pick the best lending affiliates for each assessment area and exclude affiliates in assessment areas where those affiliates might not be adequately serving the community. As holding companies increasingly acquire non-bank lenders, often subprime lenders, it is critical that this loophole be closed and all lending affiliates be considered in CRA exams.

Predatory Lending Standard
By setting a weak anti-predatory lending standard, regulators missed a significant opportunity to make a strong statement about predatory lending. The proposed standard allows that loans originated based on foreclosure value of collateral rather than borrower ability to repay can negatively affect a bank's CRA exam. This standard misses numerous predatory practices such as packing exorbitant fees onto mortgage loans, loan flipping, charging high prepayment penalties, and mandatory arbitration that can strip equity from homeowners and trap borrowers in abusive loans. Regulators should apply a strong predatory lending standard to bank loans and to loans made by affiliates.

Conclusion
Chicago Appleseed feels that the proposed changes undermine the mission of community reinvestment by creating loopholes for financial institutions to exploit in order to evade significant CRA compliance. We also feel regulators missed a significant opportunity to modernize CRA by not requiring affiliate lending to be considered in CRA exams.

Chicago Appleseed urges you to reject the proposed changes to the definition of small banks; adopt a more inclusive policy toward affiliate lending; and strengthen the proposed predatory lending standard.

Malcolm Rich
Executive Director
Chicago Appleseed Fund For Justice