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Playing Fair
In hammering out the financial reform bill, Senator Gramm clung tightly to the goal of achieving some sort of CRA reform. His target was the alleged "blackmail" or "extortion" that protesting activists were using. According to Gramm, protesting groups were using the application and protest process to "extort" money from banks.
Gramm's goal was to develop legislation that would put a stop to this alleged "extortion" activity. To that end, he tried a variety of avenues. And in the effort, he faced heavy resistence from several sources, including the White House. President Clinton firmly refused to sign any bill that undermined or weakened CRA. The indications from the White House seemed to indicate that any change to CRA would be considered off limits.
Right up to the midnight hour (and actually well past midnight) the conference committee members hammered away at how to deal with CRA reform. The goal was something that would provide more fairness and/or certainty to the process without triggering a White House veto.
The solution was a compliance classic: disclosure! When in doubt - disclose. That is what Congress has done with most consumer compliance issues, from Regulation Z all the way through to Regulations CC and DD. So why not try the concept on something else?
Brilliant. Because with this action, it isn't the banking industry that would be disclosing - it is the community groups that negotiate settlements that involve the payment of funds from the bank or holding company to one or more community organizations. Are we having fun yet?
The community group receiving funds from a bank as part of a settlement of a protest would have to disclose how much money they received. Not only that, they would have to explain how the money would be used. In other words, there would have to be an accounting for funds acquired through protests.
It's a pretty neat idea. First, it eliminates the ability of the community group - or the bank - to negotiate for silence as a condition of resolving the protest. Second, it makes public any financial concessions. This will either resolve the question about whether "extortion" exists, or put an end to any extortion.
Finally, the group receiving the funds would have to use the funds responsibly, in a manner consistent with CRA and the issues raised in the protest.
So this resolution make several important steps for CRA. First, it takes protest resolutions out of the closet and lays them on the table. This has to result in more fairness and may also bring more predictability to the process.
Second, the resolution creates accountability for protesting organizations to balance the accountability banks have had all along. So let's hear it for compliance that applies to somebody else. While you are working on your CRA self-assessment, you may now have the satisfaction of knowing that community groups will have to produce an accounting of how they have spent money they acquired through CRA protests.
Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 12, 11/99
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