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CRA Comment Letter (Suggestions)
Now that the agencies have finally issued proposed revision to the CRA regulation, it is time to stand up and be counted. The proposal includes some good changes and omits some that many banks have requested. The comment period is your opportunity to support what you like and to suggest and ask for change on other aspects of the proposal.
When you comment, you may take any or all of several approaches. You can support the proposal. Even if you like it, you should take the time to do this because there are always people who won't like it and you can be certain they will comment. A comment in support is necessary to balance the comments opposed.
You may oppose something that is proposed. To make this kind of comment effective, you should provide reasons and examples. This gives the rule writers something to work with. It also keeps your letter from simply sounding negative.
Finally, you may comment on a topic that was not officially presented. In fact, you may do this at any time, but the best time to do so is when there is a comment period open.
Now, let's take a look at the CRA proposal. On the good side is the proposal to change the size definition of a small bank and to eliminate the holding company connection to determine bank size. If you like this proposal, support it. You can also ask that the agencies go farther and increase the size definition even more, such as to $1 billion in assets. If you make such a recommendation, give reasons to support your recommendation. Any information and arguments should go to the point that a bank of $800 million should not be measured the same way as a multi-billion dollar institution. Find some concrete examples, such as competition for loan programs and investments.
One part of the proposal to question is the inclusion of predatory lending considerations. The proposal would make certain practices considered predatory and certain violations of other regulations a mandatory negative consideration of your CRA rating. This is your opportunity to question whether this is the right place for this.
Finally, something the proposal did not do was change the investment test or alter the way it is considered. The investment test was first introduced at the suggestion of the largest banks as a way of getting CRA credit for activities in support of low- and moderate-income credit needs and economic development without making a direct loan. The problem with the investment test was that it became mandatory, forcing banks into making investments when lending may have been of more value to their community and its credit needs. With the mandatory investment test, banks are not allowed to make that choice. Moreover many small and mid-sized banks are forced into competitive bidding with the multi-regional banks and they either lose the opportunity or take the investment at a loss. This is your opportunity - the last opportunity for some time - to ask for reconsideration of the investment test.
Below are some suggestions for comments you may wish to make. Think through your comment letter carefully and add ideas and information based on your experience.
- Request that the Investment Test be voluntary for banks of less than $10 billion. Provide examples of competition for investments that are costly for smaller institutions. Give an example of something that could have been done in low- and moderate-income areas with the funds lost competing for investments.
- Suggest that the definitions of community development investments and community development loans be expanded to include projects to support economic development even if not specifically targeted to low- and moderate-income areas. Economic development that is designed to benefit the entire assessment area should be presumed to benefit low- and moderate-income residents by improving the economy.
- Urge the agencies to adopt the change in size measurement for small banks. Also suggest that the agencies use $1 billion rather than $500 million as the size cut-off for small banks. Give information on the amount of staff time that must be dedicated to information preparation and filing. Then state that this time could have been better used in providing educational programs such as Money Smart. Give examples of competition in your market for investments and state that your funds and the effort in finding investments could have had greater impact through lending.
- Request that the agencies remove the proposal to include regulation and consideration of loan practices that are considered predatory. These rules belong in existing consumer protection regulations. Loan underwriting standards belong in lending regulations. These issues should be dealt with directly through safety and soundness and consumer protection rather than brought through the back door to the CRA evaluation.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 1, 2/04
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