By Gutierrez, Luis V.
American Banker , Vol. 169, No. 218
United States. Office of Thrift Supervision--Economic policy
United States. Federal Reserve Board--Economic policy
Commercial loans--Social aspects
Banking industry--Laws, regulations and rules
Corporate social responsibility--Political aspects
The Community Reinvestment Act is a vital law that significantly increases bank lending to low- and moderate-income communities. Contrary to the assertions of some, a strong CRA remains imperative to preserving competition in the marketplace.
Too many communities are experiencing a deluge of high-cost payday and subprime lending. The CRA is needed to maintain a healthy dose of traditional bank prime lending in minority and low- and moderate-income communities.
Discrimination remains an unfortunate legacy in the lending marketplace. While the famous Boston Federal Reserve study and a body of other work has documented persistent discrimination in the home lending market, much less attention has been devoted to serious disparities in the small-business lending market.
Recently the National Community Reinvestment Coalition released a study of lending to small businesses in 120 metropolitan areas. The study documented inequalities by race and income level, and the disparities grew as the level of racial segregation increased.
This work follows a number of other papers published by the National Bureau of Economic Research and conferences of the Federal Reserve Board. Their data, even after controlling for differences in the creditworthiness of borrowers, reveal that minority-owned businesses are much more likely to be denied loans.
Nevertheless, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision would eliminate the public disclosure of CRA small-business lending by more than 1,000 banks and thrifts.
Such disclosure has helped to reduce disparities; eliminating it promises to increase disparities.
The Treasury Department and Harvard University have found that banks make more loans to low- and moderate-income and minority borrowers where they have partnerships with community groups and in areas covered by their CRA exams. As required by the Gramm-Leach-Bliley Act, the Federal Reserve Board found that CRA-related loans are profitable.
These studies suggest that the CRA's reach must be extended, not reduced, since profitable bank lending to low- and moderate-income borrowers is lower in geographical areas not covered by CRA exams.
The FDIC's proposal would directly undercut an interagency letter to the House Committee on Financial Services stating that favorable CRA consideration would be granted to the provision of remittance services used by recent immigrants and other segments of the Hispanic community.
Although wire transfers are a multibillion-dollar business, a few nonbank finance companies have dominated the market and charged high fees for remittances. …