In the Christmas classic It’s A Wonderful Life, Jimmy Stewart’s good-hearted character George Bailey learns a valuable lesson. As shown by his guardian angel, if he had never been born, his beloved small town Bedford Falls would have become a cesspool of fast-buck commercialism. In Pottersville, named for the greedy local banker Old Man Potter, Main Street is a red light district, with liquor stores and pawn shops on every corner.
The message was clear. Pottersville stands for everything communities don’t want to be – a demoralized, despairing, hopeless place, where greed has replaced investment in long-term needs. Yet Pottersville is the kind of future America’s communities could face if changes proposed by the Bush Administration are adopted that would alter how our nation’s financial institutions are regulated.
The agency proposing this Pottersville scheme is the Office of Thrift Supervision (OTS), which regulates the nation’s thrifts, aka savings & loans (S&L’s). The legislation it would affect is the Community Reinvestment Act (CRA), enacted in 1977 and strengthened during the Clinton years. CRA requires banks and thrifts to provide banking services to low and middle-income neighborhoods. The OTS is accepting public comment through January 24, 2005 (email@example.com, include No. 2004-53 in subject line) on proposed changes to how CRA is enforced, and now is the time for concerned citizens to speak out against these ill-conceived proposals.
Specifically, the OTS wants to reduce the regulatory burden on thrifts to a point where CRA would become meaningless. Earlier this fall, the OTS pushed through another change that weakened CRA. The agency exempted thrifts with less than $1 billion in assets from having to meet the most rigorous CRA tests, an increase from the previous level of $250 million. Other government agencies such as the Federal Deposit Insurance Corporation (FDIC), which regulates some banks, are closely watching how much public outcry greets the proposals being floated by OTS, with an eye towards advancing their own, similar proposals to gut the CRA.
Currently, banks and thrifts are periodically graded to make sure they are fulfilling their obligations under CRA to serve low and middle income communities. The CRA exam for large thrifts includes three parts - lending, investment, and service tests. Under the OTS proposal, large thrifts will be allowed to eliminate their investment or service tests or decide how heavily they want to weight each part, as long as lending does not fall below 50% of the total test. Allowing thrifts to design their own exams makes a mockery of CRA’s intent, which is to ensure financial institutions uphold their responsibilities to serve all citizens.
Letting the thrift industry police itself would put the foxes in charge of the henhouse. And why tamper with legislation that’s widely heralded as a success? The New York Times reports that housing groups credit the CRA for funneling more than $1.5 trillion into low income neighborhoods since its inception. These investments have funded affordable housing, medical clinics, and other worthy community development projects. They have kept communities from becoming like Pottersville by nurturing small businesses and helping more Americans become homeowners.
Even Mel Martinez, President Bush’s first housing secretary and now a Republican senator-elect from Florida, has praised CRA for its role in building healthy communities and expanding home ownership. The CRA has changed banks and thrifts for the better by preventing them from discriminating against poor and minority loan applicants. If CRA is weakened, banks and thrifts will reduce their commitments to low and middle income communities. More consumers will be forced into predatory lending traps such as subprime mortgages, payday loans, and high-priced check cashing services. Old Man Potter would be proud.
Making paperwork requirements less burdensome to businesses is a worthy goal, but in this case, the Office of Thrift Supervision seems intent on throwing the baby out with the bath water. Allowing thrifts to design their own CRA exams will remove all incentives for them to comply with the law. Without proper enforcement, legislation will be gutted that has worked well for nearly three decades to channel investments into communities that need it the most.
You can take action to stop these proposed changes to CRA. This misguided proposal seeks to subvert the public interest, and counts on lack of public awareness and outrage to succeed. Express yourself by sending comment via letter or e-mail to the Office of Thrift Supervision.
Comments are due by Monday, January 24, 2005. You can e-mail the OTS at firstname.lastname@example.org, and include the OTS docket number, No. 2004-53, in the subject line of your e-mail. Or fax a letter to (202) 906-6518. Or mail it to Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552, Attention: No. 2004-53. If you prefer to sign an on-line form letter, click here.
This isn’t just a Christmas story. The fight against Pottersville is a battle our nation’s communities can’t afford to lose.