Public hearing on Community Reinvestment Act brings both criticism and creative solutions

August 14, 2010
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Inside the Federal Reserve Bank last week over 100 members of the banking community gathered over coffee, croissant sandwiches and fresh fruit in a well air-conditioned conference room to discuss the Community Reinvestment Act.  But across the street, outside of Bank of America, dozens of protesters sweltered in the near 100 degree temperatures, outraged over what has happened to its community’s small businesses and home owners.

The third in a series of four public hearings, Thursday’s meeting of the Board of Governors of the Federal Reserve and Federal Deposit Insurance Corp. examined how to modernize the 1977 law designed to help low- and modern-income neighborhoods.  But protesters contend unless these meetings address the widespread disparities in lending to communities of color, they are only lip service.

The act, last revised in 1995, was created to address red-lining, the discriminatory practice of lending based on race and location.  But discriminatory practices persist even though some of these same banks receive good ratings from federal banking agencies, said Rev. Eugene Barnes, board chairman of National People’s Action, a network of community organizations advocating for racial and economic justice.

The problem is a lack of consistent criteria to judge how the community is impacted, Barnes said.

“We’re fighting a modern day war with antiquated weaponry,” said Barnes.  “And the act still has milk on its breath.”

In 2008, three out of four African-American or Latino borrowers received a 10.2 percent APR loan, while other borrowers received lower mortgage rates, according to a National People’s Action study.

Community benefit agreements are one way to address the financial crisis, said Barnes.

“Banks have to be willing to sit down with a community, can come to the table to hammer out workable solutions,” Barnes said.

Mortgage modification should be a crucial component of the regulation changes, said Elce Redmond, spokesman for the South Austin Coalition.  The current methods are extremely discretionary and hurt families, he said.

“Currently, we’re at the mercy of the person you call,” said Redmond. “People are behind (in payments); they might have lost their job or had health issues.”

The programs in place are purely voluntary and should be changed so homeowners have a chance, Redmond said.

“It puts people in a bad situation, and they’re losing their homes,” Redmond said.

The broadening of lending activity outside of bank branches and the growth of the online banking demand changes to the act’s regulations, said Martin Mantle, senior adviser of Morgan Stanley.

The issue is not only mortgage lending but creating a catalyst for job creation, said Elizabeth Duke, governor of the Board of the Federal Reserve System.

The specific concern with US Bank dates back to last fall’s closing of Park National Bank, said Bob Vondasek of the South Austin Coalition. The longtime advocacy group is working to strike an agreement with Bank of America to help the West Side.

“It’s always the community organization working to get the opponent to the bargaining table,” said Vondasek. “We need to put pressure on the big banks because no groups oversee them.”

Currently, the federal law doesn’t require that banks serve the community, said Dory Rand, president of the non-profit research and policy organization Woodstock Institute. Banks should publicize their plan to help the community, which would bring transparency and accountability, said Rand.

But meeting the ever-changing community needs is a tough challenge, said Thomas Fitzgibbons, managing director of First Michigan Bank.

“How do you come up with rolling community needs assessments and enable examiners to evaluate how banking institutions are meeting those needs?” asked Fitzgibbons.

Billions of dollars have poured into banks via the 1077 law, so accountability needs to be part of the new regulations, said Barnes.

“Many great strides have been made, but there has to be an upgrade to the act,” said Barnes.

Public comments can be submitted to the Federal Reserve Board through Aug. 31.

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