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Credit Approval The ongoing saga of race-based lending and credit requirements |
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| Baltimore, MD Asks:
Is Race-Based Credit Relevant? (11/01/99) [The Community Reinvestment Act (CRA) is a race-based regulation which requires banks -- which are very heavily dependent upon federal regulatory approval -- to make loans to federally-defined "correct" racial categories of applicants, regardless of risk and/or credit history of the "racially correct" applicants. There are several related stories below which appear in reverse chronology, with the newest stories appearing first. Editor.] "The federal banking law that mayoral candidate Martin O'Malley wants to use to build businesses in Baltimore's inner city survived a Capitol Hill chopping block last week. U.S. Sen. Phil Gramm, R-Texas, a staunch critic of the Community Reinvestment Act, had sought dramatic changes to the CRA as part of the deal to repeal the Glass-Steagall Act and allow greater competition among the nation's insurance, securities and banking industries. The CRA survived with some changes. "But despite the law's resiliency, the CRA's relevance to Baltimore still remains a question to some who say banks do enough to lend to the city's poorest communities despite the law. The CRA was passed by Congress in 1977 as a way to prevent racial discrimination by banks, and requires them to invest in low-income urban centers.
"…The Cato Institute, a conservative think tank in Washington, D.C., has come
out vehemently opposed to the CRA, saying that there is no evidence that banks are turning
down qualified loan applicants in the inner cities. Edward Hudgins, director of regulatory
policy for Cato, said that federal legislation is not the tool to use to invigorate cities
like Baltimore. He said changes must be made on the local level to improve the business
environment of the inner city. "This [the CRA] is the kind of policy that allows
politicians to hide their own incompetence," Hudgins said. "The problem in
Baltimore City is not racist bankers. The problems are much deeper." (Baltimore
Business Journal 11/01/99) Big Gains by Gramm in Diluting
[Race-Based] Lending Act (10/23/99 -
dead link) "The law's chief critic, Senator Phil Gramm, Republican of Texas, appeared to get much of what he wanted. Gramm not only secured reductions in how often small banks would have to face [race-based] compliance examinations, but he also won a provision requiring his ideological adversaries, the community advocacy groups, to disclose how much they receive from reinvestment agreements with banks. Gramm has said the groups use these agreements to "extort" money from banks by dropping objections to mergers or expansions in exchange for payments. "Community groups say that the [race-based lending and credit] agreements are an important part of insuring better access to credit in poor areas and that fewer banks will agree to them if the details have to be disclosed. "By comparison, a provision trumpeted by the Clinton Administration failed to impress many low-income-lending advocates. The Administration, which had threatened to veto any measure that weakened the [race-based] community lending law, inserted language barring institutions from expanding or buying an insurer, brokerage firm or bank unless all their affiliated lending institutions have satisfactory ratings on fair lending ["Fair" is defined as "race-based"].
"Clinton said the new provisions will "promote continued investment in America's
communities." But critics pointed out that the deal includes no penalties for banks
that fail to maintain satisfactory [race-based lending] grades. Moreover, they said, the
forces that have lobbied hardest for the bill are among the biggest lending institutions
in the country, and they almost never receive unsatisfactory community-lending ratings.
"In their desire to please the financial industry, the Administration has agreed to
substantially reduce the [race-based] impact of C.R.A.," said Chris Saffert, a
legislative representative for the Association of Community Organizations for Reform Now.
"Phil Gramm completely walked over the Administration. And for them to be saying this
is a good bill is a poor reflection on their priorities." (New York Times 10/23/99 by
Richard A. Oppell, Jr.) Late-night
compromise reached on banking reform bill (10/22/99) "A key demand of the lead Republican negotiator, Texas Sen. Phil Gramm, chairman of the Senate Banking Committee, was regulatory relief for smaller and rural banks. Gramm is a longtime critic of the 1977 law and has blocked efforts to expand its reach in the new legislation. An administration official who told CNN of the compromise said the White House "didn't yield to everything Sen. Gramm wanted on regulatory relief, but there were concessions made that facilitated the agreement." "The compromise includes requirements that banks wishing to expand into other areas of financial activity have a satisfactory rating from federal examiners on their community lending and also maintain the rating [meaning that banks must prove they loaned enough money to the designated number of racial and ethnic groups]. The administration insisted that this provision be left in the bill. But the bill also includes a provision proposed by Gramm that requires community groups receiving money from banks under federal law disclose how they spent the money [In other words, Gramm wants the public to know about the banks’ racially-targeted lending practices]. In a compromise, such disclosure would be required only for loans of more than $50,000 and most grants of more than $10,000.
"The Community Reinvestment Act has been credited by the Clinton Administration with
having boosted the renewal of inner-city areas [mostly neighborhoods consisting of the
"right" races] in recent years. Key Democratic constituencies also support the
law." (CNN 10/22/99) Many Banks Make Money on Lending in
'Poor' Areas (10/22/99 - dead link) "Making home loans to poor people may not be as profitable as lending to everyone else, but it is not bad business, either. Such is the experience of many banks under the [racial-quota requirements of the] Community Reinvestment Act. "The 22-year-old Federal law, which encourages banks [under threat of painful audits] to make loans in low- and middle-income neighborhoods [mostly inhabited by ‘correct’ races and ethnicities as defined by Clinton], proved to be the most disputed battleground in the fight that appears likely to end -- yet again -- in a stalemate over how to overhaul the banking laws. "Critics, led by Phil Gramm, the chairman of the Senate Banking Committee, want to strip the law of some of its teeth, arguing that it imposes unfair regulatory burdens on banks and allows [racial] advocacy groups to "extort" money from institutions that do not want bad publicity over their lending records. But defenders including the Clinton Administration [the "Rainbow Administration"] -- which has made clear it intends to veto the bill that Senator Gramm wants -- say the rules are necessary to insure that bank redlining in poor neighborhoods does not recur and to serve as a counterweight to industry consolidation over the last 20 years that has left many low-income areas with few, if any, bank branches. "Besides, who says a bank cannot still make good money? A Federal Reserve Board study concluded two years ago that there is "no compelling evidence of lower profitability at commercial banks that specialize in home-purchase lending in lower-income [minority] neighborhoods or to lower-income borrowers. [The Federal Reserve Study was ordered by Clinton, with specific instructions from Clinton’s rainbow cabinet officials that the study must ‘prove’ that race-based lending does not negatively impact a bank’s profitability]." "....Nevertheless, figures supplied by both [race-based, pro-minority] community groups and banking industry officials suggest that the law has been effective over the last decade. [‘Effective’ is defined as successfully intimidating banks into granting race-based credit.] "Today, 29 percent of home mortgage loans are made to low- and middle-income borrowers [largely of the 'correct' government-defined races], compared with 18 percent nine years ago, according to the National Community Reinvestment Coalition, a nonprofit group made up of 700 community lending organizations [who strongly favor lower credit requirements for designated minorities]. "Some places have experienced far greater changes. In Texas, for instance, the proportion of Nationsbank's home loans to low-income [minority] borrowers leapt from 1 percent in 1989 to more than 20 percent over the last decade, Ms. Bessant said. [Ms. Bessant failed to mention that those Texas banks initiated their race-based lending practices under threat from the Clinton administration.] And lenders have promised more than $1 trillion to future community lending and investment in low-income areas. Nearly all of that has been pledged in the last few years, after regulators changed the compliance rules to focus more on actual dollar amounts, while community groups sought assurances that a spate of recent industry mega-mergers would not hurt loan volumes in poorer neighborhoods. "... Critics of the community reinvestment law play down its significance by arguing that banks would have lent or invested much of the pledged money anyway. Senator Gramm has a more specific objection to the law, which, in his view, amounts to a shakedown: He contends that banks that want to merge or expand have to deal with opportunistic advocacy groups [largely race-based groups] who agree to silence their outrage over lending records only after being paid off with grants, consulting fees or other payments. He has sought to require disclosure of details of most of these payments and agreements. As an example, his committee circulated copies of what he said were secret agreements in which advocacy groups promise to end protests in exchange for money for their organizations. In one such document, in which the names were blacked out, a protester agreed not to object to any bank expansion in return for payments including $7.5 million in grants over 10 years and $200,000 to pay for new offices. "No one living in any of these communities served by C.R.A. has any idea what was promised on their behalf," said Christi Harlan, Gramm's committee spokeswoman. "They don't know how much these so-called community groups are getting and spending." "[Minority and racial] Advocacy groups see darker motives. "Gramm is trying to both discourage banks from entering into those agreements and hinder the efforts of community [minority] groups who have limited resources," said Chris Saffert, a legislative representative for the Association of Community Organizations for Reform Now, the community-lending group better known as Acorn. "It's part of a larger attack on C.R.A. He's tried to create scandals, but when you find the real details of a situation, there's nothing scandalous there." [Saffert failed to mention the racial agenda of Acorn, and did not address the Constitutionality of racially-targeted banking laws.] ".... Gramm's proposals have support among some in the industry, especially in his home state. "We have witnessed in Texas what has happened in many Northeastern states, where community groups will protest a merger or acquisition, despite the fact the banks have outstanding or satisfactory C.R.A. ratings," said John Heasley, executive vice president of the Texas Bankers Association, which favors the Gramm proposals. "At that point, Federal regulators usually sit on their hands, and banks will work out a deal with the community groups, and more often than not, money changes hands."
".... But despite concerns about shortcomings in the law, [race-based] advocacy
groups hail it as a big success, attributing most of the increased lending in poor
[minority] areas to its enforcement. "There may have been an increase without
C.R.A.," Silver said, "but we don't think much of an increase." (New
York Times 10/22/99 by Richard A. Oppel, Jr.) END ADDITIONAL
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Banking: Race-Based Lending, Credit Approval |
