Shortly after the passage of the Financial Modernization Act, a banker was heard to say to Phyllis Salowe-Kaye, the executive director of New Jersey Citizen Action, “Now you folks are going to have to get out of the protesting business!” If there is any question about the effect of the passage of that bill on lending to low- and moderate-income (LMI) communities and families in New Jersey, that comment pretty much removes all doubt. If the banks think the law will nudge us out of the protesting business, the effort required to keep money flowing into LMI and minority communities will double.
New Jersey Citizen Action (NJCA) is the state’s largest consumer watchdog organization, with 60,000 individual and family members and almost 90 affiliate organizations. For more than 10 years, NJCA has been negotiating CRA agreements with banks. In collaboration with the Affordable Housing Network of NJ, NJCA has made agreements with 27 banks, with more than $8.8 billion pledged for LMI products and programs. This process – which includes negotiation, public comment, community organizing, and, if necessary, protest – will certainly be threatened by the unwillingness of Congress to update the Community Reinvestment Act.
However, three provisions in the legislation pose the greatest threat to CRA:
Banks seeking to become part of a financial holding company or merge with any insurance or securities firms will face no application process open to public comment. Further, a bank in one of these structures that does not get a Satisfactory rating in CRA exam subsequent to a merger will not be required to divest or limit any ongoing activity. These mergers have the capability of having an even greater impact on our communities than any bank-with-bank mergers, and yet the public will be deprived of any opportunity to comment on the bank’s lending record if it has a Satisfactory rating. For example, a bank with branches in Newark that made only one mortgage to an African-American in the entire Newark MSA in 1998 actually got a Satisfactory rating in 1999. That bank would be permitted to participate in one of these new holding company structures with no further review, and no opportunity for the people of Newark to comment.
Another provision likely to be damaging is the longer time period between CRA exams for banks with assets under $250 million. We have seen banks’ ratings go from Satisfactory to Needs-to-Improve within a two year period. Lengthening the time between exams will not encourage small banks to continue, let alone strengthen, their lending records to LMI communities. Of particular concern is the effect this change in schedule will have on fair lending exams, which could have a tragic effect on minorities’ access to capital.
Finally, the provision that most directly attacks the activities of community groups attempting to hold banks to their CRA commitments is the so-called “Sunshine Amendment.” This provision will have a chilling effect on individuals’ and smaller, newer community groups’ willingness to participate in the CRA process. In addition to the reporting burden added to nonprofits’ already heavy workload will be the need to constantly reassure low- and moderate- income and minority individuals that the disclosure law applies only to groups, not the individuals who may engage in protest, write letters, or sit at the table with a bank negotiating a CRA agreement. Nor does it apply to those individuals who reap the benefits of such agreements. But the fear this provision is already instilling among these individuals is evidenced by a question that came up at a CRA workshop one week after the new law passed: “Will recipients of discounted mortgages made available because of a CRA agreement be required to disclose all their personal financial data?” This is the kind of question that makes an organizer’s heart sink. While the answer, of course, is absolutely not, the very question demonstrates the fear of McCarthy-like tactics a provision of this sort brings to mind.
It is precisely this provision that prompted the comment from the banker quoted above. The Executive Director’s answer was clear: “We will stop protesting as soon as there is nothing left to protest.” Under the new law, it will be a long time before that is the case.