Encourage Positive Changes in CRA Exams

The Office of Thrift Supervision (OTS) is proposing positive changes to their CRA exams which will result in increased lending and investments for low- and moderate-income communities. The OTS is proposing to align its CRA exams and regulations with those of the other federal banking agencies. The OTS' current CRA exams are weaker than the other regulators and therefore lessen the incentive for thrifts to satisfy community needs for credit and banking services.

According to the OTS press release, "The OTS strongly encourages institutions, community groups, and other interested parties to submit comments on the Notice of Proposed Rulemaking since the public comment process will be extremely
important for the agency's final determination of the proposed rule changes."

Please send in a letter to the OTS supporting its proposal to align its CRA exams with those of the other agencies. You can use CRC's sample letter.

To send in a comment letter, you can:

1.  Mail a letter to Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW, Washington DC 20552,
Attention: No. 2006-44.

2.  Fax a letter to 202-906-6518.

3.  E-mail to regs.comments@ots.treas.gov. Include No. 2006-44 in the subject line of the e-mail, and include your phone number in the e-mail.

Comments are due by January 23, 2007.

Background: The OTS regulates savings and loans or thrifts which specializein making home loans. Depending on their charter, banks are regulated by one of three federal agencies - the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Both banks and thrifts undergo CRA exams that rate their performance in serving low- and moderate-income communities. Lending institutions can have their applications to open branches or to merge with other institutions delayed or denied due to low CRA ratings. Lenders therefore have incentives to receive good CRA ratings.

The OTS changed CRA exams for mid-size thrifts with assets of $250 millionto $1 billion so that mid-size thrifts only have a lending test, which rates them based on how many loans they issue to low- and moderate-income borrowers and communities. In contrast, mid-size banks have a lending test and a community development test, which examine investments and services. Mid-size banks are expected to offer loans, investments, and services in low- and moderate-income communities while mid-size thrifts currently have a "wink and nod" exam that only looks at their lending. Likewise, large thrifts with assets above $1 billion can choose not to have an investment and service test while large banks have a lending, investment, and service test.

In order to hold thrifts to the same CRA standards as banks, it is imperative that the OTS changes its CRA exams and regulation to match those
of the federal banking agencies. In addition, the OTS should implement its proposal to penalize thrifts for illegal and discriminatory lending activities.

CRC Sample Letter:

Regulation Comments

Chief Counsel's Office
Office of Thrift Supervision
1700 G Street NW
Washington, DC 20552

Attention: No. 2006-44

To Whom It May Concern:

The (your organization) strongly urges you to support the proposed changes to your Community Reinvestment Act (CRA) exams.  These changes will result in increased lending, investments and financial services for low- and moderate-income communities.

(Description of your organization)

Our organization strongly supports the federal regulatory agencies' efforts to align their CRA exams.  Similar CRA exams would allow the public to effectively compare the CRA performance of both banks and thrifts. Currently, the Office of Thrift Supervision (OTS) has a very different set of CRA exams for their regulated thrifts in comparison to the other regulators' bank CRA exams. The weaker CRA standards for thrifts make it difficult to hold thrifts accountable for responding to community needs.

Mid-size thrifts with assets between $250 million to $1 billion in assets currently only have a lending test. In contrast, mid-size banks have CRA exams that consist of a lending test and a community development test. The community development test rates a mid-size bank on the number of investments, bank services, and loans for affordable housing and economic development in low- and moderate-income communities. If mid-size thrifts were held to the same standards as mid-size banks, there would be more bank financing and services in low- and moderate- income communities.

Large thrifts with assets greater than $1 billion have lower CRA requirements than large banks. Large thrifts must undergo a lending test, but they can choose not to have an investment test and a service test.  Large thrifts can also choose to have their investment and service test count for only a minimal amount towards their CRA rating. In contrast, large banks always have a CRA exam in which the lending test counts for 50% of the rating, the investment test counts for 25%, and the service test counts for 25% of the rating. The large bank test has worked well for increasing bank lending, investing, and services in low- and moderate-income communities.

27 thrifts are headquartered in California.  13 of these thrifts have assets over $1 billion.  California has the largest number of "large" thrifts compared to any other state.  These large thrifts are comprised of 1502 branches.  California's low- and moderate- income communities need the leverage of a complete CRA exam so that their local thrifts are encouraged to provide the full range of financial services and credit.

CRA exams should have the same standards for banks as for thrifts.  Consistent and standard exams assist both the regulatory agencies and the general public in holding banks and thrifts accountable for serving the needs of communities.  The OTS should enact its proposal to align their CRA exams with those of the other agencies. By establishing consistent standards for thrifts, communities and regulators can comparatively assess thrifts against the performance of banks.

Finally, the OTS should implement an anti-predatory lending screen to its CRA regulation. Savings and loans must be penalized severely through lower ratings on CRA exams if they engage in illegal, discriminatory, and abusive lending practices.

Thank you for your consideration of this important matter. If you have any questions, please contact me at (put your phone number here as it is requested by the OTS for e-mails to the agency).


Sincerely,