[Congressional Record Volume 140, Number 30 (Thursday, March 17, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 17, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
  COMMUNITY DEVELOPMENT BANKING AND FINANCIAL INSTITUTIONS ACT OF 1993

  The Senate continued with the consideration of the bill.
  Ms. MOSELEY-BRAUN. Mr. President, I would like to speak to the 
pending legislation in general and give just a few comments.
  As you may know, I serve on the Banking Committee and have worked 
with the Senator from Michigan on the development of this legislation. 
So I wanted to just talk a little bit about what S. 1275, the Community 
Development, Credit Enhancement and Regulatory Improvement Act is 
about.
  The bill before the Senate today is, at its heart, about a 
fundamental people issue, access to capital--about taking some 
important steps to ensure that our capital markets are better able to 
meet all of our capital needs.
  When we talk about access to capital, we are really talking about one 
of the most fundamental issues facing any society: How money gets 
distributed and, therefore, about the quality of life for people in 
that society. Whether framed in terms of macro- or microeconomics, 
access to capital is inevitably an issue that gets people's attention.
  The phrase ``access to capital,'' however, is a technical and arcane 
one. What is this issue all about; how can we talk about it in a way 
that communicates--make sense--to all of the people who are affected?
  I am reminded of the challenge that the men and women of the cloth 
face--and meet--as a regular part of their mission to communicate the 
lessons of the gospel across this land. A really good preacher can, on 
the one hand, spend a lifetime studying the intricacies and 
complications of a religious concept, and then reduce that concept to a 
simple message that even the most untutored can understand and employ 
in their daily lives. If you think about it, there are bumper stickers 
that effectively relay the essential message of some of the most 
esoteric concepts of theology. It seems to me that part of our 
mission--those of us participating in the public policy process and in 
Government--is to translate the complications of our issues in the way 
that gives the greatest number of people a single choir book out of 
which to sing--and puts them all on the same page.
  And so, thinking about access to capital issues can start with a 
universal aphorism that everyone understands: It takes money to make 
money.
  If we start with a notion that basic, it becomes easy to see the 
link, the causal connection, between these issues, and questions 
relating to job creation, housing development, environmental 
improvement, crime prevention, and even societal stability.
  As you all know, the United States is blessed with the largest, most 
diverse, most innovative, and most dynamic capital markets in the 
world. However, it is unfortunately equally true that there are still 
many capital needs that are not being met.
  The result of the lack of access to capital--the evidence of our 
failure to adequately address the capital needs of some communities, is 
all too apparent. In my home State of Illinois, as elsewhere, there are 
ample examples of what happens to people and neighborhoods when they 
cannot get credit. All you need to do is to walk through the 
neighborhoods. What you see are abandoned factories, closed stores, and 
boarded up housing. If you go early in the morning, you will see people 
waiting for buses and trains to commute to jobs outside of their 
neighborhoods. If you go later in the day, you will see as many people, 
and sometimes even more, standing on street corners with no jobs to go 
to. The crime and fear that grow out of this milieu are palpable. The 
despair and hopelessness that sets in is less so, but nonetheless real.

  These people are all no different than you and I. Those that are 
working want what we all want--to be able to own their own home, to be 
able to buy a car, or clothes, or furniture, to be able to help their 
children pay for a college education. Those that are not working want a 
job--they did not choose to be unemployed. They want to work, they want 
to help themselves, to help their families, and to help their 
communities.
  But the problem in large part is that their neighborhoods can't 
attract capital. When people from those communities try to get a loan, 
they are still all told that they do not qualify, that they do not have 
a good credit history, or any credit history at all--even though they 
have always worked hard to pay their bills. They are still all too 
often discouraged from applying for a loan at all.
  Potential small business people find the situation even worse, 
particularly if they are members of minorities. I have a friend who 
owns a beauty salon on North Michigan Avenue in Chicago--one of the 
best areas in the city--and even though his credit record was 
impeccable, he could not get his bank to refinance his balloon loan. If 
a business person with his kind of proven success has trouble, think 
how much more trouble someone with less of a credit history has in 
trying to start a business in Lawndale or Austin in Chicago, or in any 
number of similar situations not just in urban communities, but in 
small towns and rural areas around this Nation.

  The simple truth is that access to capital can make or break people, 
and can make or break neighborhoods and communities. The simple truth 
is that access to capital can help make the difference between a 
thriving, growing community with jobs for its residents, and a 
decaying, boarded up neighborhood that offers nothing but hopelessness 
and despair.
  Of course, the problem is not just anecdotal. As a member of the 
Senate Banking Committee, I have seen plenty of statistical evidence, 
evidence that demonstrates conclusively that many communities, and 
particularly minority communities, are not able to obtain the loans and 
equity investments they so greatly need. According to the Federal 
Reserve Board's study of Home Mortgage Disclosure Act data, African-
Americans are more than twice as likely as whites of the same income to 
be rejected for a mortgage loan, and Hispanic applicants are 1.4 times 
as likely to be rejected. The Federal Reserve Board of Boston found 
that, after controlling for all legitimate credit concerns, minority 
applicants were 60 percent more likely than white applicants to be 
rejected for a mortgage loan. And the General Accounting Office study 
found that the number of mortgage loans purchased by Fannie Mae and 
Freddie Mac per homeowner declines as the percentage of minorities in 
the neighborhood increases.
  On the other hand, successful efforts to make capital available for 
community development do exist; they do work; and they can and have 
shown results. I am from Chicago, and I have seen what can happen when 
people and neighborhoods are able to obtain the credit they need. One 
of the banks from my own neighborhood, South Shore Bank, stands as a 
national example of what can be achieved. You can actually see the 
difference that this community-oriented bank has made in its 
neighborhood. All you have to do is to walk up and down the streets, 
and look at the homes and apartments, to know that this neighborhood--
this inner city, largely minority neighborhood--is getting at least 
some part of its capital needs met.

  We are therefore no longer at the stage of trying to decide whether 
there is a problem, or what that problem is. We know the answers to 
those questions. The question now is: what can be done to expand access 
to capital, and more specifically, what changes in federal policies are 
needed. S. 1275 begins the process of answering that question.
  Fundamentally, what S. 1275 makes possible is an expanded public-
private partnership. Only when government, foundations, people from the 
communities involved, and private financial institutions come together, 
talk together, and work together in a successful partnership, will it 
be possible to make capital available to every person who needs it.
  Importantly, S. 1275 is not about giving people money. Rather, its 
goal is a simple one, but one that makes a great deal of sense--to make 
affordable loans and other investments available to people who all too 
often aren't being reached now, loans and investments that are 
profitable, loans and investments to people who can and repay those 
loans and who will provide a return on investments.
  In short, Mr. President, this legislation suggests that the financial 
institutions can do well and do good simultaneously.
  Some financial institutions, including many non-profit institutions, 
and a growing number of banks, savings and loans, and community-
oriented credit unions, are finding ways to reach out to people. They 
believe, and are proving, that it is possible to make what are 
seemingly unconventional loans profitable. They know that it is 
possible to do good and to do well simultaneously. They know that 
financial institutions can make money by expanding credit opportunities 
to underserved communities. And that is what S. 1275 helps them to do.
  Mr. President, S. 1275 includes a number of initiatives designed to 
further open our capital markets. One major subtitle of the bill, known 
as the Community Development Banking and Financial Institutions Act, 
authorizes $382 million to improve access to capital for neighborhoods 
across this country. The subtitle creates a public corporation--the 
Fund--to provide assistance to community development banks, minority-
owned banks, community development credit unions, community development 
loan funds, microenterprise funds, and community development 
corporations operating in poor communities--institutions whose primary 
mission is community development. The board of the corporation would 
consist of the Secretaries of the Treasury, HUD, Commerce, and 
Agriculture, the SBA Administrator, and four Presidential appointees.
  This subtitle of S. 1275 would permit community development financial 
institutions with federal deposit insurance to receive up to $5 million 
annually, subject to a dollar for dollar non-federal matching 
requirement; an amendment I was able to add during the Banking 
Committee's consideration of the bill increases this limit to $7 
million for community development banks that open in more than one 
city.
  Institutions without Federal deposit insurance could receive up to $2 
million.
  The subtitle would allow funds it provides to be used by the 
financial institutions for loans to small businesses, to support 
construction of commercial and community facilities, and to help 
provide basic financial services in the communities.
  Another major thrust of S. 1275 involves a phenomenon that has come 
to be known as reverse redlining. About a year ago, the Banking 
Committee held a hearing designed to focus attention on the primarily 
low-income borrowers who oftentimes lack access to mainstream financial 
institutions, but who own their own homes, and who are being victimized 
by scams in the home mortgage market. Specifically, the scams involve 
loans made at very high rates--we had testimony about mortgages being 
made with interest rates of 28 percent--and with very high fees, 
oftentimes tied to bogus home repair contractors. The real purpose of 
these loans seems to be to put people in the positions of borrowing 
more than they can afford to repay, and to foreclose on the home when 
they inevitably to into default on the loan.
  S. 1275 will put an end to these scams. The bill includes provisions 
that increase disclosures to borrowers, enhance their rights to rescind 
an abusive contract, establish a cooling off period to ensure that 
borrowers aren't pushed into signing a contract, prohibit some 
particularly abusive loan terms, and that modify the holder in due 
course rules to shut off the flow of funds to lenders that would 
otherwise ignore the provisions of the bill.
  The bill would not affect most mortgages, only high-cost mortgages, 
those with: interests rate that exceed the comparable maturity T-bill 
rate by more than 10 percentage points; points and fees that exceed 8 
percent of the amount borrowed; or monthly payments that exceed 60 
percent of the borrower's monthly income.
  The bill's provisions are designed to ensure that communities that 
need access to capital get affordable access, and not just access at 
very high rates with numerous anti-consumer terms. That kind of access 
is no access at all; it is anti-consumer and anti-community 
development, and the bill recognizes that fact.
  In addition to the community development banking and reverse 
redlining provisions, S. 1275 also acts to improve access to capital by 
removing regulatory barriers to the formation of a secondary market in 
small business loans. A secondary market may help increase the amount 
of lending banks can do to small businesses.
  Finally, S. 1275 also attempts to further open our capital markets by 
making adjustments in our bank regulatory system, so that we regulate 
efficiently and intelligently, in a cost-effective way. Reducing 
unnecessary regulation can lower bank costs, and lower costs can mean 
more loans. Importantly, the committee was very careful to act in a way 
that fully protects the safety and soundness of the banking system and 
the Federal deposit insurance system, while giving banks some 
regulatory relief in this legislation.
  Mr. President, S. 1275 is not a complete answer to the access to 
capital problem. No one bill could be, and there is clearly more that 
needs to be done. S. 1275 is, however, a good start. It is a pro-
people, pro-community, pro-economic development bill. It will work and 
it will help. It deserves the support of the Senate, and I strongly 
urge its quick enactment.
  Mr. MURKOWSKI. Mr. President, I rise today to offer a critique on the 
Community Reinvestment Act and to share with my fellow Senators some of 
the problems that are inherent with the existing Community Reinvestment 
Act; problems associated not with the intentions of those who 
participated in the debate on what was to be accomplished by the 
Community Reinvestment Act.
  I would like to present to my colleagues an analysis from the point 
of view of a minority bank and the difficulties a minority bank has in 
compliance with the existing Community Redevelopment Act, or the CRA, 
as it is known. I think it puts a rather interesting perspective on a 
situation where indeed the intention of the legislation is to get out 
and ensure that minorities are represented in services from financial 
institutions--mortgage services, all commercial lending services, 
automobile financing, and all other needs, and not just minority 
groups, but low-income groups within those minorities.
  But, first of all, it is interesting to reflect that, as we talk 
about banks and the financial institutions, savings and loans, and so 
forth, we think that is where all of the money is. But it is important 
to recognize that nonbank institutions are not regulated by the 
Community Reinvestment Act. And nonbank institutions now hold more than 
half of the financial assets held by all financial institutions in the 
United States.
  (Ms. MOSELEY-BRAUN assumed the Chair.)
  Mr. MURKOWSKI. Madam President, why do we allow the holder of the 
largest segment of the financial assets of this country to be exempt 
from the Community Reinvestment Act?
  Obviously, the stock market, investment funds, and various other 
investment groups receive funds from these communities. However, unlike 
banks and saving and loan associations, they are free, with no 
restrictions, to invest their funds anywhere at home or abroad, because 
they are not regulated by the CRA.
  I ask my colleagues on the Banking Committee, and my fellow Senators, 
is that equitable? Is that what we are trying to achieve here--to 
exempt over one-half of the concentration of capital, from Community 
Reinvestment Act legislation?
  Let me get into the second point that is not equitable. I am 
presenting this from the point of view of a minority bank. I happen to 
have some knowledge of the banking business, as I was in commercial 
banking in Alaska for about 24 years.
  Large banks are regulated by the same set of Community Reinvestment 
Act requirements as are the small community banks. Large banks have 
branch offices in many different communities, however. They receive 
deposits from these communities, sometimes nationwide, but they may not 
necessarily invest back into these communities proportionately. Rather, 
because of their size and their access to global markets, they are able 
to invest selectively in any part of the country or abroad that 
commands the highest return and the least risk. That is what investment 
is all about; you invest in the highest return with least risk.
  But community banks, the small banks that serve in these minority 
communities, receive their funds from their respective local 
communities, from people doing business there, the people that work 
there.
  But because their market is very limited--it is limited to that 
community--they inevitably invest back to these communities with which 
they are most familiar. They know their borrowers. They know their 
customers. Thus the community banks by their very nature really conform 
to the spirit of the CRA as opposed to the larger banks that are on the 
margins of some minority areas.
  Unlike large banks, community banks cannot afford the enormous costs 
associated with compliance under the Community Reinvestment Act.
  In a recent study of community banks, small banks in these minority 
areas have had to spend collectively over $1 billion annually to comply 
with the Community Reinvestment Act.
  I again remind the Chair that the holder of over half the funds in 
the investment community is not required under the Community 
Reinvestment Act to meet any kind of criteria or oversight.
  The cost of establishing the sophisticated CRA compliance program is 
really a burden on many of the smaller community banks. Let me tell you 
why. If community banks, first of all, have to pass on to their 
customers these costs, you know what is going to happen? The costs of 
their services are going to go up. Do you know where the customers are 
going to go? The customers are going to go to the larger banks that 
have branches in the surrounding areas, because those larger banks can 
better absorb the cost of CRA compliance. That simply makes sense.
  Regardless of whether they absorb the costs themselves or pass on the 
costs to their customers, the existing Community Reinvestment Act puts 
the community banks, the little banks that are striving to serve 
minorities, at a tremendous competitive disadvantage to the large 
banks, and the large banks recognize that. That is just a reality.
  Minority banks really are a very special type of community bank. 
There are not enough of them. But to have more of them, they have to 
have an inducement. They are largely owned and operated by minorities, 
but they face even more difficulties in complying with the Community 
Reinvestment Act than do the nonminority community banks.
  Many minority banks have been criticized for not lending enough to 
other minorities. To some extent, however, that criticism is 
undeserving because of the fact that minorities prefer to bank with 
institutions that are owned and operated by the same ethnic group. This 
is factual. It may not be the way we would like to have it, but it is a 
reality.
  This is particularly true with new immigrants who come to the United 
States because the minority banks provide bilingual services.
  The Community Reinvestment Act compliance cost is more burdensome to 
minority banks than to large or nonminority community banks; namely, 
the existing CRA requires a minority bank to allocate resources, and I 
would venture to say inefficiently, as it is required to divert its 
resources to groups other than the group of the ethnic minority it is 
most proficient at serving.
  There is an example of a bank in Los Angeles which has devoted a 
tremendous amount of resources to penetrate the Hispanic and African-
American communities. This effort has been underway since approximately 
1992. These efforts have included continuous advertising with local 
newspapers in different languages that reach out to all parts of the 
community, including the low- and the moderate-income neighborhoods, 
participating in community development and redevelopment programs, and 
frequently contacting representatives from community groups, local 
governments, and nonprofit developers to ascertain the credit needs of 
these communities and these minority groups. However, for this 
particular institution, they have described the effort as very, very 
discouraging.
  By confining a minority bank's delineated communities to arbitrary 
geographical boundaries, its ability to serve its own ethnic minority 
is greatly diminished, as some of the ethnic minorities previously 
served by a minority bank may now fall outside its delineated 
community.
  As we look at how we are required to live with the Community 
Reinvestment Act, we might consider some suggestions.
  First of all, it might be equitable for the nonbank institution to be 
subject to the same set of Community Reinvestment Act requirements as 
the larger bank, as I have said. The nonbanking institutions control 
over half the available liquid assets out there, and they are not 
required to perform or report under the CRA.
  The Community Reinvestment Act requirements should be different, 
perhaps, for large community banks. Large banks could be classified as 
based on total assets.
  The Community Development Act rules and regulations for community 
banks should be tangible and easy to follows. In other words, let us 
give them regulations that are easy to understand. For instance, in the 
Community Reinvestment Act, community banks must allocate a specific 
percentage of their resources to promote banking relationships with 
residents and businesses in the low- and moderate-income neighborhoods.
  The Community Reinvestment Act requirements for minority banks should 
recognize that minorities prefer to bank with institutions that are run 
by people of the same ethnic background as I have indicated, those that 
offer language proficiency and cultural comfort.
  The Community Reinvestment Act should define delineated communities 
for the minority bank ethnically rather than geographically.
  Why not? You say that is not what we are trying to achieve here?
  But on the flip side of it, when you look at it from the standpoint 
of the minority bank that is trying to meet these obligations, they are 
providing a special service. Why not require minority banks to 
ascertain the credit needs of that minority, including the low- to 
moderate-income groups of that minority?
  The Community Reinvestment Act should require a minority bank to 
allocate a specific percentage of its resources to promote banking 
relationships with the low- and moderate-income groups of that 
particular minority.
  Finally, I think thought should be given to the idea of providing 
economic incentives to encourage more minorities to establish financial 
institutions to serve their own ethnic minorities.
  Madam President, this brings me to the point of an amendment which I 
may offer. This amendment will be offered in the belief that the 
Community Reinvestment Act and accompanying regulations that minority 
banks must meet should satisfy the same conceptual Community 
Reinvestment Act standards as nonminority-owned banks.
  But, Madam President, the amendment will recognize the difficulties 
that minority-owned banks have in attracting community business from 
other ethnic minorities while providing much-needed services to the 
minority group they share a common heritage with.
  Under the amendment that I may offer, a minority-owned financial 
institution would be considered to satisfy the investment standards of 
the Community Reinvestment Act if at least a high percentage of its 
loans went to minority and low-income groups, whether or not the groups 
are located in the geographical community proximate to the financial 
institution.
  I think this would facilitate the free flow of capital to minority 
groups that might otherwise have little opportunity to gain access to 
capital. It frees those minority-owned banks from having to spend 
resources in futile efforts to attract business from ethnic groups that 
appear to have little interest in doing business with the minority 
institution because there are other minority institutions for them to 
go to.
  I look forward to the response of the members of the Banking 
Committee and their professional staff relative to the position that 
the Community Reinvestment Act has put minority bankers into. We must 
recognize that these dedicated institutions are trying to provide 
special service to minorities. Yet, for them the requirements of the 
Community Reinvestment Act appear inequitable, unfair, and impractical. 
They clearly need to be reexamined.
  Furthermore, I want to reiterate that the nonbanking institutions, 
where the majority of our Nation's funds are--over half of the 
available capital, liquid capital, stock market, and others--are not 
subject to any of the criteria of the Community Reinvestment Act.
  Indeed, that is unfortunate. It may be difficult to address, but 
nevertheless it should be pointed out.
  I yield the floor.
  Mr. D'AMATO. Madam President, I ask unanimous consent that the 
pending amendment be set aside.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Madam President, let me first say that I know that 
Senator Murkowski has raised this issue. We were very hopeful of being 
able to get some relief from some of the onerous and nonproductive 
aspects of CRA. I think that the principles of CRA are absolutely 
important. I think the Senator from Alaska and the President would 
agree with me that CRA has, as its very basic foundation, to see to it 
that there is adequate capital made available to those in the minority 
community in particular, providing credit to those who find themselves 
disenfranchised, or small business people. We were promised that the 
administration in their rules and regulations would address this. They 
have not.
  Madam President, I know that the minority leader has an amendment 
that he wishes to put forth. Also, there are deep negotiations going on 
with respect to the flood insurance legislation. It has been 1\1/2\ or 
maybe 2 hours, that the parties, Senator Bond, Senator Kerry, and 
Senator Mack have been conducting negotiations on the flood insurance 
legislation.
  It is for that purpose that I move to set aside that amendment so 
that we could at least begin to move forward on this bill, and give 
them an opportunity to, hopefully, work out an agreement. In the 
meantime, maybe we can get some of the business moving forward.
  I believe that the Senator from Kansas would like to make a statement 
to let the majority leader know what he intends to offer.
  At this time, I yield the floor.
  The PRESIDING OFFICER. The Senator from Kansas.

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