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“Gaming the System”: Study Details How Big Banks Are Avoiding Lending Obligations Under Community Reinvestment Act

StoryAugust 12, 2010
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A new report from National People’s Action shows how big banks have been able to wiggle around their obligations under the Community Reinvestment Act. The act was passed in 1977 to stop the redlining of low-income neighborhoods and communities of color. Federal bank and thrift regulatory agencies are holding a public hearing in Chicago today, one of several held nationwide this summer to reevaluate the act. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

JUAN GONZALEZ: Federal bank and thrift regulatory agencies are holding a series of public hearings in cities across the country this summer to reevaluate the Community Reinvestment Act. The act was passed in 1977 to stop the redlining of low-income neighborhoods and communities on color. Critics have said it contributed to the subprime crisis, but community groups say it was an out-of-date and weak law that could improve bank practices, when used effectively.

Well, a new report from National People’s Action, a Chicago-based coalition of community groups around the country, shows exactly how big banks have been able to wiggle around their obligations under the Community Reinvestment Act. The report is called “Gaming the System,” and it focuses on Wells Fargo, JPMorgan Chase, Citibank and Bank of America.

AMY GOODMAN: And we’re joined by two guests in Chicago, where federal agencies are holding a public hearing today on the act. Liz Ryan Murray is senior policy analyst at National People’s Action and co-author of the report “Gaming the System.” And Reverend Dr. Eugene Barnes from Champaign, Illinois, is president of the board of National People’s Action. He’ll be testifying at today’s hearing.

We welcome you both to Democracy Now! Liz Ryan Murray, let’s start with you. Lay out your major concerns.

LIZ RYAN MURRAY: The major concerns with the way the banks have approached the law is by getting around it. In 1977, as was reported, the law was passed, and when it did, it a covered the entire lending industry, which was, at the time, depository institutions. Since that time, in the last ten, twenty years, rampant deregulation has led to a whole different lending industry, with mortgage companies, brokers, finance companies doing mortgages, and many of them owned by the big banks. Those mortgage companies are not covered by the Community Reinvestment Act and are not under the scrutiny of the law.

In addition, the way the Community Reinvestment Act works, it only looks at certain parts of where a lender is — a bank is doing their business, based on where their branches are. And that’s not where banks are doing their lending anymore. But that’s where the regulators are looking. So the banks have been doing their shadier business around the law, where they’re not being watched. And it’s those loans, those high-cost loans, the predatory lending, that tanked our economy, destroyed our neighborhoods.

If we can get the Community Reinvestment Act back to cover the lending industry the way it was supposed to be covered, it not only has a dampening effect on those kinds of destructive loans, it’s really a major tool for our recovery. It will encourage small business lending. It encourages home lending. It encourages community-led investment. That’s what we need. We need the banks to come in, fix the mess they created through the economic collapse and the mortgage meltdown, and get back to doing the business they’re supposed to be doing in our communities.

JUAN GONZALEZ: Well, I was struck by one part of your report that said that three out of every four, 74 percent, of minority African American or Latino customers of big bank affiliate home lenders received high-cost loans, which averaged 10.2 percent on their first lien mortgages in 2006. How were they able to — these big banks, to so easily target African American and Latino communities for these high-cost loans?

LIZ RYAN MURRAY: Well, African American and Latino neighborhoods and low-income neighborhoods have been the canaries in the coal mine for this disaster, the mortgage disaster. They were the first ones to get the high levels of predatory lending. It’s an easy mark. The lenders went in there, destroyed communities wholesale. They went through churches. They went through community centers. They went through neighbors and convinced people that this was the way to go and that this would be better for them, versus the truly toxic and destructive products that they were.

AMY GOODMAN: Reverend Dr. Eugene —-

LIZ RYAN MURRAY: And as the report shows -—

AMY GOODMAN: Let me bring Reverend Dr. Eugene Barnes into this. Explain what happened in your communities.

REV. DR. EUGENE BARNES: Well, we have to go back to redlining to see what redlining was doing. Redlining — banks had targeted certain areas in which they weren’t lending. And then, when predatory lending came about, that targeted population became that same minority Latino communities that they came in and started passing off these toxic loans, which Warren Buffett calls the real weapons of mass destruction. And so, they already had fertile ground, in terms of being able to make these loans. And then, when they saw how the CRA was able to forge a partnership, community partnerships, they already had a toe in, and then business was easy for them. And through the loopholes that — you know, through CRA, they’ve been able to exploit that, and also they’ve been able to destroy our neighborhoods. And so we really need to strengthen CRA. CRA still has milk on its breath, as compared to the voracious, meat-eating appetite of these large financial institutions who have ravaged our communities.

JUAN GONZALEZ: You find many conservative critics saying that it was as a result of things like CRA that we had the subprime crisis. What’s your response to that, Liz Ryan Murray?

LIZ RYAN MURRAY: Well, that’s a fringe opinion that has been shouted down by data, by regulators, by former regulators, Ben Bernanke, the head of OCC, the Federal Reserve, the FDIC. All the data shows that it was about six percent of the lending that was actually covered by CRA was these high-cost predatory loans. CRA was not the problem. It was what was happening outside of the Community Reinvestment Act that was the problem. Those were the loans that took us down. The loans that were done through Community Reinvestment Act performed very well and were, for the most part, the good-quality lending that our communities need, not the destructive credit that destroyed the neighborhood and destroyed our economy.

AMY GOODMAN: Reverend Dr. Eugene Barnes, what needs to be done now?

REV. DR. EUGENE BARNES: We need to get the banks back in the business of lending, extending credit back to the communities that they destroyed; investing in small business, the mom-and-pop organizations, which have been the backbone of the free enterprise system here in America; renegotiate community agreements with the community organizers, such as National People’s Action and many other community groups out there who knows what the issues are and how to address them; to get the banks to continue to invest and live up to the obligation that they have abrogated since they’ve been able to discover the loopholes of CRA. As long as the financial institutions can fly under the radar of CRA, we’ll never be able to get them to get back into the business of lending.

AMY GOODMAN: We’re going to leave it there, and I want to thank you both for being with us. We will certainly link to your report “Gaming the System.” Reverend Dr. Eugene Barnes, president of the board of the National People’s Action, and thank you to Liz Ryan Murray, senior policy analyst there and co-author of “Gaming the System.”

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