Community Reinvestment Act and ATM fee limits
By Lynda Edwards • Bankrate.com

Betty arrived with her two kids in tow at a Miami battered women's shelter with an unusual problem -- more unusual than her spouse's habit of beating the family pets to death in front of their children.

Her husband had vowed to use friends in Miami's courts -- judges, district attorneys, policemen -- to track her down and kill her. He was a social worker counseling men court-ordered into group therapy for beating their wives.

A "code of silence"
"Some of his colleagues guessed that he beat me because the bruises and scars were obvious," Betty says. "But there's a code of silence in all professions, I think, where the well-connected look out for their own."

Several banks refused to loan her money to rent, much less buy, a home of her own because, she explained, "They figured I'd be dead before I could pay off the loan on my salary."

But one credit union arranged a mortgage through the Community Development Financial Institution Fund. The fund gives loans to borrowers most lenders see as terrible risks. Betty and her children now live in what she calls "a fairy-tale cottage," a bungalow shaded by purple ivy and scarlet roses on a strip lined with bail bondsmen and car lots guarded by Dobermans, hundreds of miles away from her ex.

The happy ending to her dramatic flight is a footnote in the stacks of fall 1997 Senate Banking Committee testimony. Re-authorizing the fund is one of several key consumer issues the committee will debate this month. A new chairman, Sen. Phil Gramm, R-Texas, will oversee the committee.

Gramm's flip-flops

Gramm

For both consumer activists and banking lobbyists, the Senator is an unpredictable issue. He taught a course at Texas A&M University in the 1970s at the cusp of his political career, and print copies of his lectures make Gramm sound like a populist champion. He assailed tax breaks to multi-million dollar banks as "corporate welfare" and preached the virtues of small S&Ls.

But when S&Ls crashed in the late '80s, his support for one bankrupt Texas S&L owner came under scrutiny by the Senate Ethics Committee. In 1990, Gramm was accused of accepting $54,000 of free construction work on his vacation home house from the S&L owner. Gramm conceded that he had advised the man on how to deal with the federal regulators and examiners swarming over the thrift's records. He denied formally intervening with regulators on the man's behalf. The Senate decided no sweetheart deal occurred.

During the past decade Gramm has been one of the Senate's top three recipients of campaign contributions from banks ($320,910 so far), according to a Common Cause study. Outgoing Banking Committee Chair Alfonse D'Amato, R-N.Y. (got $504,073), and Richard Shelby, R-Ala. (got $418,771), are No. 1 and No. 2. Still, Gramm and Shelby infuriated the banking industry last fall by blocking passage of a financial reform bill that would allow banks, brokerage firms and insurance companies to offer the same services.

A modernization bill
That reform bill has been reintroduced in the new Congress as HR 10, commonly known as "The Financial Modernization Bill." It seeks to change laws drafted after thousands of uninsured banks failed during the Great Depression because they invested wildly in a booming stock market that crashed in 1929. Bank customers lost their life savings. The disaster prompted strict laws that still separate the dealings of banks, securities firms and insurance companies.

Currently, a bank subsidiary can sell securities as long as they don't total more than 25 percent of the subsidiary's revenue. Now, mega-banks such as Citigroup say that, in order to become a global market force, they must sell stocks and insurance and manage customer portfolios just like European banks. Getting rid of government restrictions would send bank stocks soaring, which is great news for shareholders.

Critics of the bill say it sounds a lot like the legislation that allowed the savings-and-loan industry to make risky investments that ended in a huge crash in 1987. American taxpayers still are paying for the $100 billion bailout of the failed S&Ls.

"Latin American and Asian banks thought they were making investors rich by getting rid of governmental regulation and playing the global market," consumer advocate Ralph Nader notes. "Does anyone think their results are a success?" His watchdog group, Public Citizen, believes deregulating mergers of banks, investment houses and insurance companies is a hazard. If mergers create financial institutions so huge and they can fatally wound the economy in a failure, the government will have to bail them out.

Accusations of extortion
The opposition last fall from Gramm and Shelby to the modernization bill came when the two men wanted to add language curtailing the Community Reinvestment Act. The 1977 law requires banks to invest a percentage of profits in low-cost loans and mortgages to needy consumers, as well as support community development. Gramm denounced this as "extortion," claiming activists intimidate banks by threatening their CRA grades.

"Let this evil, CRA, like slavery in the pre-Civil War era, exist where it must but do not expand it," he railed on the Senate floor. Bankers told the press Gramm's attack bewildered them since a CRA passing grade is a very low bar to reach. In the past 18 months, only 14 of the 5,925 banks examined were graded as "non-compliant with CRA." The Clinton White House issued an October 1998 press release vowing to veto any financial reform bill attacking the Act.

Gramm told Brian Lamb on C-SPAN this month that he supports the financial modernization bill but remains adamant that the CRA provision must be rewritten to decrease the act's scope and enforcement. Lamb observed that the nation's most powerful bankers were on the record stating that the CRA provision was fine with them, and read Gramm their quotes from newspapers.

"They're not being honest," Gramm replied. "Shopkeepers getting a Mafia shakedown don't complain publicly either."

Bills before Congress
While the modernization bill probably is the biggest consumer banking issue before the new Congress, several others are up for consideration. Here are a few that will have an impact on Americans as taxpayers and consumers:

• Risky Lending: The Banking Committee's February agenda includes a review of how federal regulators examine banks and thrifts to ensure they are properly evaluating the risks involved when banks lend to institutions trading financial derivatives.
• Home Loan Bank System: The system was created in 1932 to supply thrifts with a steady source of mortgage money. Critics worry that the 12 banks comprising the system spend too much time investing in securities for its shareholders instead of helping thrift customers. The House Banking Committee issued a press release promising to tackle the problem even if every camera in Washington is still trained on the impeachment hearings.
• HR 1367, also known as the "Internet Privacy Bill": This would prohibit federal agencies from making an individual's confidential records available through the Internet. Language included makes the bill applicable to federally insured financial institutions.
• HR 3060, amendment to The Consumer Credit Protection Act: This would end misleading leasing and layaway practices, contracts, and advertisements by lenders. For example, the act would require "lease-to-own" contracts to state exactly how much an item costs after a year of leasing payments compared with its current market price. Since leasing often contains hidden fees such as interest and insurance, consumers would see in cold, hard print how bad a deal they might be getting.

No ATM legislation
While all those aspects of banking are being threshed out, there's one big consumer concern the Banking Committee won't be tackling -- ATM fees.

Former Banking Committee Chairman D'Amato made a campaign promise to stop banks from charging fees to customers for using off-premises ATMs. But D'Amato lost to Democratic Representative Charles Schumer in the 1998 mid-term elections..

Afterward, Gramm quoted the Munchkinland Coroner from The Wizard of Oz when he told a University of Texas audience: "That ATM proposal is not just merely dead, it's really, sincerely dead."

-- Posted: Jan. 15, 1999