Ellen Seidman Director, Financial Services and Education Project New America Foundation

1. Next Generation CRA:A 21st Century Responsibility and Accountability Agenda for Consumer Financial Services Ellen Seidman Director, Financial Services and Education Project New America Foundation October 24, 2007

2. The New America Foundation • Nonprofit, post-partisan, public policy institute • Launched in 1999, headquartered in Washington, DC with a significant presence in California • Invests in individuals and policy solutions that transcend the conventional political spectrum • Sponsors a wide range of research, writing, conferences and public outreach on critical global and domestic issues

3. Financial Services and Education Project • A project of the Asset-Building Program • Funded by the Ford Foundation • Focus on federal and state policy for: • Improving consumer access to quality financial services • Effective financial education • Getting debt right, so it builds, not destroys assets • Responsibility and accountability agenda for 21st century consumer financial services

4. CRA Origins and Purpose • Disinvestment in low-income, primarily urban communities • White flight/Block busting • Redlining • Whites in the “next community” hurt too • Deposits coming in to institutions but credit not coming back out • Focus on access to credit

5. Context • 18,000 banks and thrifts (vs. 8,600 now) • 80% of mortgages made by commercial banks and thrifts (vs. 43% in 2006) • Mortgages were either prime or FHA/VA • Consumer credit was the province of banks, thrifts, credit unions (auto), consumer finance companies (auto, short-term installment); no credit cards • Savings were kept in savings accounts • Securities industry served commercial and institutional interests and upper-income consumers • At least 20% of families had no checking account

6. How Has The Context Changed? • In some ways, it hasn’t; 2006 HMDA data confirm that low income (and minority) communities and families are still disadvantaged • But in many ways, it has: • New players, new roles • Including community-based institutions • New products (credit cards, sub-prime) • New expectations (ubiquitous plastic) • New complexity

7. CRA Learnings • What is measured gets done • Public information is extremely powerful, when used to leverage regulatory authority • Not everything has to be a cease and desist order • Mandates can spur innovation • Partnerships are critical in entering and serving new markets

8. CRA Concerns • Applies only to banks and thrifts • Complexity • In general, focus on inputs rather than outcomes • Bean counting • Spatial focus • Inconsistent with new business models, funding streams • Color blind • People as important as place • Too much in NYC, Delaware, SLC; too little in rural areas, smaller cities • Need for more powerful positive incentives • Options don’t work very well

9. Some Conclusions • Broadly directive, non-prescriptive statute is long-lasting • Uniformity of responsibility for entities providing similar products is important, but it is not clear that requires identical enforcement methodology • Technology enhances feasibility of broader public disclosure • But public and media can’t do it all; regulatory role is essential • Clear, measurable standards are valuable, but need to measure the right things • Community based organizations and partnerships are a critically important part of the system

10. A Paradigm For Consumer Financial Services Any financial institution that provides an essential consumer product must make that product available in a fair and transparent manner to low and moderate income consumers in all communities in all broad geographies in which the entity does more than an incidental amount of business in the product.

11. Underlying Principles • Fairness • Essential consumer financial services meet the needs and desires of lower- and middle-income people and places • Essential consumer financial services are offered at equitable prices and terms, based on cost and an accurate assessment of risk • Analysis of profitability is done on terms no less favorable for lower- and middle-income consumers • Principals are responsible for acts of agents • Transparency • Potential customers receive timely and accurate information about product terms and risks • Information about manner in which essential consumer products are provided is made available to the public in a timely manner, in sufficient quality and quantity to enable outside evaluation of whether a firm is meeting its obligations

12. Essential Consumer Products • Transactions • Converting revenue to payment • Timely and secure payment method • Credit • Small-dollar • Auto • Home • Post-secondary education • Savings and investment • Short-term • Longer-term, low-risk • Tax-advantaged • Insurance • Auto • Home

13. The Concept in the Banking Context • Cover all broad geographies in which a significant amount of business is done in the relevant product • HMDA-like regimes for other essential consumer products • All members of H/C family that provide essential consumer products evaluated together • Enhanced consumer protections fully integrated into evaluations • Public evaluations more friendly to analysis

14. How to Cover Others? • Use Federal Reserve, HUD to collect and disseminate data? • Strengthen FTC? • Strengthen State regulators? • Replicate CRA in other regimes? • Credit unions • Build on strengths of other regimes? • Suitability standards in securities regulation • Consumer pricing/product regulation in insurance

15. Transitions • Start with products that are riskiest for consumers, and their providers? • Mortgages • Credit cards • Start with products that are not broadly available at good prices/terms? • Transaction products • Start with most similar regulatory regime? • Credit unions