California Reinvestment Coalition Recommendations on Updating the Community Reinvestment Act

Community reinvestment act 2

Fact Sheet: Community Reinvestment Act Recommendations

To truly meet community needs, CRC members believe the CRA should be improved and strengthened. In a recent survey, 100% of members said that the level of CRA activity in their community needed improvement and that there was considerable room for banks to do more.

CRC recommends that CRA be reformed so that:

1. CRA implementation encourages, not discourages, reinvestment in rural areas. California is home to numerous rural reinvestment deserts, where a lack of lending and investment prevents communities from thriving economically. And yet, many of these areas already have bank branches and are included in bank CRA assessment areas. Regulators subject bank CRA activity in these areas to a lower level of scrutiny, as banks are able to denote these areas as subject to only “limited scope” review. For example, Bakersfield, California, has numerous bank branches, and those banks have CRA obligations in the city. However, these same banks are examined for their CRA activity far more closely in other, more urban areas of the state. This creates fierce competition, for example, for housing tax credit deals in urban areas, while rural projects struggle to find financing. Instead, regulators should ensure that the banks with the largest deposits in a given MSA are subject to a full scope review in that MSA.

2. Regulators should encourage banks to develop transparent, multi-year CRA Plans that reflect significant public input and that include measurable goals, such as tying reinvestment activity to a percentage of bank deposits. Banks are supposed to help meet community credit needs. And in many bank merger applications, banks must demonstrate that the merger will provide a community benefit. The public input process is critical to this assessment.

However, community input has been diluted, and is not sufficiently sought and considered under current CRA implementation, as an example, very few mergers will even have public hearings. Mergers most often lead to diminished resources for communities as 1 + 1 rarely equals 2 in terms of reinvestment. That is why a comprehensive review of mergers is so important, complete with strong community input and mitigation of any harm the merger may cause in the form of decreased reinvestment or reduced access to banking services or branches.

Regulators should encourage CRA plans, particularly in the context of mergers that must show a clear public benefit to the community. Strong and meaningful CRA plans reflect community input about community credit needs, motivate banks by setting strong goals for lending, investment and services, and allow communities to work in partnership with banks to ensure that they are treated equitably and fairly by financial institutions. CRA plans are a best practice that have resulted in significant gains for communities in the past few years. Strong CRA plans can help demonstrate that a merger will have a public benefit.

3. Banks should be downgraded for causing, enabling, or financing harm in communities, taking into account discrimination, and equity stripping conduct and transactions that lead to displacement. The CRA calls for an assessment of how well or poorly a bank is meeting community credit needs. This analysis must include an assessment of fair housing and related factors. Regulators should conduct a comprehensive review of a bank’s community impact. Wells Fargo is but the most recent example to demonstrate that simply investing in the community is insufficient- banks must also not cause harm or break the law.

For a regulator to give a bank a passing CRA grade while the bank engages in discriminatory lending would be to endorse discrimination. Further, a high CRA rating for a discriminatory bank could result in consumers being directed to a bank with an inflated CRA rating, only for the bank to potentially overcharge the consumer or deny that person a loan. In this way, regulators would abuse the public’s trust in its ratings.

Bank regulators should consider expensive overdraft programs and excessive reliance on fee revenue generated at the expense of the most economically vulnerable consumers as a basis for downgrading a bank in a CRA service test evaluation. Similarly, banks should be downgraded for financing high cost, predatory lenders, and for contributing to gentrification and displacement. Banks should also suffer CRA rating downgrades as a result of any involvement in the REO to Rental craze, which results in first time homebuyers being outbid by cash investors, tenants being displaced by Wall Street landlords, and neighborhoods losing long term residents as well as racial and income diversity.

4. Encourages banks to open and maintain branches in LMI and rural areas. Bank branches remain a critical part of how banks serve communities, and inequitable distribution of branches must be considered as part of the CRA service test. Critically, regulators cannot allow the industry’s preference for technology to result in fewer branches and shrinking CRA assessment areas, footprints, and obligations in LMI communities. Additionally, many LMI neighborhoods and communities of color not only lack access to bank branches, but also to a wide range of banking products and services, including ATMs.  Regulators should analyze whether banks are meeting the banking needs of all communities in their assessment areas.

Regulators should also consider how banks can better reduce the number of unbanked or underbanked consumers within their assessment areas. Moreover, banks should quantify the extent to which LMI bank customers are able to keep their accounts open and in good standing over time, or if their customers are pushed out of the bank by overdraft fees or other barriers. Low cost bank accounts should be offered and accessible to LMI consumers, including through bank acceptance of municipal identification cards and other accessible forms of ID.

5. Assessment areas should include areas where banks have branches, or where a significant number of their customers and depositors live. Regulation has lagged behind market innovation. Requiring reinvestment only around retail branches makes much less sense today, when internet, credit card, and fintech banks operate nationally but reinvest only in Salt Lake City or another headquarters location.

Assessment areas should be expanded to include areas where a substantial portion of a bank’s depositors and borrowers reside. At the same time, banks should not be allowed to receive additional CRA credit for lending or investing outside of the bank’s CRA assessment area, beyond the accommodation made to banks by regulators during the last CRA Questions and Answers review. This will only lead to a dilution of investment in LMI neighborhoods that are most in need of reinvestment. The primary purpose of the CRA is to serve communities where the bank is doing business, not to encourage reinvestment where it is easiest to do. Banks should not be able to circumvent obligations to serve the communities in their assessment areas. The focus of bank CRA should remain on LMI individuals and communities.

6. CRA examinations should consider and reflect new small business lending data that the CFPB will be overseeing. Small businesses are the lifeblood of our economy, prime job creators, and bulwarks of the community. Yet small business owners benefit from fewer protections than homeowners. HMDA data has been collected for years, and used to inform CRA examinations, without problem or incident. Small business owners should also benefit from a comprehensive and unified lending data collection system.

CRC members strongly support Congress’ charge in Dodd-Frank that §1071 small business lending data be collected in order to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses. Such data collection and dissemination will surely make affordable credit more accessible to all small businesses, and will inform CRA examinations.

A recent CRC survey of our CDFI, community lender and technical assistance provider member organizations revealed that small business clients still face discrimination; are pushed by banks towards higher priced credit cards; are frequently targeted for nonbank credit products (like Merchant Cash Advances), and are in need of greater access to affordable, safe, and transparent credit.

7. Banks serve all segments of the community, including the immigrant community. Banks can and should serve the immigrant community by directly providing loans and investments to immigrants, and by supporting community lenders and other organizations that serve the immigrant community. Immigrant community members have significant unmet credit needs, whether it is a safe place to save money, a loan to buy a house, purchase a car, start a businesses, or pursue a citizenship application.

Banks should ensure that employees represent the diversity of their service areas, and make translation, interpretation and related language access services available to all potential clients. Banks should make loans and investments accessible to all community members, and invest and support community lenders and other organizations that serve the immigrant community.

8. The bank examination process can be improved so that years do not go by after an examination before the pubic rating is released. The regulators should hire additional examiners and provide enhanced training to ensure that there is consistency in the examination process across agencies and examiners. CRC believes that a primary reason behind the delay in the public release of CRA ratings is the propensity of banks to challenge and appeal initial CRA ratings by regulators. This process should be reformed to limit the circumstances in which a bank can challenge a rating, and the public should be given an opportunity to comment on the appeal when a bank invokes this otherwise opaque process. It is of critical importance that regulators set high standards of review.

To make CRA meaningful, regulators have to end the long history of CRA grade inflation so that poor CRA performance will be reflected in CRA ratings. Streamlining the process while lowering the examination bar will only lead to less investment, more harm to communities, and potentially, to greater risk in the US financial system. We saw this happen in the years leading up the financial crisis, when regulatory agencies competed against each other to attract banks to their charters, fueling a regulatory race to the bottom, and leading ultimately to the failure of several savings and loans and the end of the Office of Thrift Supervision.

California Reinvestment Coalition Comments on Premium Payment Policy for Covered California

Andrea Luquetta, Policy Analyst at the California Reinvestment Coalition, submitted the comments below to Covered California to highlight CRC’s concerns about predatory financial service companies exploiting health care reform to sell prepaid cards (with high fees) to Covered California enrollees.

September 12, 2013

Covered California
560 J Street, Suite 290
Sacramento, CA 95814

Dear Covered California Board Members,

Please accept these comments from the California Reinvestment Coalition in response to the discussion on Premium Payment Policy at the California Health Benefit Exchange Board Meeting on August 22, 2013. The California Reinvestment Coalition is a non-profit coalition of over 300 organizations from across all of California. We advocate for financial services practices and policies that respond to the needs of low income households, communities of color and other economically and politically marginalized communities in California.

We gratefully welcome the recent federal adoption of requirements that “for all payments in the individual market, [insurers must] accept paper checks, cashier’s checks, money orders, EFT, and all general-purpose pre-paid debit cards as methods of payment and present all payment method options equally for a consumer to select their preferred payment method.” 45 CFR §156.1240.

We believe that Covered California can only be successful if health plans offer and accept all forms of payment for premiums equally, including those listed above. We are heartened to learn that currently, all participating Covered California insurers accept payment methods beyond checks and credit cards, including money orders, debit and pre-paid cards, and that some Covered California Health Plans are planning to include other payment options including the ability for enrollees to make payments with cash or EFT/ACH transactions.

As you know, there are over one million Californians that do not have a bank account; they are known by the Federal Deposit Insurance Corporation and other policy makers as “unbanked.” In addition to the “unbanked”, there are another 2.3 million Californians that are “under-banked”—they own a bank account that does not meet their needs for basic financial services. These unbanked and under-banked households must have access to health insurance that must not be restricted by the financial instruments available to them.

We applaud your sensitivity to the fact that the choice of payment methods will affect selection of plans, as noted in the in the Board Background Brief written for the Board meeting on August 22, 2103. We therefore urge you to take steps to ensure that neither insurers nor enrollers steer families to particular payment tools. Specifically, we are concerned that tax preparers that are certified enrollment entities per 10 CCR §652 be prevented from exploiting the mandate and opportunity to enroll for health coverage to sell expensive financial products.

Unfortunately, there are companies that have proven themselves predators of low income people who need financial services and have limited choices. Jackson Hewitt, H&R Block and Liberty Tax are perfect examples of such predatory companies. Although Jackson Hewitt has recently acted as a champion of unbanked households’ need for health coverage, they and their brethren have proven themselves over many years to be unconscionably exploitative of low income families’ needs. We believe that Covered California should prohibit these companies and all other enrollers from selling financial instruments to pay for premiums to those they enroll.

Low income, unbanked households are vulnerable to exploitation.

Households without bank accounts rely on a variety of financial services to conduct transactions, such as paying cash at in-person payment centers or using non-bank financial instruments, such as money orders and pre-paid cards. These instruments generally cost much more per transaction and can add up to a significant portion of a low income family’s budget.

For example, a mother who takes home $2,000 a month can easily pay 6% of her income, or about $60 monthly using a combination of money orders, in-person payments and a pre-paid card to conduct basic transactions. To cash a paycheck and pay rent, two utility bills, a mobile phone bill, and car insurance at a Western Union payment center, she would pay: 2% of the check being cashed, $1.50 for a money order for rent, $1.50 each for in-person payments for the utility and mobile phone bills, $12 for an in-person payment for car insurance, and about $6 to load a pre-paid card she can use to withdraw money at an ATM once that month.

The lack of a bank account renders households powerless against financial service providers that can charge whatever the market will bear. Unfortunately, many companies use this vulnerability to gouge the very households that can least afford it.

Jackson Hewitt and other tax preparers have consistently exploited this vulnerability.

Like payday lenders, pawn shops and loan sharks, Jackson Hewitt, H&R Block, Liberty Tax Services, and others have targeted these households for many years by exploiting their need for financial services and charging unconscionable prices. For example, until the IRS took action in 2012, Jackson Hewitt and their ilk routinely sold expensive tax refund loans to cash-strapped households.

The scheme took advantage of households’ eligibility for tax refunds through the Earned Income Tax Credit and similar programs that are intended — like the Affordable Care Act- to provide critically needed help to families. Jackson Hewitt and company would provide a loan for the amount of the refund minus a hefty fee. That loan would be repaid in less than three weeks when the IRS processed the tax refund. In 2012, the last year that Jackson Hewitt made these loans, the price for three week tax refund loan of $1,500 was $61.22, translating into an APR of 149%.

Since these loans were effectively banned by the IRS and bank regulators, Jackson Hewitt and other tax preparers have taken to selling refund anticipation checks, also at a heavy cost. Again, the tax preparer uses the refund recipient’s lack of funds and a bank account against her to make a profit. Jackson Hewitt does this by opening a temporary bank account into which the IRS direct deposits the customer’s refund check.

After the refund is deposited, the bank issues the consumer a check or pre-paid card and closes the temporary account, often at a fee. This scheme allows the tax preparer to pay itself through the tax refund for charges such as tax preparation fees and other spurious “add-on” fees, like application fees and document processing. Jackson Hewitt charges $29.95 to $49.95 for these services. The unbanked customer then has the choice of accepting the remaining refund via either a check – which they can cash for a fee – or on a Jackson Hewitt Pre-paid Visa Card, which carries a monthly fee of $5.95 and a $2.50 fee for ATM cash withdrawals.

Covered California should prohibit Jackson Hewitt and all enrollers from selling financial services to those they enroll.

Covered California has adopted rules prohibiting conflicts of interest and that prevents enrollers from, among other things, accepting premium payments from the consumer or inducing or accepting any type of remuneration direct or indirect from the consumer. 10 CCR §664(e)(3)(h)(5) and (8). We strongly urge you to apply these rules to enrollers that would sell payment instruments, such as pre-paid cards, used to pay premiums. Given their track record of exploiting the needs of their customers, Jackson Hewitt, H&R Block, Liberty Tax Services and other for-profit tax preparers acting as enrollers should not be allowed to exploit the aim of Covered California and the needs of unbanked consumers to sell expensive financial services.

To be clear, although we are troubled that pre-paid cards are, to date, wholly unregulated and lacking in price standards such that it is virtually impossible for a consumer to compare costs between cards, we believe that insurers should accept them as premium payment platforms. However, we strongly oppose enrollers selling pre-paid cards to the people they enroll in health plans.

Just as you wisely predict that the choice of payment method will skew enrollment in health plans, we predict that, unless precluded from doing so, for-profit entities selling financial services will skew customer adoption of a payment method that may not be the most affordable for them. The undue selection for these products, above others that may be more affordable to the consumer but not being presented to them as they are enrolling, will drain household resources, undoing the good work that Covered California has done to lower costs and make health coverage more accessible to all Californians.

Jackson Hewitt and others sell pre-paid cards to generate unlimited revenue.

Though pre-paid cards often look like bank-issued debit cards, they work differently, cost much more for customers to use and generate more fee revenue to issuers. Unlike money in bank accounts and spent through debit cards, money loaded on a pre-paid card are not insured by the FDIC for the consumer. Pre-paid cards also do not have the same protections against fraud- if a customer loses her card she may still be liable for purchases made with it even if she reported the loss immediately.

The pre-paid card industry is exploding in size because, while banks can charge merchants a fee of up to a certain amount to process purchases paid for via credit and debit cards, there is no such limitation on fees to process payments via pre-paid cards. Because of this fee loophole, pre-paid card sellers stand to profit not only from the fees charged customers, which vary wildly, but also every time the cards are used to pay for purchases. This is why Jackson Hewitt and others are pushing so strongly not only to have insurers accept payments by pre-paid card, but to allow recurring automatic payments for premiums as well.

Pre-paid cards generally are also unregulated and unstandardized, making them virtually impossible to compare by cost conscious consumers. Some cards appear less expensive at first, for example, by not charging a monthly fee, but ultimately can cost more depending on how they are used, how often they are used and what uses trigger fees. Others will not have use fees but will charge a high monthly fee and ATM fees. By comparison, other cards charge a flat fee and no other fees beyond those charged by ATMs not in the cards network.

The Jackson Hewitt Smart Card costs $5.95 every month, a $2.50 fee each time it is used at an ‘in-network’ ATMs, plus ATM fees charged by the owner of the ATM if it is not in-network. The H&R Block Emerald Pre-paid MasterCard does not charge a monthly fee, but charges a load fee of up to $4.95, also charges $2.50 for all ATM use, in addition to charges imposed by the owner of the ATM if it is different than the one used by the card issuer, and also charges a $1 balance inquiry fee, $1 when the card is declined for purchases and $2.50 monthly for inactivity if the card has not been used for three months.

The Liberty Tax Card, issued by NetSpend, can cost from zero to $9.95 a month depending on which plan you choose, $1 for purchases made with a signature and $2 for purchases made with a PIN under the no monthly service fee plan, $1 for declined purchases and ATM withdrawals, $0.50 for balance inquiries not made online, $2.50 for ATM use not including other fees imposed by ATM owners, and several other fees not charged by the previous two companies.

As you can see, customers using pre-paid cards from Jackson Hewitt and similar companies face a large number of fees, and CRC is concerned that these companies view the Affordable Care Act and Covered California as yet another opportunity to make more money from those who can least afford it.

Enrollers should have the consumers, and Covered California’s best interest in mind, not their desire to generate fee revenue from products sold to customers.

CRC advocates for more access to financial services that are affordable and help people save money rather than exploit their lack of options. We very much appreciate all the work that Covered California has done and continues to do to provide health insurance to all Californians, including making sure that lack of financial services does not impede the ability to obtain coverage.

We urge you to protect that good work by prohibiting enrollers from selling financial services to the households they enroll. We believe that no additional regulation is needed but merely enforcement of the rules prohibiting enrollers from accepting premiums and inducing remuneration.

Jackson Hewitt and others should not both enroll a person, and then sell her a pre-paid card on which she will load money meant for premiums, thereby causing her to generate fees every time she pays a premium using that card. Enrollers should not be allowed to use the trust the state has granted them to serve Covered California customers for private gain, nor should a motivation to make profits compete with the primary goal of providing the best health coverage plan to the consumer.

Sincerely,

Andrea Luquetta, Esq.
Policy Advocate

cc: Sara Soto-Taylor, Manager
Eligibility, Enrollment and Marketing

CRC Submits Comments on Payment Methods for Health Care

CRC submitted the letter below as part of our work advocating on behalf of low income Californians.  In this letter to the Centers for Medicare & Medicaid Services (CMS), CRC suggests that patients should have several options available for paying for their  premiums for Qualified Health Plans.  CRC also advocates against CMS partnering with any businesses that will offer prepaid cards loaded with high fees for consumers.

July 16, 2013

Marilyn B. Tavenner
Administrator, Centers for Medicare & Medicaid Services
Department of Health and Human Services
Room 445–G, Hubert H. Humphrey Building
200 Independence Avenue SW.
Washington, DC 20201

Re: CMS–9957–P; Patient Protection and Affordable Care Act; Program Integrity: Exchange,
SHOP, Premium Stabilization Programs, and Market Standards; Proposed Rule (Federal
Register, Vol. 78, No. 118, June 19, 2013)

Dear Administrator Tavenner:

Please accept these comments from the California Reinvestment Coalition in response to the Centers for Medicare & Medicaid Services’ request for information about implementation of the Affordable Care Act. Our comments are specifically about the “Enrollment Process for Qualified Individuals” section (§ 156.1240).

The California Reinvestment Coalition is a non-profit coalition of over 300 organizations from across all of California. We advocate for financial services practices and policies that respond to the needs of low income households, communities of color and other economically and politically marginalized communities in California.

Please Expand the Types of Acceptable Methods to Pay for Health Coverage Costs.

We strongly urge that Qualified Health Plan issuers be required to accept payments for premiums and other health coverage expenses in forms other than checks and credit card. In particular, we urge you to adopt regulations that require insurers to also accept money orders and other payment platforms including prepaid cards, electronic money transfer (such as MoneyGram), and online money transfer platforms (such as PayPal). These are the payment methods most often used by those without bank accounts that meet their financial needs, those often referred to as unbanked or under-banked.

Nearly 8% of California’s 12 million households have no bank account, approximately 18% have an account that does not meet all of their financial needs.  The most common groups of unbanked persons include low-income individuals and families, those who are less-educated, households headed by women, young adults and immigrants. These are the most vulnerable households that the Affordable Care Act is intended to help and they should not be left un-insurable.

Please Avoid Partnering with Payment Service Companies that Will Prioritize Profit from Payment Fees over Ensuring Affordable Care Coverage.

However, we are extremely concerned that you discourage the use of payment products that exploit and strip the scarce resources of these vulnerable families. Currently, the pre-paid card industry is exploding in size, sophistication, and market power and it is largely unregulated.  There are literally thousands of cards sold with varying fee terms offered by as many different companies, some with mixed motives, at best, that can pit the company’s fee generation and revenue at odds with the service provided to customers.

We have heard from low income people who have been charged $1 for each use of a prepaid card, $1 for checking the card’s balance, $1.50 for a declined purchase, and more fees for loading money to the card, for failing to use the card frequently enough, and on and on. Money transfer companies, both online and storefront, are similarly diverse in fee rates and nearly as unregulated.

We strongly warn against partnering with for-profit companies that sell payment platforms including prepaid cards and money transfer services, such as Jackson Hewitt, which target the unbanked and under-banked population to sell unregulated financial products. Such companies would necessarily have their fee generated revenue interests above the long-term interests of customers they target.

In fact, Jackson Hewitt, among others, were famously spurned by the IRS for selling expensive Refund Anticipation Loans that would cost lower income families, including those qualified for Earned Income Tax Deductions, hundreds of unnecessary fees. We strongly condemn those practices and ask that you not provide these companies with yet another opportunity to fleece lower income customers in the guise of a needed service.

Partner Instead with Reputable Non-Profit Organizations that will Provide Safe and Affordable Services.

We urge you to partner with non-profit enrollment assisters that specialize in providing financial management services to the unbanked and under-banked population, such as choosing safe and affordable financial tools, help opening bank accounts, and free tax-time assistance through the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs.

We also join the Assets and Opportunity Network at the Corporation for Enterprise Development to ask that you consider additional changes to the payment process that will help facilitate timely payment especially for low-wage workers and the unbanked and under-banked consumers. These can include:

  • Deductions from paychecks: Automatic withdrawals from payroll help facilitate on-time payment. Similar to retirement savings or social security deductions, payroll deductions for insurance purchased on the exchange will ensure regular on-time payments, and should be an option.
  • Ability to pay in advance: If open enrollment in states across the country were aligned with tax time, consumers could pay for their premiums via their tax return. CMS should work with the Department of the Treasury to explore mechanisms for streamlining payments through resources consumers receive at tax time. Many Volunteer Income Tax Assistance (VITA) sites work with the unbanked population and can facilitate community outreach for this payment option.
  • Use of navigators: Navigators should be required to provide payment information to each consumer who is purchasing health insurance via the Marketplace. Navigators can be key ambassadors of this information. We recommend creating FAQs on payment options for this formerly uninsured population.
  • Website development: Each state will have either its own website or they will be referring people to the federal website to access the Marketplace. Payment information should be provided on the website and should be sent to consumers via email or traditional mail upon purchasing their insurance. Given that immigrants make up a significant percentage of the unbanked community, this information should be accessible in a variety of languages.

With great appreciation for the hard work of providing health insurance for all families, we thank you for the opportunity to submit these comments.

Sincerely,

Andrea Luquetta
Policy Advocate
California Reinvestment Coalition