Small Business Issues
November 16, 1999
New Financial Modernization Law Cripples Community Reinvestment
By Ralph Nader
Friday, November 5, 1999; Page A33
"All in all, I think we hit the jackpot," President Ronald Reagan told a
Rose Garden audience of congressmen and lobbyists celebrating the
deregulation of the savings and loan industry on Oct. 15, 1982.
Less than seven years later, a somewhat red-faced Congress was forced to
adopt a massive package of reforms and launch a huge taxpayer bailout to
correct the failed deregulation scheme.
Now Congress is icing down the champagne again in anticipation of the
signing of a new and much more grandiose deregulation package, this time of
the entire financial services industry--combining banks, securities firms
and insurance companies (and in some cases, nonfinancial corporations)
under common ownership in soon-to-be trillion-dollar conglomerates. In the
process, Congress is creating a financial system designed for the affluent
customer in which low- and moderate-income families and small businesses
will face less access, fewer choices and higher fees.
Congress is wading into the deregulation swamp in good economic times with
a roaring stock market and quarter after quarter of record financial
profits--the worst possible time to ask Congress, with its short-term
memory, to make tough decisions against the wishes of the industry. Amid
the economic euphoria, it is little wonder that warnings about the safety
and soundness of financial institutions, inadequate deposit insurance
reserves and the weaknesses of an uncoordinated, overlapping and outmoded
regulatory system are greeted with legislative yawns.
A study released by the Federal Deposit Insurance Corp. (FDIC) last month
found that consolidation in the banking industry just between the years of
1970 and 1997 had "increased the risk of insurance fund insolvency by 50
percent." The report warned that the risk had increased further during the
past two years.
The risk of insolvency is "becoming inseparable from the health of the 25
largest banking organizations which control 54.5 percent of the assets,"
the FDIC researchers found. These are the very institutions that will be
combined with insurance companies and securities firms in the new,
But that wasn't the kind of testimony sought by the House and Senate
banking committees, which instead used the hearings largely for the purpose
of painting simplistic rosy scenarios and providing a platform for the
corporate executives, lobbyists and campaign donors to promote the legislation.
Congress took a harsh and often mean-spirited view of efforts to provide
consumer and community protections that could keep pace with the vast
changes the legislation creates in the financial system.
At critical points, Congress caved to Senate Banking Committee Chairman
Phil Gramm, who has conducted a long, vitriolic attack on the Community
Reinvestment Act and the low- and moderate-income and minority citizens who
organize community organizations.
As a result the Community Reinvestment Act was weakened, with most banks
being exempted from its examinations for periods of four to five years,
sharply diminishing the ability of regulators to monitor community-lending
performance or seek remedial action. An effort by Rep. Maxine Waters to
establish machinery for basic bank accounts for low- income citizens was
At Gramm's insistence, so-called "sunshine" language was adopted, which
singles out community organizations for special government surveillance of
their agreements with banks--an effort to intimidate community
organizations from testifying, commenting on or filing protests about
community lending and to discourage banks from entering into agreements
that strengthen community lending.
The privacy protections that emerged in the banking reform legislation are
a joke that will simply delude the public into believing privacy provisions
exist where there are none. As a result, the affiliates of the
conglomerates and their telemarketers will be free to share many intimate
details of an individual's buying habits, investing patterns, health
records, entertainment choices, employment data and other aspects of one's
As an added slap at consumers, the bill incorporates overly broad and
unnecessary preemption of state laws as they apply to financial products
offered under the provisions of the legislation. This will nullify efforts
to enact state consumer protection laws--something that has raised the ire
of state attorneys general.
The banking legislation is deeply flawed and clearly anti-consumer and
anti-community. The president should have the courage to use the veto pen
on this one.
The writer is founder of Public Citizen.
© Copyright 1999 The Washington Post Company
Small Enterprise Capital Access Partnership [SECAP] Begins
SECAP is an initiative of the Federal Reserve
Bank of Chicago, established with the goal of
improving access to credit and related resources
by historically underserved small business
owners. SECAP will involve a voluntary
collaborative of various stakeholders in the
small business arena, including lenders,
community-based organizations (CBO's), technical
assistance providers, government organizations,
trade associations, academic researchers and
potentially others. SECAP will assess the
small business environment with the aim of
identifying the greatest challenges for minority
owned, women-owned and other businesses with
historically limited access to credit.
It is SECAP's charge to reach recommendations
for changes or modifications to policies and
practices that serve as barriers to credit
access, to be instrumental in creating new
resources where necessary, and to involve the
appropriate organizations and individuals to
bring the necessary resources to the table.
There are four key areas that this group will be
addressing, 1) Underwriting, 2) Marketing &
Delivery of Financial Products, 3) Equity
Investments, 4) Pre & Post Investment Technical
Illinois State Microenterprise Initiative [ISMI] Takes Flight
Founded November 1995
ISMI is a coalition of service providers,
financial institutions, and state, local and
private agencies. Its mission is to provide an
organized voice to advocate for community
economic empowerment and to create growth
opportunities in microenterprise development.
- Develop a comprehensive public policy agenda
that promotes microenterprise as a viable
economic development alternative, especially for
communities with limited access to resources.
- Develop a mechanism for microenterprise
assistance organizations, service providers, and
community-based organizations to address the
resource needs of microenterprise development
- Build a network to exchange information on
best practices, emerging issues, and funding
opportunities among microenterprise
organizations in Illinois.
- To date ISMI has accumulated more than 40
paid members and has a mailing list of more
than 60 additional supporters.
- Drafted and advocated on behalf of the
Micro-enterprise and Self-employment Act that
passed both houses of the Illinois General
Assembly Summer of 1999.
- Publish a quarterly newsletter: Illinois
Microenterprise News, and two publications:
The Directory of Microenterprise Development
Organizations and Services, and Expanding
Opportunities: The State of Microenterprise in
- Served as local hosts of the 1999
Association for Enterprise Opportunity
National Training Conference and Meeting.
- Hosted the 1998 ISMI Policy Conference in
ISMI's Board of Directors:
- Debra Osborn, Community Economic
Development Law Project: Board Chair
- Freida Schreck, Lincoln Land Community
College, Small Business Development Center:
- Darlene Knipe, University of Illinois
Extension; Second Chair
- Alva Hall, Community Economic Development
Association: Third Chair
- Steven McCullough, Chicago Association of
Neighborhood Planning Organizations:
- Caroline Goldstein, Bank One: Treasurer
- Leroy Pacheco, ACCION Chicago
- Charlie Soo, Asian American Small Business
- Thom Moore, Community Collaboration for
- Thomas Ullmann, MicroWorks/Economic
Development Unit, Uptown Hull House
- Michael McMahon, West Cook Community
- Mary Ann Angel, Women's Business
For more information contact: Tamar
Frolichstein-Appel, ISMI Coordinator @ Women's
Self-Employment Project. Phone: (312) 606-8255.
Fax: (312) 606-9215. WSEP, 20 North Clark
Street, Suite 400, Chicago, IL 60602. E-mail:
Two Steps Back: The Dual Mortgage Market,
Predatory Lending, and the Undoing of Community
November 15, 1999
The Woodstock Institute has released a new
report entitled, Two Steps Back: The Dual
Mortgage Market, Predatory Lending, and the
Undoing of Community Development. It describes
predatory mortgage lending, identifies some
possible explanations for its growth in recent
years, quantifies the hyper-segmentation of
refinance lending by neighborhood racial
composition, and calls for a set of policy
changes to curb lending abuses. The study
analyzes refinancel ending in the Chicago area
- In 1998, 58 percent of refinance loans in
predominantly African-American neighborhoods
were made by subprime lenders, compared to
less than 10 percent in predominantly white
neighborhoods. These lenders accounted for 74
percent of applications in black census
tracts, compared to 21 percent in white areas.
- Lending by subprime firms in
African-American neighborhoods grew by almost
30 times from 1993 to 1998, much faster than
the 2.5 times increase in white areas.
Minority tracts overall accounted for 52
percent of the increase in loans by subprime
lenders, despite accounting for only 8 percent
of loans in 1993.
- Of the 20 lenders accounting for the most
applications in white tracts in 1998, 17 were
- Conversely, 18 of the 20 lenders taking
the most applications in African-American
tracts were subprime firms.
The report concludes that the failure of federal
regulators to adapt to fundamental changes in
mortgage lending markets has resulted in a
defacto deregulation of mortgage lending in
minority communities, with non-minority
communities being served by more regulated and
responsible lenders. The report includes a set
of detailed policy recommendations to reduce
predatory lending and to encourage banks and
thrifts to make refinance, home equity and home
improvement loans to minority communities.
For a copy of the report, please send a check
for $12 (nonprofit/government/university) or $25
(for-profit) to Woodstock Institute, 407 S.
Dearborn, Suite 550,Chicago, IL 60605.