Ron Paul Dear Colleague on New Approach for Community Reinvestment
Ron Paul Dear Colleague on New Approach for Community Reinvestment
March 9, 1998
(J. Bradley Jansen was Ron Paul’s legislative staffer for these issues at this time)
Which Works Better:
Government Regulations or Tax Incentives?
Let’s Try a New Approach for Community Reinvestment!
March 9, 1998
Dear Colleague,
The Community Reinvestment Act (CRA) was passed in 1977 without so much as a hearing in the House of Representatives. CRA carries a noble purpose: to end discrimination among banks with regards to the loans they make. The act focused on credit exploitation, whereby money was taken from a low-income community in the form of deposits but lent to borrowers outside of the community. Irrelevant of where a loan is made, a bank is providing a valuable service by providing interest and safekeeping to a depositor.
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The annual cost for complying with just 13 of the many federal regulations community banks face was $3.2 billion in 1993 according to a study conducted by the Independent Bankers Association of America in 1993. This figure means that they spent a staggering 24 %of net income before taxes to comply with a fraction of the rules that govern the industry. The study identifies the CRA as the most burdensome regulation.
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CRA compliance imposes costs on community banks of approximately $1 billion and approximately 14.4 million employee hours. All of these costs are money and manpower diverted from the cause of community development.
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CRA imposes a disproportionately heavy regulatory burden on small banks as full interstate banking becomes a reality. Individual branches of larger banks may never see a CRA examiner. Community banks, in contrast, see an examiner in each investigation cycle. This cannot be interpreted as anything less than a competitive advantage for large banks.
Stop punishing community banks with regulation, reward them with tax incentives.
To cosponsor HR 1121 and repeal CRA, call Bradley at 5-2831.
Sincerely,
Ron Paul