Ots Chief Urges Thrifts: Use CRA To Get Customers

WASHINGTON - The way Office of Thrift Supervision Director Ellen Seidman sees it, the Community Reinvestment Act is not merely a legal requirement, it is the future of community banking.

To survive in an ever-consolidating industry, she said in an interview, thrifts must reach out to the customers that CRA targets - lower-income people, minority group members, immigrants, and those living in rural America or on Indian triba lands.

CRA lending is "not just to put a loan on your books, it is to put a customer in your lobby," Ms. Seidman said. "These are the beginnings of financial relationships."

Thrifts may need to use unconventional means such as branches in Wal-Mart stores, she said, to reach these customers who "are people who would not be comfortable coming into their classic Greek Revival building on Main Street but feel comfortable talking to them in Wal-Mart."

Roughly two years into her five-year term as OTS chief, Ms. Seidman is traveling the country to help thrift executives reach underserved communities. "I can't tell you the number of town meetings where we have this discussion on 'how do I find new customers?' " she said. "We have the whole discussion, and the word 'CRA' is not mentioned at all, or only at the very end."

Though the financial reform law enacted Nov. 12 extends the CRA exam cycle to five years for small banks and thrifts with "satisfactory" or better ratings, Ms. Seidman warned these institutions against ignoring community reinvestment until the year before their exam.

"You don't just stop and start these programs," she said. "Since they still have the CRA obligation, they've got to figure out some way not to have this roller-coaster kind of experience."

Because the OTS considers the CRA an avenue to new customers, the agency's community affairs division has held 530 meetings with thrifts, local governments, and community groups this year. That's up from 370 meetings last year.

Ms. Seidman, 51, has been at the table for these meetings in several communities, including small towns such as Marion, S.C., and cities such as Memphis, New Orleans, and Syracuse, N.Y.

Government officials can ease the way to understanding among lenders and community advocates.

"We do a lot of education for both the institutions and the community groups to try to make sure everybody knows what the rules are but also everybody understands what the opportunities are," Ms. Seidman added.

As an example, she cited an OTS official who advised a New England community group against asking a $60 million-asset institution for a $20,000 grant, explaining that this amount is roughly one-third of the institution's annual profits. "It's those kinds of discussions, making sure that everybody's expectations are consistent," she said.

Typically, community reinvestment lending involves several layers of financing - involving lenders, government programs, and nonprofit development corporations. Sonja White, national community affairs coordinator at the OTS, said the agency helps thrifts figure out where they fit.

"It's getting institutions to understand that there is a role that they can play; they don't have to play the whole role," she said. "We can provide contacts and networks, and we can provide information and access to programs."

For instance, some thrifts are using a new Department of Agriculture program to make loans with government guarantees. "They are not in the first-loss position," Ms. Seidman said. "I can't think of a safer loan."

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