Lawmakers, regulators, and bankers should look closely at the 17 conditions the Office of Thrift Supervision imposed before allowing Travelers Group to charter a federal thrift. The Nov. 24 approval order provides a model for Community Reinvestment Act enforcement and financial modernization legislation.

Two aspects are particularly significant.

First, the OTS' finding that the Community Redevelopment Act applies to Travelers' activities not only where it takes deposits, but everywhere it lends, is a positive new precedent for the proliferating group of virtual and non-traditional banks.

Community groups for years have questioned how nationwide lenders like Chase Manhattan Corp. can legitimately limit their CRA assessment areas to the communities in which they take deposits. Both the Federal Reserve Board and the Office of the Comptroller of the Currency have upheld narrow CRA assessment areas for nationwide lenders.

Second, the OTS required Travelers Federal Savings Bank's affiliate finance company, Primerica, to inform "all customers, particularly those who have applied for high loan-to-value ratio loans" of other financing options available to them at the new thrift.

From the early-1990s controversy surrounding Fleet Finance to today's disputes about NationsCredit and Banc One Financial Services, community groups have demanded that low- and moderate-income people, and people of color, not only be referred down from the bank to its subprime affiliate but, in appropriate circumstances, be referred up from the finance company to the bank.

Technically, the OTS has no supervisory jurisdiction over Primerica. It is an affiliate, not a subsidiary, of the new Travelers Federal, and Travelers Group's Commercial Credit Holdings Inc. is a unitary thrift holding company, putting its other subsidiaries beyond OTS regulation. But because Primerica sells mortgages "manufactured" and underwritten by the real estate lending operation that will be housed in the thrift, the OTS has asserted jurisdiction, and Travelers has consented to it.

The OTS in coming months will be ruling on similar thrift charter applications from other insurers including State Farm, Nationwide, and AIG, and from nonfinancial companies like Archer-Daniel-Midlands and Hillenbrand Industries, a casket maker.

It seems that the Travelers order will serve as a model for assessing those still-pending applications.

The Comptroller's Office has an opportunity to confront these issues in, for example, NationsBank's application to do real estate development in an operating subsidiary. NationsBank's application did not even mention, much less argue, that the new powers it seeks would benefit low- and moderate- income people.

Similarly, though the OTS imposed fair-lending and disclosure conditions on Travelers Federal's request to do nonbank home equity lending nationwide, the OCC allows national banks to acquire and engage in subprime lending without any such requirements, much less an application. For example, earlier this year a KeyCorp unit bought Champion Mortgage, a large subprime home equity lender, with only "post-consummation notice" to the agency. Champion, which has retained its name as an operating subsidiary of Key Bank USA, now lends in a dozen states, but it is not subject to CRA oversight and has made no lending commitment to low- and moderate-income borrowers.

The OCC explains that if this home equity lending is put in a subsidiary of a bank rather than in the bank itself, the CRA cannot be applied to the lending.

The OTS, on the other hand, not only applied the CRA to all of Travelers Federal's lending, but also informed me that the same conditions would have been imposed if Travelers had proposed to shift its home equity lending to a subsidiary of its thrift rather than keep it in the thrift itself.

Many community groups oppose the financial modernization bill that almost passed the House this year and will be reconsidered when Congress reconvenes in January. The legislation would marginalize the CRA by applying it to the deposit-taking subsidiaries of a financial services holding company, pushing more and more of the assets and business of such conglomerates into non-deposit taking subsidiaries.

The Comptroller's Office argues that by allowing new activities in operating subsidiaries of national banks, at least the agency will be able to consider these assets in defining the performance context of the bank.

But the OCC has still refused to hold that the CRA applies to such operating subsidiaries, and the performance context hook is illusory, given that the agency this year has rated less than 1% of the banks it regulates below "satisfactory" on the CRA. The OTS' Travelers ruling should provide a model for the protections needed if the walls between insurance, securities, and banking are to come down. Banks and their affiliates should be subject to the CRA wherever they lend, and not only where they house their deposits.

Prospective customers of financial conglomerates should be informed of the lowest-cost financial options available at any affiliate of the conglomerate.

And finally, lending commitments to low- and moderate-income people should be required, monitored, and enforced by regulators.

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