It's the season for making New Year's resolutions, and ranking high on the list for executives al consumer finance companies is a vow to combat proposals for extending community reinvestment standards to nonbanks.
Applying bank-like regulations to finance, mortgage, and other companies that provide consumer credit products is a notion that gained favor among politicians and government officials this year.
While the issue has only been talked about, observers expect it to gain more attention in Washington next year.
|Need to Do Some Educating'
The nonbank sector of the financial services industry is gearing up for battle.
"We need to do some educating," says Jeffrey Tassey, senior vice president and head of government and legal affairs for the American Financial Services Association, whose 350 members include the largest consumer finance companies in the country such as General Motors Acceptance Corp. and General Electric Capital Corp.
"We'll commit whatever, resources necessary to fight any attempts to make structural changes to our industry or impose bank-like rules on finance companies."
Mr. Tassey said the industry group is working with consulting firms and academicians to build legal arguments and create white papers arguing against the imposition of Community Reinvestment Act-type laws on nonbanks.
In a nutshell, finance company executives believe their firms should not be subject to CRA laws - which require banks with state or federal charters to make loans in low-income and moderate-income neighborhoods - because those firms do not accept deposits, borrow funds from the Federal Reserve, or have charters to serve communities.
Consumer credit firms like Household International Inc. and Beneficial Corp. make personal, home equity, and mortgage loans that carry high interest rates to consumers, most of whom have low and moderate incomes and don't qualify for bank loans.
Imposing CRA regulations on these companies would be overkill, say industry executives.
"We do a better job lending to minorities than banks do," says Finn M.W. Caspersen, president and chief executive officer at Beneficial Corp.
But politicians are talking up the idea of CRA regulations for nonbanks. Mutual fund, insurance, finance, mortgage, and auto finance companies - along with credit unions - now play such a huge rule in the nation's financial services system that some observers believe they should not be exempt from the CRA.
The argument first surfaced in a paper published by the Economic Policy Institute in Washington earlier this year.
Newman Set Off Alarms
Frank Newman, Treasury under secretary for domestic finance, later set off alarms among finance companies when he suggested that bank-like CRA laws should be extended to nonbanks. Henry B. Gonzalez, D-Tex., chairman of the House Banking Committee, also supports the idea.
Not surprisingly, bankers are in favor of more regulation for nonbanks.
"They don't know what they're missing," quips William F. Roemer, chairman and chief executive officer at Integra Financial Corp., a Pittsburgh-based regional bank with a large consumer business. "They should not be exempt."
Such talk has caused many finance company executives to put the topic high on their list of worries in 1994. Many are studying the issue, rather than taking any specific action.
"We're looking at this as is everyone else," said Ann Canfield, head of government relations at GE Capital, the nation's leading finance company with $9.6 billion in capital funds.
Mr. Tassey said his trade group is taking a wait-and-see approach before launching a full-scale lobbying effort. But he believes the issue could well be the subject of hearings or new legislation in 1994.
"It's going to get a lot more attention in the next session of Congress," said Mr. Tassey.
Some industry executives believe that it may be too late for lobbying. Robert Elliott, group executive in charge of U.S. consumer business at Household International, thinks that the application of CRA-type regulations to nonbanks is inevitable, and the time to begin planning for it is now.
"I anticipate that it will come," said Mr. Elliott in a recent interview. "I don't think it's appropriate, but I believe that some form of CRA-type laws cannot be avoided."
Mr. Elliott believes companies like Household will eventually be required to prove that they are investing in the communities where they operate, much the same way banks do, in order to achieve a rating from regulatory agencies.
With this in mind, Household is beginning to build a war chest of programs and internal documents that will "put us on the side of the angels" when the time comes, said Mr. Elliott.
Without getting into specifics, he said the company is keeping records of its low-income and moderate-income lending practices and community affairs initiatives that would count on a CRA tabulation program.
Household, the nation's seventh largest nonbank finance company with $2.27 billion in capital funds, recently put someone in charge of community reinvestment activities, a new post at the company.
Ella R. Gray, an eight-year Household veteran who has served in a variety of customer service-related posts was named head of community relations in mid-1993.