WASHINGTON - An industry trade group has launched a preemptive strike against efforts to extend community reinvestment requirements to finance companies.
The American Financial Services Association, which represents such companies, released a report last week indicating that further regulation would force them to reduce their presence in low-income areas.
"It would inhibit innovation, limit customer choice, increase customer costs, and be a costly and counterproductive public policy," said Cynthia A. Glassman, a managing director at Furash & Co. and the study's author.
Association president Randy Lively said the group fears Congress will extend Community Reinvestment Act mandates as part of its effort to modernize the financial services industry.
Extending CRA, however, is unnecessary because most finance companies already meet their communities' credit needs, Ms. Glassman said. "The regulation simply would raise their costs," she said.
And higher costs would force those companies out of many neighborhoods where their lending is just barely profitable, she said.
Loan sharks would pick up the business that finance companies leave behind, said George J. Benston, an Emory University professor who reviewed the paper.
"The people presumably being helped will be hurt," Mr. Benston said.
John Hamilton, a housing activist and president of Community First Inc., said finance companies may have a point. Activists need data on finance company lending activities, he said, rather than paper-intensive regulatory requirements.
"I think we have learned from (the Home Mortgage Disclosure Act) the power of the disclosure of information and the importance to the community to learn the details," he said.
Ms. Glassman said her research found that finance companies - such as General Motors Acceptance Corp. and Household Finance - serve a more blue- collar population than do banks.
For example, finance company customers have a median income of $32,000, more than 20% lower than the average bank borrower. Also, 30% of finance company customers are members of minority groups, compared with 13.5% of bank borrowers. And twice as many finance company customers do not have checking accounts.
Ms. Glassman also wrote that finance companies rely on the capital markets for their financing, rather than government-insured deposits. So a finance company's failure can't hurt its customers or the government, she said.