The Federal Reserve is holding public hearings in three cities across the country to review Capital One's proposed purchase of ING Direct. The hearings to be held in San Francisco are half a continent away from the nearest branches of what may become America's fifth largest bank. Without branches, the bank's responsibility to California cities and counties is not clear under regulators' current interpretation of the federal Community Reinvestment Act.

CRA regulations have been under review by the federal regulators for several years. One of the key issues being considered is whether financial institutions have community responsibility where they do significant lending or take significant deposits even though they have no branches in that area. This proposed merger is a test case for the regulators on this issue.           

Capital One is the fourth largest credit card lender and the largest internet auto lender in the United States, as well as a mortgage lender. It has no branches west of Texas.

Amazingly, California may be the state where the two financial institutions do the most business and gain the most revenue. Both banks take a significant amount of deposits from Californians and make considerable profit from their lending here.

Based on regulatory filings, roughly 12 percent of Capital One's consumer credit card and 14 percent of its business lending are done in this state. Capital One gets more consumer credit card and business customers in California than in any other state. And Californians are the second largest source of Capital One's auto lending customers.

ING Direct is the country's biggest Internet bank. It holds more than $82 billion in deposits from across the United States in its one branch in the state of Delaware. Californians are 12 percent of the U.S. population and it is likely that they are at least 12 percent of ING's deposits. It has one "cafe" in California, which offers Internet access to ING Direct's website and coffee and pastries.

A 2008 performance evaluation from the Office of Thrift Supervision stated ING self-identified fourteen U.S. metropolitan areas, including five in California, where the bank assumed community responsibilities despite the lack of branches. It appears that there was no follow-up by the regulator as ING's California mortgage lending reached fewer lower-income borrowers than the industry as a whole.

Capital One and ING Direct made a combined profit last year of $1.7 billion and did virtually no reinvestment in California. It is likely that at least $204 million of that (12%) came from Californians and would have otherwise been on the financial statements of California banks. In addition, California Reinvestment Coalition's review of Capital One and ING's mortgage and small business lending found it largely ignored lower-income people and their neighborhoods. Numerous studies have shown that financial institutions only serve entire communities, including lower income neighborhoods, if they have CRA responsibility.

In 1977, when CRA was passed by Congress, banks conducted business from their branches. Now, community banks must compete with Capital One, ING Direct and the like for customers near their branches. The regulators' decision not to require Capital One and ING Direct to have community reinvestment responsibility in the communities from which they profit harms California financial institutions and consumers alike. Given the intent of the statute, it is illogical for some financial institutions to take deposits from virtual branches and make millions in loans but have no reciprocal responsibility to consumers because they have no local branches.

More than sixty Californians as well as Congress representatives Bob Filner, Barbara Lee and Maxine Waters took the time to contact the Federal Reserve requesting the now-scheduled hearings and expressing concerns about the merger and lack of community reinvestment. It is likely that this community response assisted the decision to hold hearings in San Francisco. In addition, groups across the country contacted the Federal Reserve on this merger application with the assistance of the National Community Reinvestment Coalition and many other groups.

We hope that the Federal Reserve will not allow the creation of another "too big to fail" bank without community responsibilities in the states from which its profits come.

Whatever the outcome, these two banks are poster children for the absolute necessity for financial institutions to have community responsibility where they do significant business.

CRA needs to change to reflect how business is done in today's banking system; this proposed merger starkly illustrates that need.

Alan Fisher is the executive director of the California Reinvestment Coalition.