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Investment help for struggling communities is Clinton priority.

Concerted efforts are underway to increase private investment, in blighted communities.

President Clinton heightened attention to the need to spur private investment into blighted areas, when he proposed the creation of community development banks during his campaign. Based on the South Shore Bank in Chicago, the idea was to create community development banks that would leverage private investment into economic development activity and small business lending in low income communities.

While he had to scale back on his initial goal of creating 100 of these banks, the administration did introduce proposals that would create community development financial institutions (CDFIs). The proposal would build on existing models of CDFIs to leverage private investment into these areas. Congress has yet to act on this proposal yet this year, however, action is expected next year.

This high profile emphasis on revitalizing impoverished areas has led to a number other initiatives that could prove beneficial to communities.

Comptroller of the Currency Eugene Ludwig has made it clear that he will aggressively peruse efforts to eliminate redlining and strengthen the Community Reinvestment Act (CRA). Redlining is the practice of denying certain communities from receiving services based on race and/or geographic area. CRA is a means of battling redlining by requiring banks to reinvest within the communities they serve.

Ludwig has mentioned possibly imposing civil penalties on banks that don't comply with CRA as an approach to dealing with redlining. Ludwig will also explore revising the CRA compliance review to focus more on a bank's performance.

The criticism of CRA is that it is a paper tiger that poorly measures a bank's performance. Bankers say CRA saddles them with needless paperwork and doesn't recognize the actual work they are doing.

The disclosure provisions in Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) provided some teeth to CRA. The disclosure provision required banks to disclosed their lending practices, specifically information on loans by race, gender, and income characteristics.

For some advocates these provisions are not enough. CRA is still considered by some to be too lenient.

Former NLC President and current Secretary of the Department of Housing and Urban Development (HUD) Henry Cisneros has decried racism and its impact in segregating minorities into certain areas of cities. He has targeted CRA and fair housing as two principle areas of concern he will pursue as secretary of HUD.

Assistant Secretary for Fair Housing and Equal Opportunity Roberta Achtenberg is pursuing a strategy that incorporate an metropolitan-wide approach to the problem of spatial segregation by race and income in communities receiving HUD funding. Enforcing fair housing laws is one way Cisneros believes will create increased economic opportunities for low income individuals and households.

Interstate branching proposals have been submitted that will allow banks to set up branches in other state without creating a separate holding company within that state.

Based on the proposal that is finally adopted, communities could see an increase in financial services offered or a net decrease in certain communities.

Finally, Congress is considering two proposals that will alter how insurance companies collect data. The House Energy and Commerce Committee approved an anti-redlining bill, H.R. 1188, the Anti-Redlining in Insurance Disclosure Act, that attempts to address insurance redlining.

As approved, the bill would:

* require large insurance companies to submit annual reports to the Commerce Department on the sale of automobile and property insurance policies, broken down by zip code, in the nation's 235 largest metropolitan areas.

* require Commerce to conduct a study on whether these reporting requirements should be extended to include commercial and small-business insurance.

* Sunset after five years also the Secretary of Commerce may extend the law for an additional two year.

The bill differs from an anti-redlining bill that was approved by the House Banking, Housing and Urban Affairs Committee. The House marked up H.R. 1257, the Insurance Consumer Protection Act, on September 22, sponsored by Rep Joseph Kennedy (D-MA). It seeks to provide a data base to document the availability, cost and quality of automobile, homeowner and small business insurance by race and income profile of neighborhoods.

The bill is modeled after the Home Mortgage Disclosure Act (HMDA) which requires mortgage lenders to disclose where their policies are being issued.

Included in the bill are the following provisions important to cities:

* It calls for the collection of data by census tract versus zip code. Zip codes can encompass significantly larger areas than census tracts and thus hide discriminatory lending practices.

* It requires the full disclosure of losses on a census tract by census tract basis. There are disparities in the price of insurance in different neighborhoods. This provisions will help identify if these disparities in cost reflect real claims experience or unfounded prejudices.

* It calls for the collection of data in the largest metropolitan statistical areas (MSAs) and in rural areas. The bill requires the collection of data in the 150 largest MSA's and in rural areas. There was some effort to limit the number of areas to between 25 to 50 but that was defeated.

* It requires the disclosure of investments made, including loans issued and purchased, that benefit low income areas by insurance companies. Fannie Mae and Freddie Mac among others currently disclose this data.

* The bill also provides consumers with the right to know the reasons for the cancellation, rejection or non-renewal of their policy.
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Author:Barreto, Julio
Publication:Nation's Cities Weekly
Date:Nov 15, 1993
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