Jim Bliesner, chief executive of the City/County Reinvestment Task Force, says the Community Reinvestment Act has made progress in opening bank drawers to low-income areas. (photo/alandeckerphoto.com)

Taken a little more seriously in San Diego than some other markets, the Community Reinvestment Act (CRA) was passed by Congress in 1977 to encourage banks to make loans to businesses and individuals in low-to-moderate income areas.

The CRA requires periodic evaluations of big bank’s data to see if the bank is meeting a community’s borrowing needs. These needs might include loans to small business, mortgages for low-income residents, investments in affordable housing or community development and corporate giving for housing and development-related nonprofits.

In fact, donating or lending funds to almost any project within a designated redevelopment district, including the San Diego Children’s Museum, meets the urban renewal goals of the CRA.

Taking CRA a step farther, San Diego hosts the City/County Reinvestment Task Force, a group of banking, government, real estate and community development experts who monitor banks’ CRA activity. City Councilman Tony Young and county Supervisor Ron Roberts co-chair the task force. Members include Scott Kessler, CEO of the Business Improvement District Council; Lynn Hastings, a residential real estate investor; Jim Schmidt, former chief counsel of the late Great American Bank; Robert Adelizzi, former president of the old HomeFed Bank; Wendell French, community development manager for Wells Fargo Bank; Marco Polo Cortes, entrepreneur and adviser to National City Mayor Nick Inzunza; Gordon Boerner, vice president of San Diego National Bank; Arturo Rivera, corporate affairs manager, Washington Mutual Bank; Joseph Horiye, program director of San Diego’s Local Initiatives Support Corp.; Alfred Arguello of Bank of America; and Robert McNeely, senior vice president of Union Bank of California.

Jim Bliesner is the chief executive of the task force. He meets with task force members and lenders to prod them to do more lending in low-income areas. He can issue progress reports to the media and is authorized to comment on banks’ progress to regulators. Banks subject to the CRA are monitored by the Office of the Comptroller of Currency, the Office of Thrift Supervision, the Federal Reserve System or the Federal Deposit Insurance Corp.

“I don’t have any regulatory authority,” says Bliesner. His job is to point out to banks the importance of investing in low-to-moderate income areas. The task force has non-binding agreements with nine lenders who lead the region in deposits to put more money into low-income areas. Bliesner also can comment on a bank’s lending practices to regulators when the bank wants to acquire or merge.

For instance, Bliesner says he got Citibank to commit to certain CRA lending activity during its acquisition of Cal Fed in 2001 by complaining about how it approached consumers in Los Angeles.

As a practical matter, banks with assets below $250 million are virtually exempt from CRA, or operate below the radar screen. Banks with more than $250 million but not in the top nine typically do not have agreements with Bliesner.

Despite the lack of teeth in this paper chase, CRA has made progress in opening bank drawers to low-income areas. Total county reinvestment volume is up from $175 million in 1993 to about $2.7 billion in 2003, Bliesner says. After all, “inclusive” and “diverse” are part of the lexicon and nobody wants to be called a Scrooge in the event of a major merger.

“They’re making progress,” Bliesner says. “The banks have learned that investing in low-income neighborhoods returns a profit.”

CRA was passed in large part to discourage redlining, the practice of routinely denying loans to potential borrowers because they live in low-income census tracts. While redlining has ebbed, Bliesner says, “what happens in a lot of cases, the big banks are being edged out by ‘subprime’ lending products that carry higher interest rates and steeper penalties.” In some cases, Bliesner says, subprimes are companies related to major banks. Wells Fargo Financial, Bliesner says, is a subprime lender.

Well, yes, says Chuck Lemoine, senior vice president for Wells Fargo in San Diego. “Wells Fargo Financial is a fair and responsible lender that is committed to making high-quality financial services available to consumers on a fair, consistent and well-informed basis,” says Lemoine. “Our lending principles do not tolerate discrimination against, or unfair treatment of, any consumer.”

Lemoine describes Wells Fargo Financial, a unit of Wells Fargo & Co., as a $36 billion company providing consumer installment and home equity lending, automobile financing, consumer and private-label credit cards and commercial services to consumers and businesses serving primarily the nonprime market throughout the U.S., Canada, the Caribbean, Latin America and the Pacific Rim.

“Wells Fargo Financial prices all loans consistent with the financial risk involved, assessing the customer’s financial situation and credit history, the property involved, and the type of loan the customer chooses,” says Lemoine. “Among the services Wells Fargo Financial provides is helping borrowers consolidate debt through real estate-secured loans to help them better manage their finances. Pricing for all our consumer loans is risk-based, just like pricing for insurance; loans with greater risk are priced higher. We make loans to customers of all income levels who may not otherwise have access to credit.”

Banks with agreements with the City/County Reinvestment Task Force are not pledged to invest a specific amount, and all banks do not invest equally. Banks with agreements in San Diego include Bank of America, Washington Mutual, Wells Fargo, Union Bank, California Bank & Trust, US Bank, San Diego National Bank, Citibank and Comerica.

2003 CRA Activity in San Diego The CRA Amount increased by $815 million (44%) over 2002. The % of Deposit increased by 2% over 2002.

Of these, WaMu, No. 2 in San Diego deposit market share, led the pack in 2003 with about $848 million or 13 percent of deposits invested in CRA activity. SDNB, headquartered here, pitched in $152 million, or 9 percent of deposits. Wells Fargo invested 8 percent of deposits, and BofA and Union Bank hovered at around 5 percent of deposits.

Wells Fargo, for one, cautions that Bliesner’s figures include activity of Wells Fargo Bank, but not the activity of its other units that are meeting CRA needs and goals.

Bliesner claims the Bank of America and Union Bank figures are indicative of “poor performance” overall and that a bank may show well in one area of measurement and poorly in another.

“Each of the agreements he may have will be different based on the expertise of the institution,” says Robert McNeely, corporate community development chairman at Union Bank. “We’re a small business lending bank, so we’ll have a stronger expertise there.” In affordable housing, Union has less influence than housing lenders like Washington Mutual, McNeely says. Nevertheless, he says, Union is meeting agreements it made with Bliesner.

Conversely, because Washington Mutual is a savings bank evolved from a savings-and-loan, it can be expected to lag in making small business loans. However, Bank of America was below 2 percent of deposits in making 2003 small business loans, which may be at odds with its advertising touting its small-business lending. Bank of America is tops in deposit market share, but lagged its major competitors in making mortgage loans in low-and-moderate census tracts in 2003.

2003 CRA Loans as % of 2003 Deposits

Ever since Bank of America moved its headquarters out of California, following a 1998 merger with North Carolina-based Nation’s Bank, its CRA performance has suffered, says Bliesner. “They’re leaving low-income neighborhoods alone,” he says. “They don’t get it; they don’t want to get it. (Low-income lending) is no longer part of their philosophy.”

Angie Lucero, San Diego-based community development market manager at Bank of America, denies Bliesner’s assertion. “I think the report he provided for the City Council speaks for itself,” Lucero says. “What I can tell you is our numbers are good numbers. There’s always room for improvement and we are consistently growing the numbers. We have an aggressive plan and we are working toward meeting that plan.” Lucero says Bank of America has committed $750 billion nationally in a 10-year community development program that kicked off in January.

Bliesner also was critical of community banks that do not have CRA agreements. “We have asked these institutions to state what they intend to do in CRA in San Diego, and they have not done so,” he says.

Though credit unions are nonprofits, Bliesner says they act like banks and should not be exempt from the CRA. “They are abusing their status as nonprofits,” he says.

Not surprisingly, credit unions take issue with this charge. “When the CRA regulation was implemented, it was because of redlining by banks,” says Geri Dillingham of the San Diego Credit Union Alliance. “The issue of credit unions was brought up and was set aside; this was a bank issue. And it’s not an issue for credit unions now. We’re committed to the spirit of the CRA.”

With the Small Business Administration touting small business lending at an all-time high and federal housing officials waving reports showing home ownership at record levels, it appears that low-income areas are being well served by lenders and the CRA.

But the task force director says the picture is distorted. “Due to subprime lenders, this market is going to come home to roost” like proverbial chickens, Bliesner warns. “There are a lot of people getting in over their heads with zero down, making only interest payments on adjustable rate mortgages, and with severe penalties for nonpayment so you lose the house quicker.”