Public Comment, CRA Q and A, Capital One Financial Corporation

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Public Comment, CRA Q and A, Capital One Financial Corporation

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Capital One Financial Corporation 1680 Capital One Drive McLean, VA 22102 September 10, 2007 Office of the Comptroller of the currency Ms. Jennifer J. Johnson 250 E Street, S.W. Secretary Mail Stop 1-5 Board of Governors of the Federal Reserve Washington, DC 20219 System thAttention: Docket No. ID OCC-2007-0012 20 Street & Constitution Ave., N.W. Regs.comments@occ.treas.gov Washington, DC 20551 Attention: Docket No. OP-1290 Regs.comments@federalreserve.gov Mr. Robert E. Feldman Regulations Comments Executive Secretary Chief Counsel’s Office Attention: Comments Federal Deposit Office of Thrift Supervision Insurance Corporation 1700 G Street, N.W. th550 17 Street, N.W. Washington, DC 20552 Washington, DC 20429 Attention: ID OTS-2007-0030 RIN 3064-AC97 Regs.comments@ots.treas.gov Comments@FDIC.gov Re: Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment Ladies and Gentlemen: Capital One Financial Corporation (“Capital One”) is pleased to submit comments on the federal banking agencies’ (the “Agencies”) proposed new and revised Interagency Questions and 1 Answers regarding the Community Reinvestment Act (“CRA”).1 72 Fed. Reg. 37922 (July 11, 2007). Capital One Financial Corporation Comment on CRA Questions and Answers Page 2 Capital One Financial Corporation is a financial holding company whose principal subsidiaries, Capital One, N.A., Capital One Bank, and Capital One Auto ...

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Office of the Comptroller of the currency

250 E Street, S.W.

Mail Stop 1-5

Washington, DC 20219

Attention: Docket No. ID OCC-2007-0012

Regs.comments@occ.treas.gov

Ms. Jennifer J. Johnson

Secretary

Board of Governors of the Federal Reserve

System

Street & Constitution Ave., N.W.

Washington, DC 20551

Attention: Docket No. OP-1290

Regs.comments@federalreserve.gov

Regulations Comments

Chief Counsel’s Office

Office of Thrift Supervision

1700 G Street, N.W.

Washington, DC 20552

Attention: ID OTS-2007-0030

Regs.comments@ots.treas.gov

Mr. Robert E. Feldman

Executive Secretary

Attention: Comments Federal Deposit

Insurance Corporation

550 17

Street, N.W.

Washington, DC 20429

RIN 3064-AC97

Comments@FDIC.gov

Re:

Community Reinvestment Act; Interagency Questions and Answers Regarding

Community Reinvestment

Ladies and Gentlemen:

Capital One Financial Corporation (“Capital One”) is pleased to submit comments on the

federal banking agencies’ (the “Agencies”) proposed new and revised Interagency Questions and

Answers regarding the Community Reinvestment Act (“CRA”).

72 Fed. Reg. 37922 (July 11, 2007).

Capital One Financial Corporation

1680 Capital One Drive

McLean, VA 22102

September 10, 2007

Capital One Financial Corporation is a financial holding company whose principal

subsidiaries, Capital One, N.A., Capital One Bank, and Capital One Auto Finance, Inc., offer a

broad spectrum of financial products and services to consumers, small businesses, and

commercial clients. As of June 30, 2007, Capital One’s subsidiaries collectively had $85.7

billion in deposits and $144 billion in managed loans outstanding, and operated more than 720

retail bank branches located in New York, New Jersey, Connecticut, Louisiana, and Texas.

Capital One is a Fortune 500 company and is included in the S&P 100 Index.

Capital One commends the Agencies for giving their attention to the Community

Reinvestment Act, an important statute and regulation, and for offering many thoughtful and

helpful clarifications and additions.

Capital One takes seriously its responsibility to the

communities that it serves and in which it is located, including our responsibilities under the

Community Reinvestment Act, and we appreciate the additional guidance that the Agencies have

given.

A Few Adjustments to the Proposed Questions and Answers Would Be Desirable

A very small number of adjustments to the Agencies’ proposed guidance would be

helpful in order to stimulate, or to remove unnecessary impediments to, banks’ engaging in

worthwhile lending, investment, services, and community development activities, in furtherance

of the aims of the Community Reinvestment Act.

A. “Other Loan Data”

Proposed new Question III, along with clarification of a current question and answer,

enumerates a number of activities as “other loan data” that will be considered in an institution’s

CRA evaluation.

Those activities include, among others:

•

Letters of credit

•

Loans for mixed-income properties

•

Modification, extension, and consolidation agreements (MECAs)

Capital One recommends that these activities be assessed among the core activities of the

lending test rather than as “other loan data.”

Relegation of these activities to “other loan data”

may result in banks receiving less consideration for them than the activities merit.

Several considerations support the enhanced treatment we recommend:

•

Letters of credit are a critical component of affordable housing development.

Though

they constitute credit enhancements and thus do not fund in the ordinary course of

business (but only when a project is troubled), they are fully underwritten contingent

liabilities and should receive full recognition.

Q&A § __.22(a)(2)–3, 4, 72 Fed. Reg. at 37925, 37940.

Capital One Financial Corporation

Comment on CRA Questions and Answers

Page 2

•

As the current question and answer recognize,

MECAs achieve the same results as

purchases or refinancing. There is therefore no basis for distinguishing this type of loan

facility, and they should receive full recognition.

•

Many public policy initiatives recognize mixed-income housing as preferable to the

development of housing that is exclusively or heavily low- and moderate-income

(“LMI”). Mixed-income housing contributes to the creation of economically integrated

communities, which are preferable to the creation of concentrated pockets of poverty.

And as a practical matter, mixed-income development provides cross-subsidization

opportunities that make affordable housing development more economically feasible.

addition, while the proposed question and answer speaks of “a certain amount or

percentage of units … set aside for affordable housing,” banks do not normally

determine the portion of a development that is affordable to LMI households.

Rather,

banks respond to local governments that set housing policy, typically in the form of

providing subsidies. Banks should be encouraged to provide financing that supports

those housing policies, by allowing full CRA consideration for those loans.

B. National or Regional Community Funds

In new Question IV,

the Agencies would require that, to obtain CRA consideration for an

investment in a national or regional fund with a primary purpose of community development, an

institution must demonstrate that the investment meets the geographic requirements of the CRA

regulation. While Capital One endorses the historic and current regulatory focus on assessment

areas, we also believe there are special circumstances where exceptions should be made to that

approach. Such exceptions should be implemented on a limited basis to ensure that the

assessment area basis for evaluation is sustained, maintaining the integrity and long-term

viability of CRA.

Capital One recommends that investments in low-income-housing tax credit (“LIHTC”)

funds be fully considered for CRA purposes without geographic limitations.

And, if the

agencies adopt this approach, we respectfully request that the Q&A clearly show how such

investments will receive fully weighted credit.

We note that many banks have been unwilling to

invest in disaster relief areas outside of their assessment areas because of a lack of clarity

regarding full credit.

Several considerations support our position for an exception for LIHTC investments as

described above:

•

An established market has developed for LIHTC investment vehicles on multi-state and

national bases, in order to promote efficiency and to diversify geographic risk.

The

Agencies’ guidance should align with this favorable market development.

Q&A § __.22(a)(2)–3.

Q&A § __.23 (a)–2, 72 Fed. Reg. at 37925, 37944.

Capital One Financial Corporation

Comment on CRA Questions and Answers

Page 3

•

If investments must be attributed to the investing banks’ assessment areas, these

organizations will be less likely to undertake projects or investments in communities in

which there are no banks or a limited number of banks – yet those communities may

have the greatest need.

•

Imposition of geographic restrictions may decrease the ability of national or regional

funds to attract capital.

•

Restricting the utility of these funds as CRA investment vehicles may reduce the

availability of affordable funding for some housing developments that are higher risk,

but nevertheless important, such as special needs housing and single room occupancy

(SRO) projects.

If the Agencies continue to impose geographic restrictions on national and regional

community development funds, then, at a minimum, we recommend that the fund be given the

flexibility of using any combination of “earmarks” (or side letters), and pro rata allocations, to

achieve the necessary geographic assignment within a single syndication. The proposed question

and answer suggest that the fund must choose one or the other technique, but such an all-or-none

choice may be infeasible in many cases, and hence the Agencies’ guidance would not have the

desired effect of attracting investment to these important vehicles.

Proposed Clarifications That Capital One Especially Supports

In proposed Question IX,

the Agencies would clarify that the limitations that apply to

reporting refinancing and renewals of small business loans also apply to refinancing and

renewals of community loans. This is a helpful clarification, and we encourage the Agencies to

adopt it as proposed.

Also, we support the Agencies’ proposal to add a presumption that investments in New

Markets Tax Credit–eligible Community Development Entities (CDEs) promote economic

development.

This revised guidance will encourage banks to invest in those important vehicles.

Request for Additional Clarification with Respect to High-Cost Areas

A current interagency question

provides for flexibility in the performance standards to

allow examiners to account for conditions in high-cost areas.

“For example,” say the Agencies,

“examiners could take into account the fact that activities address a credit shortage among

middle-income people or areas caused by the disproportionately high cost of building,

maintaining, or acquiring a house when determining whether an institution’s loan to or

Q&Q § __.42(b)(2)–5, 72 Fed. Reg. at 37926, 37957.

Q&A § __.12(g)(3)–1, 72 Fed. Reg. at 37926, 37930-31.

Q&A § __.12(h) and 563e.12(g)–3.

Capital One Financial Corporation

Comment on CRA Questions and Answers

Page 4

Capital One Financial Corporation

Comment on CRA Questions and Answers

Page 5

investment in an organization that funds affordable housing for middle-income people or areas,

as well as low- or moderate-income people or areas, has as its primary purpose community

development.”

Capital One is active in certain high-cost areas, and this Interagency Question

and Answer is useful. However, the actual consideration provided for such loans and

investments remains unclear.

We recommend that the Agencies increase the utility of this

guidance by providing some concrete examples of projects and circumstances in which loans to

non-LMI individuals will be fully considered in light of the high-cost area in which they are

made.

Capital One appreciates this opportunity to comment on the Agencies’ CRA Questions

and Answers. Should you have any questions, please call Dorothy Broadman, Managing Vice

President, Corporate Citizenship, at 703-720-2368, or me at 703-720-2255.

Christopher T. Curtis

Associate General Counsel

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