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STATEMENT OF STELLA J. ADAMS 

REGARDING THE MERGER 

OF 

NATIONSBANK 

AND 

BANK OF .AMERICA 

Mr. Chairman, and members of the Federal Reserve Board, My name is STELLA J. 

ADAMS, and I am the Executive Director of the North Carolina Fair Housing Center and Secretary 

of the Community Reinvestment Association of North Carolina. 

I bring you greetings on behalf of the people from the woods and the ‘hoods of North 

Carolina. Our State motto i_ “To Be Rather Than To Seem”. 

I am here because the people who have asked me to come and speak on their behalf want 

“to be”. They want to be homeowners, they want to be entrepreneurs and business owners,, they 

want to be residents in safe and healthy communities, they want to be residents in racially and 

economically diverse neighborhoods, they want to be catalysts for positive change in their 

communities. 

By contrast, NationsBank “seems to be.” Nations seems to be a leader in providing mortgage 

loans to low wealth and minority customers. Nations seems to be a leader in lending to small 

businesses, Nations seems to be a leader in making loans to African American and Female 

entrepreneurs, Nations seems to be a leader in Community Reinvestment. 

But I can honestly say to you that NationsBank expansion west has reduced its commitment 

at home. NationsBank was the Number 1 bank in North Carolina when it merged with C&S/Sovmn 

i&ii&?. It is now the number 5 bank. It used to be “the best bank in the neighborhood”. You ask 

any native tarheel who had that slogan and they will readily answer NCNB. Now that it has a focus 

on being the best bank in the world. Our neighborhoods in NC have become insignificant. We are 

worried about our future with this bank. e 
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v. How long will it be “profitable” to remain headquartered in a state in which you 

are not a competitor? Nations certainly shows no interest in obtaining greater marketshare. When we 

shared our concerns about their commitment we were met with a sorta “what do you expect we’re not 

the biggest bank in the state” attitude. Well when I share with their competitors where they are 

missing the mark they have a “what can we do together to improve this attitude” 

Nationsbank’s commitment to community reinvestment is all smoke and mirrors. This is 

easy to do when one has no set target and no set goals. Who then can question whether or not you 

have done enough? Who then can say that you’ve accomplished anything longstanding? I enter into 

the record a community needs assessment for the state of North Carolina. I expect you to do your job 

and decide if a demand driven approach will address this need. 

I understand that Hugh McCall is a great military strategist, and he has certainly carried out 

his campaign to become the first coast to coast bank with the determination and brilliance of Patton 

or is it more like Sherman’s march to the Sea. 

He has developed a clear vision and a strategic plan of action for every stage of this merger 

except one... and that is the Community Investment program. Instead of precision planning and 

targeting to get the biggest bang for the buck and to provide lasting improvements. He has opted for 

a scattershot approach. Where you are sure to hit something but you are not necessarily having an 

impact. 

We want a strategic plan of action, we want quantifiable goals and objectives to meet the 

Credit needs of our communities. 

Here’s to the land of the long leaf pine, the summer land where the sun doeth shine, where the 

weak grow strong, and the strong grow great, heres to down home the old North State. 

The people of North Carolina helped its financial institutions grow Great through our 

deposits, our loyalty and our visionary banking laws. NationsBank is honorbound to serve the people 

of North Carolina and the other underserved communities throughout the franchise. We are not 

Unprofitable customers, we ask only for access to capital and the opportunity to prosper and to grow strong. 
June 11, 1998 

Mr. Linn Gill 

Federal Reserve Bank of Richmond 

P.O. Box 27622 

Richmond, Virginia 23261 

Subject: Comments on NationsBanWBank of America Merger Application 

Dear Mr. Gill: 

Consuqers Union, the nonprofit publisher of Consumer Reports magazine, is submitting these 

comments on the proposed merger ofBank ofAmerica and NationsBank and to raise concerns 

about the merger’s impact on consumers. The Federal Reserve Board has authority under the Bank 

Holding Company Act to address public interest concerns. The Board should require conditions 

prior to approval so that the concerns and needs of the communities in which the merged bank 

operates are met, including adopting consumer protections and ensuring that basic banking services 

for low and moderate income consumers are promoted, not harmed, by the merger. 

A. Essential conditions of any approval 

In evaluating the impact of the proposed merger on the convenience and needs of the public, we 

urge the Federal Reserve Board and System to consider the potential for harm to consumers from 

the use of cookie-cutter products, higher fees, loss of consumer privacy, expanded cross-selling, and 

an approach to community reinvestment which must focus on local needs or community 

strengthening. If this proposed merger is approved, we believe that the merged bank should be 

required to make the following commitments as conditions of approval: 

1. Commit to not increase current fee levels and minimum balance 

requirements, or to introduce new fees on existing products or services for a 

reasonable period of time, which will benefit, in particular, consumers who 

have limited banking choices because of resource constraints or geography. 

We know from the experience of customers in California aRer previous mergers of Bank of 

America/Security Pacific and Wells Fargo/First Interstate, that in the short term, consumers 

face confusion, changes in accounts, and loss of convenience while systems are being 

integrated. Moreover, while banks tell consumers that “bigger is better,” studies by the 

Board and others show that large banks charge higher fees for many types of accounts than 

smaller banks, and that multi-state banks charge higher fees than single-state banks. 

2. Dedicate a significant portion of the projected benefits in cost savings 

from each merger for the first five years after the merger to increase access 

to banking services and credit for low income consumers. A set-aside for the 

unbanked and other low income consumers of some of the promised cost savings from the 

1535 Mission Street. San Francisco. CA 94103. (415) 431-6747. FAX (415) 431.0906 

Llrdrcl 0, iecwen p*, 
proposed merger would help to ensure that even more consumers are not excluded from the 

banking system as a consequence of the merger. 

3. Commit to reach an agreement with community groups and Community 

Reinvestment Act coalitions in every affected state on future CFW 

commitments before regulatory approval. These agreements should describe 

specific programs and specific dollar goals for CRA activity in each area. This 

guarantee would help focus the attention of the new nationwide bank on local needs. The 

large dollar goals announced by NationsBank for the merged bank are unlikely to result in 

real progress unless they are a first, not a last, step in a process to build programs that serve 

local needs which are not already served by the banking system. 

4. NationsBank must commit to comply with all state consumer laws, 

rules, and regulations in every state where it operates. This wnl:ld ensure that 

consumem get fhe benefit of their own state’s consumer protection laws even when the bank 

is headquartered in North Carolina. 

5 Adopt strong consumer safeguards on retail sales activities and agree 

t, be responsible for losses arising from violations of these safeguards. 

Safeguards are needed to protect consumers from being coerced into buying products they 

don’t need to get the products they want, fiorn the loss of financial privacy, from being 

deceived about whether a product is federally insured, and from being sold products not 

suitable to a particular consumer’s financial needs. Further, a redress mechanism is needed 

for consumers to be able to recover losses from the bank when they violate the rules. Until 

the FFIEC puts strong regulatory safeguards in place, merger approval should be 

conditioned upon an agreement to comply with protections against deceptive and misleading 

practices. The nearly $7 million in penalties paid to three regulatory entities in May 1998 by 

NationsBank illustrates the need for these protections. 

B. Community reinvestment: NationsBank’s merger application 

The impact of this merger on the convenience and needs of the communities where the bank will 

operate will be highly affected by the components and structure of its CRA program. The details of 

the proposed CRA program should be provided in additional filings in the merger approval process 

and discussed in public hearings held in major market areas throughout the country. While the 

merger application discusses current and past CRA activities in great detail, it does not reveal which 

of those programs will be retained in the merged bank. The merger application states that these 

decisions have not yet been made. 

The portion of the application referring to past CRA performance reveals many similar programs, 

but also very significant differences in the types of programs currently offered by the two banks. 

These differences include the level of their commitment to important area-z such as affordable 

housing lending, consumer lending, loans to the disabled, and penetration by LMI applicants or 

geographies in their relative applicant pools for home mortgages and small-business loans. 

The comparison chart below is drawn from information contained in the merger application which 

illustrates some of the differences between the two banks. For example, NationsBank and Bank of 

America have very different percentages of applicants for home mortgage and home improvement 
loans who are of low or moderate income, as shown in the lines of their charts titled “LMI 

applicants” in NationsBank’s Annex B and the Bank of America table which follows it in the CRA 

appendix to the merger application. According to these documents, 11.4% of NationsBank’s 

applicants for home mortgage and home improvement loans were of low and moderate income, 

while 20.2% of Bank of America’s applicants for the same types of loans were of low and moderate 

income.~ 

Similarly, Bank of America received a higher percentage of its small business applications from 

LMI geographies, according to the 1997 numbers filed with the merger application. The Bank of 

America table reveals that 27.1% of its small-business applicants were from LMI geographies, 

while for NationsBank the figure was 21.5%. Bank of America also shows a somewhat higher 

penetration of branches in LMI geographies - 25% vs. 22%. To the degree that these differences 

suggest that the two banks have different target markets, differences in effectiveness of outreach or 

in the desirability of their products to lower income applicants and geographies, these differences 

should be thoroughly explored by the regulators and public before the merger is considered for 

approval. 

Comparison of Selected 

Community Reinvestment Act (CRA) 

and Community Outreach Programs’ 

TYPE NATIONSBANI~ 

1997 percent ofLMI (mortgage and home 11.4% 

improvement) applicants as a percentage (34,803 of 305,931) 

of such applicants (Source: Annex B) 

I997 percent of small business applicants 

Irom LMI geographies 

21.5% 

(13,130of61,149) 

(Annex B) 

Percent of banking centers/branches in 

LMI geographies 

Percent of ATMs in LMI geographies 

1x1~ cost checking 

Number of languages available at ATMs I 

,BAN~C~FAMERICA~, 

20.2% 

(28,800 of 142,500) 

(Source: Bank Table) 

27.1% 

(18,055, Bank Table gives % but 

not base) 

(Bank Table) 

22% of banking centers 

(Application p. 9) 

25% of branches 

(Application p. 14) 

22% of banking centers 

(Application p. 9) 

application silent 

yes, fee not listed 

(Appllcalion p. 9) 

application silent 

2 

(Application p. 9) 

4 

(Application pi 14) 

z\s described in mecger application. Unless otherwise noted, all page citations are to the appendix to the application 

titled: Performance of NationsBank and Ba& of America Under the Community Reinvestment Act of 1997. 

3 
[n-branch customer service phones with application silent yes, selected branches offer 

multiple languages Chinese, Korean, Spanish and 

Vietnamese 

(Application p. 14) 

Loan program for the disabled application silent Yes 

(Application p. I I) 

Secured credit card with automatic application silent Yes 

graduation feature (Application p. I I) 

Programs to expand access of LMI application silent yes, community access initiative 

customers ta computers (six locations) 

(Application p. 20) 

Disaster r&et program application silent Yes 

(Application p. 15) 

Affordable housing lending Community Development $1.7 billion in past five years in 

Lending Unit has made $350 affordable housing loans. 

million in loans to benefit Sponsored more than 100 

consumers at 80% or less of successl?~l AHP applications. 

median income (includes (Application p. 13) 

commercial and retail space). 

(Application p. 6) 

Tax credit investments Has made nxxe than $340 in Has invested more than $590 

investments or commitments million in the past five years. 

plus some fund investments. (Application p. 13) 

(Application p. 16) 

Bond financing for affordable housing application silent yes, integrates conshuction and 

30.year fixed-rate financing 

(Application p. 19) 

Fannie Mae Special Affordable Housing application silent yes, fust in the U.S. 

Lender status (for multi-family lending) (Application p. 20) 

Border town “colonias” development application silent yes, initial investment is only 

program $500,000 

(Application p. 20) 
Snancing for child care centers yes, for-profit centers 

(Applicafion p. 5) 

Yes, focus on low and moderate 

income communities; childcare 

facilities in affordable housing 

developments financed in Los 

Angeles; working on bond 

fmance program 

(Application p. 19) 

expedited small business loan approval yes, 2 state pilot, average loan Yes, ABC and MWBE, $2,500 

size $100,000 to $100,000 loan size range 

(Application p. 5) (Application p. 12) 

SBA FASTRAK status Yes yes, average loan size $20,000 

(Application p. 5) (Application p. 13) 

Fair lending customer ad&ate program Yes application silent 

(Application p. 6) 

Spanish loan by phone and Spanish loan application silent Yes 

rlocumentation (Applicafio” p. I I) 

Special underwriting for low and application silent yes, BASIC 

moderate income consumer loans (Application p. IO) 

Minority-owned bank investments Yes application silent 

(Application p. I(r) 

Below market rate tinancing for home 

loans 

Zero down payment home-buyer 

program 

Rural initiative 

yes applica6on silent 

(Appllcaiion p. 15) 

Yes Yes 

(Application p. 5) (Application p. 18) 

application silent, but May 1998 Yes 

pledge says BofA’s rural (Application p. 18) 

initiative will be “leverage[d]” 

Environmental policies and principles 

unit 

application silent Yes 

(Application p. 20) 

At least in California, the Bank of America has taken the view that CM is more than a numbers 

game. It has created an institutional culture in which credit and to a lesser extent services-to 
lower income consumers and to the nonprofit community that serves the poor are fully integrated 

into the business plans of the operating units. 

Bank ofAmerica’s record in California suggests that it has learned to ask itself internally the 

important question that community groups often are asking l?om the outside: What is being done to 

build the necessary in&structure to bring lower income people more fully into our economy? How 

can the bank contribute to the health, stability and development of low income communities and 

neighborhoods? What are the future challenges facing these communities, and what products 

should the bank be developing now to meet those challenges? If the merged entity does not have a 

process, an institutional structure, and a determination to ask and address these questions, then the 

merger will be a great loss for low income consumers in California and perhaps throughout the 

country. 

C. NationsBank’slBank of America’s Cf?A announcement : 

Because the merger application discusses only the past CRA record of the two banks, and not their 

plans for the future, the May 20,1998 CRA announcement by NationsBank is of crucial importance 

to communities throughout the U.S. This CRA dollar goal announcement should be the beginning, 

not the end, of a national discussion about the merged bank’s CRA plans. CRA dollar goals are 

useful only if they are part of a process to institutionalize a goal to integrate credit and services for 

the underserved into every part of the bank. To be meaningful for low income consumers and 

communities, CRA dollar goals must: 

1. be tied to specific programs; 

2. target underserved groups; 

3. be accompanied by detailed business plans to reach underserved communities with 

products that are designed to meet the needs of those communities; 

4. be sufficiently detailed and specific so that they can’t be satisfied just by continuing 

programs for credit already being extended by the bank; and 

5. provide measurable subtargets by topic and region so that both the bank and 

communities can measure progress. 

A general large dollar goal which is not backed with a business plan to extend credit and services to 

the underserved can be misleading and can create unfulfilled expectations in underserved 

communities, Consumers Union is a member of the California Reinvestment Committee (CRC). 

We attend community meetings hosted by the CRC in different parts of urban California. One of 

the most common messages we hear at those meetings is that low income communities are not 

seeing additional credit on the street, even several years into large, multi-year dollar goals by 

several California banks. 

In the past few years, a number of financial institutions have announced large dollar goals which 

can be met in large part by “business as usual” - more careful counting of lending that is already 

occurring. Unless it is supplemented with local and regional CR4 agreements and more specific 

targeting, this could be a primary effect of the recent announced goal. 

6 
items that are missing from the NationsBanWBank of America CfXA announcement 

One could legitimately ask: What could be wrong with a $350 billion promise? The announcement 

could serve as a first step toward a meaningful CRA program, but only if much more work is done 

targeting state and regional goals, and other additions are made. Here are some of the items that are 

missing corn the pledge: 

1. The $350 billion pledge is not enforceable 

The announced commitment is not enforceable in its present form. Neither the merger 

application nor the commitment states that the commitment will be made part of the merger 

application or that it is offered as a condition of merger approval. The regulators must make 

CRA and related commitments a condition of approval. The OCC and .Federal Reserve staff 

have stated at various times that they lack the authority to enforce promises made by banks 

to community groups under the CRA. It is likely that the CRA announcement will be 

considered by the Board as evidence on the issue of whether the merger meets the 

convenience and needs of the community. If the announcement is considered by the Board, 

then its provisions must be made enforceable by making compliance with it a condition of 

any approval. 

2. No promises on access to deposit services and to branches 

The announcement is silent on critical questions such as the means that will be used to 

promote access to services for consumers who are presently unbanked and overcharged in 

the so-called “alternative” financial services sector. Providing access to deposit services is 

essential to good CP.A performance. In this age of welfare to work, there can be no dispute 

that bringing lower income consumers more fully into the financial services mainstream is 

fundamental to the convenience and needs of the communities where those consumers live. 

The announcement also does not discuss branch location, future branch closure plans (either 

as a result of general cost-cutting in a post-merger environment or in states with overlap 

such as Texas), future plans for offering a low-cost checking account, or the development of 

an account to serve the unbanked. Studies suggest that one of the deterrents to use of the 

traditional banking system by low income consumers is the design of traditional checking 

accounts. In particular, a bounced check fee can significantly drive up the cost of an account 

held by one who is not sophisticated in account management. NationsBank’s $25 bounced 

check fee from its Texas fee schedule certainly presents this potential. 

3. Absence of specific state and local goals 

The announcement lacks state-specific goals. It lacks any information about the dollars that 

will be allocated to Texas, to California, or to any of the other 20 states where the merged 

bank will do business. Moreover, the announcement fails to address how the merged bank 

will meet the credit needs of specific regions within large states, such as Texas and 

California. Added specificity is needed. Every state which is considering the impact of this 

merger deserves to know what the corporate commitment LS to its own region. 
:, 

Community groups nationwide have struggled for many years to turn the Community 

Reinvestment Act (CRA) into a viable tool for revitalizing their communities. Consumers 

Union is an active member of both the California Reinvestment Coalition and the Texas 

Community Reinvestment Coalition. These CRA groups were formed during tumultuous 

periods in our financial industry to ensure that the credit needs of their states’ local 

communities were not ignored. This work has led to meaningful commitments between 

banks and community groups and a heightened awareness of inequities in the financial 

industry. It is important that the broad pledge for the merged bank not be a substitute for 

existing and future efforts at the local and state levels. Further, it is critical to the financial 

health of our underserved communities that the banks enter into negotiations with local 

groups to form useful, sustained agreements before any approval cf this merger. 

The California Reinvestment Committee is actively seeking a written commitment by 

NationsBank on issues including: 

..~ 

1. California-specific commitments; 

2. intrastate regional commitments to the widely varying regions of California; 

3. preservation of the Bank of America Community Development Bank; 

4. charitable giving goals with set-asides for economic development and affordable 

housing; 

5. a set-aside ofpart of the merger’s cost savings for the unbanked either in cash or 

in stock options to be exercised by a community foundation; 

6. targeting of the affordable housing goal credit to support units serving very low 

income consumers; 

7. support for technical assistance to pre-bankable small businesses; 

8. targeting of the small business loan goal credit to serve businesses seeking loans 

of $25,000 or less; 

9. a fee freeze: 

10. an EFT 99 product; 

11. a commitment not to close branches in minority and low income communities; 

and 
: 

12. a target to lend to the low income population to match their percentage of the 

state’s population; and to do so through the bank, not through subprime affiliates. 

NationsBank and Bank of America have met twice with CRC on these issues since the 

merger was announced, and it appears likely that a written commitment may be made on 

some, but not all, of these issues. 

In addition to the issues discussed above, the Texas Community Reinvestment Coalition 

seeks commitments which support the following needs of low income and minority Texans: 

. 

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. 

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4. 

providing down-payment assistance to loan applicants in underserved tracts with 

high minority concentration or high low income populations; 

establishing economic development and affordable howsing go& in cnloniar regions 

of Texas; 

incorporating a “second-review” program with members from community groups 

and housing advocacy organizations into its mortgage decision process to ensure that 

loans in underserved areas have been fairly reviewed; 

making available to community groups reporting of small business and consumer 

loans by census tract in addition to HMDA reporting; and 

establishing monitoring meetings on a periodic basis with neighborhood groups in 

underserved census tracts statewide to ensure all affected communities are served. 

The current level of performance in community lending casts doubt on 

the value of the $350 billion pledge. 

In the banks’ CRA announcement, several assertions are made regarding the leading role the 

merged bank will take in community lending and investment. Currently, NationsBank’s and 

Bank of America’s level of performance in some minority and low and moderate income 

communities raises concerns about the merged bank’s ability to meet this ambitious pledge. 

In Texas, NationsBank loaned more than $455 million dollars in 1996 for single-family 

housing to white, black, and Hispanic borrowers. Yet, white borrowers disproportionately 

received 86% of the total amount loaned. (See table below). Regulators must address these 

gross disparities in lending, particularly in states like Texas where affordable housing stock 

exists in low income, high-minority and inner-city areas. 
NationsBank $ Amount Loaned for Owner-Occupied Housing-1996 

Race $ Amount Percentage 

Loaned 

White $391,176,000 86% 

Hispanic $ 45,582,OOO 10% 

Black $ 17,986,OOO 4% 

Total $454,744,000 100% 

The announced commitment also suggests that future investment in minority and low and 

moderate income communities will grow as the financial resources of the merged bank 

increases. Since NationsBank and Bank of America are presently two of the largest 

‘financial institutions in the nation, their current level of performance in community lending 

should serve as’s good indicator of the merged bank’s potential to meet the credit needs of 

utiderserved communities. NationsBank is the largest bank by asset size in Texas ($60 

billion). However, it is not the largest home mortgage lender among minority and low 

income communities, In addition, the most recent HMDA figures show Hispanic and 

ACan American applicants in Texas are two to three times as likely to be denied for a 

home loan by NationsBank than a white applicant. In Texas, Bank of America primarily 

targets low income and minority communities with manufactured housing loans, which are 

substantially more expensive than conventional home loans. If the merged bank is to lead 

the financial industry in community lending and investment as it asserts it will, current 

lending patterns of the merging banks warrant close scrutiny. In Texas, these patterns do not 

promote the revitalization of inner city communities. 

5. Absence of targets to serve low and very low income consumers 

The NationsBank announcement lacks targeting to ensure that a significant portion of the 

credit will serve low and very low income consumers. Instead, it generally lumps together 

low and moderate consumers and communities. Very low income consumers are the group 

that requires the most thought, outreach, and creativity to serve. A close reading of the 

NationsBank announcement reveals that it could satisfy the announced goal for housing by 

counting a variety of loans that won’t go to low income or very low income consumers. The 

announcement permits the merged bank to count all of the following toward its housing 

goal: 

1. 

2. 

all home loans to minority applicants in any neighborhood and of any income 

level; 

all loans to buy or build properties in low and moderate income census tracts 

(apparently including gentrification projects not designed to be affordable to 

current neighborhood residents); and 

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3. and all single-family dwelling lending for housing in low to moderate income 

geographies regardless of the income of the borrower. 

These are all appropriate and useful forms of credit. However, the $115 billion ten-year 

housing goal could be fully satisfied with these types of loans, without extending any credit 

to a low income single-family home buyer or to support the financing of multi-family units 

affordable to low income and very low income people. 

In the San Francisco MSA, the 100% of median target in the bank’s CRA pledge means that 

goal credit could support lending in apartments to serve families earning $61,300 per year. 

In Los Angeles the 100% of median standard means that the goal credit could be used to 

support loans for homes and apartments targeted to families earning $46,900 a year. 

Meanwhile, nonprofits producing affordable housing in California often are targeting people 

earning just a fraction of the area median income. 

.6. The broad small business credit category illustrates the weaknesses of 

a vague CRA goal 

Dollar goals work for communities when they drive a financial institution to include in its 

business plan new products and services reaching out to unserved and underserved persons 

and communities, Without additional targeting, the CRA announcement will not serve that 

purpose, The small business loan category in the announcement illustrates the problem. 

Over half of all the funds, $180 billion, are designated for small-business loans. The 

announcement appears to leave to the merged bank broad discretion as to how the credit 

counted against goal may fall among several categories. The announcement permits up to 

half of the $180 billion to be made in loans Tom $100,000 to $1 million in size. These are 

unlikely to be the small businesses most in need of additional sources of credit. For this 

reason, the California Reinvestment Committee has suggested that the target loan size for 

this program should be $25,000 and under. 

If the $180 billion in loans were made in credit-scored loans to borrowers in amounts of 

nearly $100,000, the pledge might not do much to increase the pool of credit available to 

small businesses in this country. On the other hand, the goal could be very meaningful if it 

were targeted for loans to pre-banked business, for loans to businesses graduating from 

government guaranteed loans or micro-loans to traditional bank credit, or for loans to 

businesses graduating into bank credit from the shoestring-plus-personal-credit method of 

finance used by many small businesses in their early years. 

It has become common to count all small-business loans toward large CRA dollar goals 

without distinguishing between two very different types of loans: first, loans to small 

businesses that receive a widely available credit-scored product and second, loans to newer 

small businesses, businesses located in low income communities that commit to hire local 

residents, and businesses that have limited access to credit. In the home mortgage area, 

banks and regulators have recognized the special value of extending credit to persons not 

already served by the system. This has been manifested in the development of underwriting, 

products, and outreach for first-time home buyers. It may be time for any small business 

CRA commitment to begin to focus on “first-time business borrower” programs. 
7. No promises of charitable support for affordable housing and 

community economic development 

The announcement is silent on any commitment for charitable giving. Other major 

institutions operating in California have committed a percentage of net profit to charitable 

contributions, and have specifically targeted a significant portion of those contributions for 

affordable housing and economic development. For example, Washington Mutual has 

committed at least two percent of its pretax earnings to charitable giving, with a share for 

California proportional to the size of its deposit base, assets, and number of employees and 

branches in the state. Washington Mutual has promised that 70 percent of the California 

share will go to underserved communities and three-quarters of that will be in the form of 

cash or below market rate loans. One half of the California contribution is to be targeted for 

activities that promote housing and economic development. (Letter of May 22, 1998 from 

Kerry L. Killenger, Washington Mutual, to Alan Fisher, California Reinvestment 

Committee.) Whether or not grant-making practices fall within the CRA, a bank that uses 

grant programs to build a nonprofit inf?astructure can make a long-term difference in the 

quality of life in low income communities. An overall dollar goal for charitable 

contributions and a set-aside for affordable housing and community development economic 

development are an essential part of effective community building. 

8. The future of the Community Development Bank is not discussed 

NationsBank’s CRA announcement does not reveal the fate of the Bank of America 

Community Development Bank. The Community Development Bank has been important to 

California’s low income community. It has developed new credit products needed by 

nonprofits serving the community. It has supported and enhanced the nonprofit community. 

It has used existing government guaranteed loan programs to expand the group of people 

receiving credit. These philosophies work in the diverse California market. The 

Community Development Bank works with and supports nonprofits as they design housing 

and services for the low income public. The Community Development Bank has played an 

important role not only in meeting existing demand for credit, but in working to develop 

new products and bring along newer nonprofits -those that aren’t among the most 

established and well-known in their markets. These philosophies must be retained. 

D. NationsBank’s and Bank of America’s CRA records in Texas illustrate the 

need for detailed, specific, localized CRA commitments 

NationsBank and Bank of America have been inconsistent in their CRA lending to low income and 

minority communities in Texas. While NationsBanc Mortgage performed well in some lower 

income and minority census tracts in Dallas, their market presence in underserved communities in 

other Texas MSAs was weak. Although agreements between NationsBank and some community 

groups exist, the bank has not lived up to the spirit of these agreements in some cases. In Austin, 

for example, NationsBank entered into a local agreement to increase lending and investment in 

traditionally African American neighborhoods. While a few home loans have been made to 

African American borrowers, most of these loans were not made in the inner city census tracts 

where older, traditionally African American neighborhoods arc located. This lending pattern does 

12 
not promote revitalization of older communities and leaves these communities without the resources 

to rebuild and create a sound financial base for community development. 

While Bank of America’s CRA efforts in California have led to innovative lending and investment 

products, that bank has failed to implement these products for underserved communities in Texas. 

Instead, the most recent HMDA data shows Bank of America disproportionately targets Texas low 

income and minority communities with manufactured housing loans. The lack of access to 

conventional home loans harms low income and minority consumers by restricting their choices of 

home loan products to fewer, more expensive options, such as manufactured housing, and curbs 

their opportunity for homeownership and community development. In light of Bank of America’s 

recent decision to sell its manufactured housing unit, we would urge the merged bank to offer and 

market all products - including conventional home loans-that promote homeownership and stable 

banking relationships. 

The unevenness of NationsBank’s and Bank of America’s lending performance in Texas 

underscores the need for local commitments. As each local economy transforms in response to 

changes in the tiancial industry, the approaches of lenders to meet local credit needs must also 

change. The merged bank must be structurally flexible yet philosophically consistent in addressing 

these credit needs, or disparate lending patterns will continue. 

1. NationsBank’s record of branch openings in Texas shows that special 

care should be taken to ensure that branch closings do not harm low 

income communities. 

If the merged bank closes branches for any reason, low and moderate income areas in 

particular should be protected from such closures. 

Historical Branch Openings and Closings 

An examination of NationsBank’s record of branch openings and closings in detail in one 

state, Texas, illustrates the need for the regulators to place conditions on any merger 

approval that will protect low and moderate income communities from further branch 

closures. NationsBank’s Texas record shows that it appears to target new branches in upper 

income rather than in low or moderate income areas. In 1996, NationsBank opened nearly 

as many branches in upper income areas in Texas as in middle, moderate, and low income 

areas combined. NationsBank opened 28 branches in upper-income areas, 18 in middle 

income areas, and eight and three in moderate and low income areas, respectively, as the 

table below illustrates. 

13 
NationsBank Branch Openings - 1996 

Despite more branch closings in upier income areas, the net branch openings in 1996 in 

upper and middle income areas totaled 40, while net branch openings in low and moderate 

2. Low and Moderate income Communities Already Suffer From a Lack of 

Bank Branches 

Texas was hit hard by the bank failures in the 1980s - 40 percent of all bank failures 

nationwide during the 1980s occurred in Texas. (Kenneth J. Robinson, The Pe@mnance of 

Eleventh District Financial Institutions in the 1980’s: A Broader Perspective, Federal 

Reserve Bank ofDallas Financial Industry Study, May 1990, pp. 13-24.) Low income 

neighborhoods were disproportionately affected by bank closures. 

A study from Texas A&M on the availability of banking facilities between 1985 and 1993 

found that low income areas, high poverty areas, and high minority areas all experienced a 

decline in the availability of bank branches during this time span. Specifically, the study 

revealed that the average number of branches for zip codes in the highest income quartile 

stayed roughly the same while zip codes in the lowest income quartile experienced a decline 

of 11 percent. For below poverty zip codes, this decline was an even more dramatic - 13 

percent. In addition, while predominately white zip codes actually saw their number of 

branches increase by four percent, minority zip codes saw theirs decline by ten percent, 

14 
(Leonard Bierman, Donald R. Fraser, Javier Gimeno, and Lucia Fuentelsaz, Regulutoly 

Change and the AvailabiUy of Banking Facilities in Low income Areas: A Texas Empirical 

Study, SMU Law Review (Volume 49, No. 5, July-August 1996), pp. 1438-1439.) 

As mainstream financial institutions such as banks have failed to fully serve low income 

communities, higher-cost non-bank institutions have grown substantially. In Texas the 

number of regulated lenders in Texas (non-bank lenders, largely finance companies) 

increased 42 percent between 1992 and 1996. Along with this growth, the volume of loans - 

the total dollar amount loaned in a calendar year- increased by almost 50 percent between 

1992 and 1995. Pawn lenders also experienced substantial growth. (Office of Consumer 

Credit Commission, Texas, RegulatedLoan Licenses and Pawnshop Licenses, March 12, 

1997). 

The growth in the high-priced, nnr-bank sector is a nationwide trend. A 1997 report by the 

Consumer Federation of America found that there were 5,400 checking outlets-more than 

,double the 2,151 existing in 1986. Such businesses cash 150 million checks annually, with a 

face value of $45 billion. These services can be an expensive way to conduct routine 

fipancial services-Consumers Union’s West Coast Regional OMice has estimated that 

cashing paychecks and buying money orders for a family with $15,000 in annual income 

would cost about $330 a year in California. A study by Consumers Union’s Southwest 

Regional Office found a similar family could spend between $150 to $370 annually in Texas 

just to cash their paychecks. 

The development of high-priced, non-bank deposit services does not affect all groups in our 

society equally. According to the Survey of Consumer Finances, more than half of families 

without checking accounts are nonwhite or Hispanic, and 85 percent have less than $25,000 

in annual income. The vitality of the “alternative” high-priced non-bank sector strongly 

suggests that banks have done a poor job of serving the entire community. To begin to 

reverse these trends, NationsBank and Bank of America should be required to keep branches 

in low and moderate income areas open after the merger. Where divestiture is required, it 

should not include the closure or sale of branches in low and moderate income areas. 

Further, the merged bank should adopt a business plan to develop an account that effectively 

competes with the check cashers for the business of lower income consumers. 

The NationsBank merger application refers to a confidential exhibit B which apparently 

contains a list of the branches that have been identified for closure as a result NationsBank’s 

acquisition of Bamett. This list should be made public now, so that those communities 

which will be affected by the most recent NationsBank merger may participate in the 

comment process on this merger. Making this information public at this time also will 

permit those communities likely to the affected by NationsBank’s future branch siting and 

closure decisions to evaluate the likelihood of future harm in their communities i?om 

NationsBank’s process for determining which branches to retain. 

E. Consumer protection 

Given consumer concerns about the impact mergers could have on fees, quality of service, and 

market power, the Federal Reserve Board should take strong action to assure that the public interest 

is served by the merger between Bank of America and NationsBank, and that the convenience and 

IS 
needs of consumers are met, as required under Section 3(c)(l)(B) Bank Holding Company Act. 

Thus, in addition to meeting the needs of consumers and communities, as discussed elsewhere in 

these comments, the Board should ensure that, in the consideration of the merger application, the 

merged entity should provide affordable bank services to low and moderate income consumers 

through low-cost basic banking, and that all consumers are protected from abusive and deceptive 

sales practices. Specifically, the Board should ensure that the merged entity provides: 

1. Affordable banking services 

The new entity should have targets to lower or freeze fees and should require the bank to 

provide low-cost checking to all its customers throughout the country. 

Millions of Americans, looking for a place to safely deposit their hard-earned dollars and a 

means to pay their bills, get hit every month with checking account fees they cannot avoid. 

Those fees are goingup e banks have increased checking account charges unless high 

,minimum balances are met-balances that are out of reach for many American familiis. 

h$any consumers cannot sustain the high minimum deposits required to avoid monthly 

charges. Low cost basic banking accounts, with reasonable service fees and low or no 

minimum initial deposit or balance requirements, are needed to lessen the financial burden 

on low and moderate income consumers. These accounts should be actively marketed. 

Making a commitment to low-cost basic banking as part of a merger application is consistent 

with the intent of Congress when it required the Board to consider the effect of a bank 

merger on the public interest, and in meeting the needs and convenience of the communities 

where the bank is located. 

In addressing the merger, the Board should ensure that the new entity is committed to 

meeting the needs of the lower and moderate income consumers by offering low-cost basic 

banking. To the extent such accounts may be offered today, the Board should ensure that 

the bank makes consumers aware of that option, and ensure that such low-cost accounts arc 

preserved. 

2. Protections against abusive and deceptive sales practices 

To help ensure consumers derive some benefit from the merger other than simply the 

convenience of having more branches for those who travel, the merged entity should be 

required to comply with a package of consumer protections, including: 

l Measures to protect against confusion over products: The merged 

entity should not be able to use taxpayer protections to mislead or confuse customers 

about the products sold. This means clear disclosures about whether the products are 

FDIC-insured or subject to risk of loss of the principal before any solicitations 

involving non-insured products are made. It also means clear and separate 

delineation of insured from non-insured activities, e.g., separate sales areas in any 

.bank branch, prohibition against the use of names of subsidiaries that are 

substantially similar to that of the bank, and compensation structures that limit the 

potential for high-pressure sales tactics or unsuitable sales. 

16 
. Privacy protections: Consumers should be given the option to consent in 

writing before the new entity is permitted to share information about customers 

internally or with affiliates. 

l Suitability standards: Studies and surveys indicate that some banks 

recommend products that do not meet the consumer’s financial needs, or are 

unsuitable, often placing the consumer at risk of losing their savings. To protect 

against this, sales of products should be subject to suitability standards. 

. Protections against high pressure sales tactics: Consumers obtaining 

loans should not be subject to unsolicited sales pitches for other products until after 

the loan has been made. 

“’ l . “Redress mechanism for people to recover losses: Most impotiantly, the 

new entity must agree, even if not mandated under current law, to compensate 

consuniers for any losses that are due to violations of these protections. 

. 

3. Cost savings to be passed on to consumers 

There has been a lack of strong evidence to justify the escalating bank fees and increasing 

number of charges for various services, particularly at a time when bank profits have 

reached record levels. There has been much discussion about synergies and efficiencies that 

will benefit consumers - we ask that the Board make sure that consumers actually benefit by 

requiring that a share of the cost savings be passed on to consumers through lower fees or at 

least a moratorium on increasing fees, and through programs to bring in the unbanked. 

4. Compliance with laws 

There is a growing trend, aided by bank regulators, to permit banks to ignore state consumer 

laws in states other than their home state. States have traditionally had authority over 

businesses that operate within their borders. The Board should make compliance with state 

consumer law in all the states in which the merged bank does business a condition of the 

merger. 

5. Compliance with anti-trust laws 

The Board is obligated to carefully consider the anti-competitive affects of the merger. 

Consumers may be substantially harmed by concentration of market power. It is vital that 

consumers be protected, and these effects be fully considered. 

Conclusion 

This merger will have deep impacts on consumers and communities throughout the U.S. In order to 

have a chance of meeting the convenience and needs of the whole community, this proposed merger 

must be structured to benefit, not harm, consumers at every income level. Both banks should work 

closely now, as well as in the future, with state and local CRA coalitions, community groups, and 
.” 

nonprofit service providers to build state and regional plans and programs that will make the merged 

bank’s CRA program a strong tool to extend credit and deposit services beyond those now served 

by the banking system. In addition, the applicants should put into place, or the regulators should 

require that they do so, specific guarantees and commitments addressing issues including fees, 

consumer protections, and dedication of part of the cost savings to bring the unbanked into the 

banking system. 

Sincerely, 

A= 

Gail Hillebrand Frank Tones 

w w 

Angelyque Campbell 

West Coast Regional Office Washington Office Southwest Regional Office 

cc: Office of Comptroller of the Currency 

Antitrust Division, Department of Justice 

Mr. Hugh McCall 

Mr. David Coulter 

Secretary to the Board/Board of Governors of the Federal Reserve System 

Mr. Mullane - NationsBank 

Ms. Bessant - NationsBank 

18 
FROM : NFITL ELK CHFIMEER PHONE NO. : 2024161614 Jul. 87 199E 67:22PN P2 3 

‘NATIONAL BLACK CHAh4BE:R OF COMMERCE NOT CONVINCED ABOUT 

NATIONS/BAl% OF AMERICA MERGER 

African Americans, as well as all other minorities, have yet to attain their fair share of the 

American economic enterprise. One thing is quite certain. Power will concede nothing 

without a demand and we cannot expect Progress without certain standards and criteria 

being established. 

Nations Bank wants to throw out a big number with no mechanisms in place to set the 

pace, monitor compliance and ascertain what is good performance and fine corporate 

responsibility. Thus, it is certain that the minority oommunities who are presently served 

by Bank of America will digress in real community reinvestment. 

Nations Bank should also answer for the serious amount of discrimination complaints 

from its workforce. The lawsuit filed by Nations Bank against the Offtce of Federal 

Contract Compliance Programs (Department of Labor) to prevent an audit to investigate 

this mass ofdiscrimination complaints is shocking. Attorney General Janet Rena has 

also issued warnings to Nations about its performance in equal opportunity hiring. 

Without proper “checks and balances” there is no assurance that the performance 

previously displayed by Bank of America will endure and will most likely not improve. 
DURHAM 

AFFORDABLE 

ROUSING 

COALITION 

Comments of 

eter Skrfreml 

Executive Director 

urham Affor 

NationsBanWBank of America Merger Hearing July 9, 1998 

The Charlorre Observer, Charlotte, North Carolina, January 10, 1993 -- ” NationsBank Says It’ll 

Try to Clear Up Any P,roblems” referring to consumer lawsuits pending against Chrysler First for 

predatory lending practices. Community activists were concerned, protesting that the 

acquisition of Chrysler First by NationsBank would not necessarily stop the abusive loan 

practices. But regulators approved the acquisition agreeing with NationsBank’s general counsel 

that the Federal Reserve needed to consider the lending practices of NationsBank, not Chrysler 

First. NationsBank stated it “will follow sound lending policies and practices in full compliance 

with all applicable laws and regulations.. .” 

Five years later, the continued questionable lending practices of Chrysler First-now 

NationsCredit - and other NationsBank subsidiaries still haunt banking watch-dog groups and 

hurt some of our nation’s most vulnerable neighborhoods. 

I submit to you a letter from Carlene McNolty, Attorney for the North Carolina Justice and 

Community Development Center, who has reviewed a 1996 loan by NationsCredit to Audrey 

and Kenneth Snipes. She found several violations. NationsCredit failed to disclose loan terms, 

including that it was an adjustable rate mortgage. It packed the loan with fees, including over 

$5.000 in settlement fees for a $110.000 loan, and thus charged usury rates under North Carolina 

law. NationsCredit then flipped the loan by increasing the adjustable rate by two points within 

the first year and then offering the Snipes to refinance for a fixed rate. The Snipes were told that 

if they refinanced with another lender they would face several thousand dollars in prepayment 

penalties. 

I introduce into the record the case of Beatrice M. Smith, who is currently in litigation with 

NationsBank over predatory lending practices by NationsCredit. Ms. Smith claims the loan 

terms were not fully disclosed, the loan was packed with high fees including life credit 

insurance, and that the loan was flipped six times in six years starting with Chrysler First and 

ending with NationsCredit. Ms. Smith is now fighting foreclosure by NationsCredit after 

rejecting an offer to stop a media story on the issue in exchange for having her loans forgiven 
I introduce into the record the concerns of a resident from Morrisville, North Carolina, who feels 

that she has been taken advantage of by NationsCredit and that she is now being harassed so her 

equity rich land might be taken, 

In his protest of this merger, Matthew Lee of Inner City Press/Community on the Move makes a 

convincing analysis of HMDA data that Equicredit, a subprime lender recently obtained by 

NationsBank through the Bamett Bank merger, has a disproportionate share of loans to African 

Americans as compared to white borrowers. This market share to African Americans is in stark 

contrast to the lending practices of NationsBank and Nations Mortgage, which is predominately 

to whites. Mr. Lee raises the concern that Equicredit targets minorities for its higher interest 

rate. higher fee loans. NationsBank is now responsible for Equicredit and we wonder how these 

two markets will be served by these institutions. 

These complaints look very much like the complaints filed against Chrysler First lending 

practices. The Durham Affordable Housing Coalition believes those community activists were 

right to be concerned regarding NationsBank’s acquisition of Chrysler First. The Federal 

Reserve did little to address these concerns then. What will the federal regulators do to address 

these lending practices now? We request that the Federal Reserve investigate NationsCredit 

lendine practices and place conditions on the merger to insure that these practices are ended and 

not expanded throughout the country. 

NationsBank is a big player in the sub-prime lending market 

Chrysler First became NationsCredit. a new division of NationsBank. It has grown 

tremendously with the acquisition of Equicredit, a subsidiary of Bamett Bank, with assets of 

more than $30 btlhon. In addition to being the owner of the largest sub-prime lenders in the 

country. NationsBank also plays an important role in financing other parallel banking institutions 

including check cashing companies and other finance corporations. 

According to the Security Exchange Commission, NationsBank was a primary lender of 

Southland Associate. Commercial Credit Loans, Morequity Inc., and American General Finance 

among others. 

NationsBank won the dubious honor of being in the Mother Jones Hall of Shame for 

participating in setting up a $125 million line of credit for Cash America (July/August 1994 

issue). Cash America is the nation’s largest pawn chain. Cash America charges an annual 

interest rate that averages 200 percent and targets those without bank accounts. 

The size of NationsBank before the merger makes it an important and dominant player in setting 

industry practices for subprime lending and parallel banking institutions. The responsibility of 

NationsBank to set a positive industry standard is large given its role in the market and the 

claims of social responsibility made by its leaders. 

L am not yet impressed by Ken Lewis’ pledge to run NationsCredit right or not at all. Surely it 

has not taken five years since acquiring Chrysler First to come to the conclusion that changes 

need to be made. A similar promise was made in addressing Chrysler First’s lending practices. 
What the bank proposes to do to become a progressive industry leader in this area is not 

addressed by its community reinvestment pledge released in May 1998. It is completely silent 

on the role that NationsCredit plays now and will play in the future. It is completely silent on its 

role as a financier of other finance companies to influence their practices. 

The Durham Affordable Housing Coalition appreciates NationsBank’s offer to include the 

Community Reinvestment Association of North Carolina in discussions on how it will address 

these subprime lenders’ practices in coming up with win/win solutions. Results, as well as 

process, are important to address these concerns. We again ask the Federal Reserve to mace a 

condition on the merger that provides an enforcement role in examining NationsCredit lending 

practices. 

The Durham Affordable Housing Coalition applauds the many fine things that NationsBank has 

done in Durham and North Carolina. For example, the Coalition receives funding from 

NationsBank for our counseling and homeownership marketing campaign. The testimony of 

others and the record will show that NationsBank has done many good things. But as long as 

NationsBank continues to operate NationsCredit in an unethical and illegal manner, charity on 

one hand can not excuse these predatory lending practices on the other. 

The Durham Affordable Housing Coalitions offers the following recommendations for 

improvements by NationsBank’s management of NationsCredit. 

1) 

2) 

3) 

4) 

3 

6) 

7) 

8) 

9) 

10) 

Have NationsCredit offer A credit products as well as B and C products. Begin to see 

NationsCredit as a tool for community development that provides a range of appropriate 

_ not harmful -- loan products and financial services. 

Change the pay and incentive plan of NationsCredit front line personnel so that fees and 

commissions are not the primary incentive in delivering products. Limit the fees paid to 

brokers for referrals. 

Develop a standard pricing system for risk that provides a range of price over the 

continuum of risk. Recognize the value of the real estate collateral of the loan in pricing. 

Develop a loan review process to ensure that the loans are soundly, fairly and legally 

underwritten. 

Contract for self-testing for fair housing as well as consumer protection violations. 

Require subprime companies that are financed by NationsBank to meet similar industry 

standards. Do not buy subprime loans that are predatory in nature as a secondary 

market. 

Provide leadership in calling for legislative and regulatory reforms that will provide 

greater protection to consumers. This is needed to create a level playing field for 

NationsCredit in competing with other subprime lenders. 

Have Hugh McCall demonstrate his commitment and leadership to cleaning up the 

practices and image of NationsCredit. 

Provide HMDA data for NationsCredit as a separate lender for the public to better 

analyze its overall lending practices and address concerns of targeting minorities 

Make a good faith effort to review loans and make whole those who have been harmed 

by illegal loan practices.