Capital One said nearly 60 percent of the multi-year investment would go toward making more auto and consumer loans as well as providing credit cards. Roughly $28.5 billion would be set aside for more home lending; $22 billion for farm and small business loans; and $25 billion for affordable housing and revitalization loans. The remaining $450 million would be doled out as grants to support economic development and financial education.
Officials from the company declined to say how theses commitments compare with its current lending in low- to moderate-income communities.
The investment would build “on our strong record and represents a comprehensive approach,” Dorothy Broadman, head of community development banking at Capital One, told the Fed panel. “This commitment reflects expected growth in our business resulting from [the ING Direct] acquisition.”
The commitment comes as critics say Capital One should not be allowed to purchase ING Direct without doing more to address the needs of underserved communities. Consumer interest groups led by National Community Reinvestment Coalition are accusing the bank of discriminating against low- to moderate-income mortgage applicants and credit card borrowers.
Capital One, they say, has failed to extend Federal Housing Administration-insured loans to people with credit scores of 580, though it is permitted by the agency. They say the bank has also reduced its FHA loans to the detriment of minority borrowers who rely on that market.
Critics also accuse Capital One of steering low- to moderate-income borrowers into subprime credit cards, rather than traditional loans. Activists argue these issues will be exacerbated if the bank folds in ING Direct, a $9 billion deal that would make Capital One the fifth largest bank by deposits.
In response to these concerns, Capital One has agreed to adhere to the FHA requirements by 2012 and participate in the Treasury Department’s Hardest Hit Fund for homeowners.
Even with such assurances, NCRC chief executive John Taylor expressed skepticism. “I wouldn’t believe the promises Capital One makes now unless they are in writing, and with some method of enforcement and accountability,” he said.
He also criticized other elements of Capital One’s approach.
“They are plowing safe deposits into their riskier credit card and auto lending business, much of which is subprime,” Taylor said in an e-mail following the hearing. “This is more about public relations than about serving low- and moderate- income communities.”
It’s unclear whether the Fed will make Capital One’s pledge a formal condition for approving the merger. Even if they did, it would be up to the Office of the Comptroller of the Currency to enforce it. Capital One said annual performance reports judging the progress of the investment would be available on its Web site.
The proposed Capital One-ING merger is the first to move forward since a new law went into effect requiring regulators to determine whether the combination would be a threat to the financial system. As part of its review, the Fed extended the comment period and added public hearings, leading some analysts to speculate that the move could strengthen the hand of activists seeking greater concessions.
“If public pressure is making a corporation step up to be more generous to the low-income community, that’s what you want,” said Nina Janopaul, president and chief executive of Arlington Partnerships for Affordable Housing, which received financing from Capital One to redevelop low-income housing. “And that’s what Capital One’s critics are getting.”
Janopaul, along with 40 other community advocates and small-business owners, testified in support of Capital One, praising its efforts to help underserved communities. The other 30 speakers at the nine-hour-long hearing, however, insisted the bank has done little but exploit that population to turn a profit.
Chanelle P. Hardy, senior vice president and executive director of the National Urban League Policy, who testified against the merger, nonetheless commends Capital One’s commitment.
“It’s a gesture of good faith on its face,” she said. “We want to see a reversal of the damage that has been done to underserved communities, particularly in the housing market.”