Challenge to MBNA, February 22, 1999

The Inner City Public Interest Law Center
on Behalf of the Delaware Community Reinvestment Action Council

                                                                          February 22, 1999

Mr. Michael G. Tiscia
Licensing Manager
Office of the Comptroller of the Currency
Northeast District
1114 Avenue of the Americas, Suite 3900
New York, NY 10036-7780

Mr. Alan Herlands
Office of the Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219

Re: Timely comment opposing the applications of
        MBNA America Bank to acquire PNC National Bank

Dear Messrs. Tiscia and Herlands:

On behalf of the Delaware Community Reinvestment Action Council (“DCRAC”) and the Inner City Public Interest Law Center (“ICPILC” or the “Center;” together, the “Protestants”), this letter and the attachment hereto are a timely comment in opposition to the above-captioned application.

We have a number of concerns about the performance of MBNA America Bank, N.A. (“MBNA”) under the Community Reinvestment Act (“CRA”), and about the OCC’s assessment to date of their performance. MBNA’s most recent CRA performance evaluation is now substantially out-of-date. Not only does it date from 1995 (that is, four years ago) -- that performance evaluation states, inter alia, that MBNA America Bank does not make small business loans: “MBNA does not offer... small business loans.” Exam at 3. That is simply not the case, as a simple search of the FFIEC’s CRA Disclosure data base will show. See <http://www.ffiec.gov/webcraad/cradiscl.htm>.

In fact, MBNA was the seventh largest small business lender in the entire United States in 1997. See, e.g., Bloomberg newswire of February 4, 1999, 7:56 a.m. EST. MBNA’s extensive small business lending not only confirms that the CRA performance evaluation that MBNA is asking the OCC to rely upon in this proceeding is substantially out-of-date -- the Protestants are also disturbed by MBNA’s small business lending’s disproportionate exclusion of low- and moderate-income communities, and, separately, by the percentage of this lending, even in the State of Delaware, that is outside of MBNA’s (too small) CRA assessment area. We also believe that MBNA’s designation as a “limited purpose” bank for CRA purposes is not appropriate, and we hereby challenge and seek the recission of that designation.

“Limited purpose bank” are defined in the CRA regulation, at Section 12(o), as “a bank that offers only a narrow product line (such as credit card or motor vehicle loans) to a regional or broader market.” Institutions which are home mortgage or small business lenders -- are, almost without exception, not entitled to limited purpose designation -- inter alia because mortgage and small business loans are reported under HMDA and CRA, respectively, and are a primary basis for assessing the CRA performance of normal (that is, non-limited purpose) banks. MBNA’s volume of small business lending (see article cited supra, and analysis infra) make it currently ineligible for limited purpose bank designation, and such designation should be withdrawn, and the distribution of MBNA’s small business lending should be evaluated.

MBNA’s CRA assessment area is far too narrow. For example, for 1997 small business loans in Delaware reported to the FFIEC, less than 10% of these loans were within MBNA’s self-defined CRA assessment area. In that year, MBNA made, in the Wilmington DE MSA, 118 loans to businesses with annual sale below $1 million. Only 10 of these loans were within MBNA’s CRA assessment area, while 108 loans were outside of the assessment area. Clearly, MBNA’s assessment area is too narrowly drawn.

As will be seen below, in county-by-country analysis, MBNA’s small business lending disproportionately excludes low- and moderate-income (“LMI”) areas. As simply one example, in 1997 MBNA made fully 262 small business loans to businesses with sale below $1 million in New York County (Manhattan), while making only 20 such loans in the adjacent, much lower income country of The Bronx.

The Protestants note to the OCC that, for example, in connection with Associates’ applications to buy two credit card portfolios in 1997 and the Protestants’ comments in connection therewith, the OCC went and conducted an on-site examination of Associates’ credit card lending. There appears no basis to not follow that precedent here, and for the OCC, prior to considering this application, to go and conduct an on-site examination of MBNA’s credit card lending AND small business lending (which, contrary to the Associates’ situation, and as set forth above, the OCC has NOT considered before). See, e.g., the above-quoted OCC statement in the (outdated) most recent CRA performance evaluation of MBNA.

For further example, here is DCRAC’s analysis of certain other counties -- the OCC should conduct similar analysis for other counties where MBNA makes substantial portions of its small business loans:

MBNA AMERICA, N.A. SMALL BUSINESS ANALYSIS (1997)

Community Development Lending

Two loans for $6,000
Nationally, all lenders made 41,794 CD loans for over $18.6 billion.

SMALL BUSINESS LENDING ANALYSIS
(For Loans Below $100,000)

In Assessment Area: 10 loans for $117,000.
Outside AA: 30,544 loans for $370,593,0000. (Includes 12 loans in Kent County, DE)

Total in Delaware: 22 loans for $270,000.

SMALL BUSINESS LENDING DISPARITY [Again, all analysis is for loan amounts below $100,000. Very few loan amounts are greater than $100,000.]

Connecticut [Median Household Income (MHHI) $42,102]
Fairfield County [MHHI $50,669]
176 loans for $2,330,000.
Litchfield County [MHHI $44,470]
8 loans for $91,000.
Windham County [MHHI 36,770}
2 loans for $22,000.

Maine [Median Household Income (MHHI) $28,732]

The four Counties where MBNA made loans, all have MHHI above the state
MHHI.
Androscoggin County [MHHI $30,092]
14 loans for $125,000.
Cumberland County [MHHI $35,086]
44 loans for $480,000.
Penobscot County [MHHI $29,382]
22 loans for $306,000
York County [MHHI $36,027]
6 loans for $36,000
State total 86 loans for $947,000.

New York [Median Household Income (MHHI) $32,654]
Bronx County [MHHI $21,454]
24 loans for $296,000
Chautauqua County [MHHI $27,454]
16 loans for $150,000
Cemung County [MHHI $29,389]
6 loans for $38,000
Dutchess County [MHHI $43,785]
34 loans for $364,000
Nassau County [MHHI $53,547]
161 loans for $1,991,000

Washington County [MHHI $30,699]
5 loans for $68,000
New York State: 308 loans for $4,111,000.

Texas [Median Household Income (MHHI) $28,803]

Archer County [MHHI $29,049]
1 loan for $10,000
Fort Bend County [MHHI $48,711]
40 loans for $423,000
Orange County [MHHI $30,524]
3 loans for $25,000
Wichita County [MHHI $27,994]
12 loans for $164,000

Further concerns exist as to the specifics of MBNA’s activities in the field of home mortgage lending. The New York Times of June 2, 1998 (C. Levy, D’Amato Campaign Fund Awash in Donations by Hopeful Lobbyists), MBNA is “one of the Senator’s biggest benefactors, having channeled more than $500,000 in recent years to campaign committees that he lead... In MBNA’s case, D’Amato has unsuccessfully supported the company’s efforts to revamp the consumer protection statute, which is most instances bars mortgage providers from paying fees to get referrals. MBNA says the statute is hindering its expansion in the mortgage business, while consumer groups say lifting the ban would drive up the cost of buying a home.” Emphasis added. MBNA’s current and planned activities in the field of mortgage should be closely scrutinized, particularly in light of MBNA’s disparate pattern of small business lending, which the OCC has apparently never examined (see supra)....

...As you know, DCRAC timely requested an extension of the comment period until at least March 3, 1999. We are in receipt of Mr. Herland’s letter of February 19, stating that the OCC ‘will be happy to consider the comments that you submit to the OCC by the close of business February 22.” In this letter, being submitted less than a business day after our receipt of Mr. Herlands’ letter, and before the close of business on February 22, we renew our request for a formal extension of the comment period, on the following grounds:

The OCC’s amended Part 5 regulation, at 12 C.F.R. §5.10(b)(2), provides for an extension of comment periods if, inter alia, the public has difficulty in accessing information related to the application, or a requester demonstrates that additional time is necessary to develop factual information that is necessary to consider the application, or under other extenuating circumstances.....

...DCRAC requested the full application weeks ago, and to date has received only a handful of pages. Either the entire application has not been provided to DCRAC, or it has become clear that the OCC’s amended Part 5 has inappropriately reduced to a point of meaninglessness the information available to the public on a proposed acquisition like MBNA’s proposal. For the record, the protestants are requesting the entire application -- all records that are not exempt under FOIA -- and only those portions of the application for which MBNA did not request confidential treatment. MBNA has inappropriately requested, and to date received, confidential treatment for such basic documents as the Merger Agreement (“Confidential” Exhibit 3) and the Stock Purchase Agreement (“Confidential” Exhibit 1). We are requesting those, and all over improperly withheld records, and an extension of the comment period....

...Furthermore, note that while the OCC’s web site stated that this application was “received” on January 15, 1999, no earlier than February 2, 1999, did MBNA submit required CRA (and HHI) information. See MBNA’s counsel’s memorandum of February 2, 1999, and the attachments thereto, in one of which MBNA blandly reports that it has never “entered into commitments with community organizations” to provide services to the community. Not only does this seem to contradict MBNA’s proclamations about its partnerships with communities -- it also should not militate for faster closing of the comment period. The required CRA information was late submitted, and this militates (along with the other factors set forth above) for the re-requested extension of the comment period.

For all of the foregoing reasons, the comment period on this application should be extended, and, on the current record, the application could not legitimately be approved.

If you have any questions, please telephone either of the two undersigneds.

Sincerely,

Rashmi Rangan                 Matthew Lee
Executive Director            General Counsel, ICPILC
DCRAC                           Special Counsel to DCRAC
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