With enthusiastic endorsements from top U.S. financial regulators, a Memphis, Tennessee-based organization has signed up 250 banks in 47 states to fund a program dedicated to fighting crime in nursing homes.
In return, the Senior Housing Crime Prevention Foundation promises the banks will earn “risk-free” credit for complying with the Community Reinvestment Act, the federal law requiring them to bolster the economies of low-income neighborhoods.
Banks working with the group aim to satisfy the law’s imperatives in a novel way: Instead of the typical affordable housing projects or small-business loans, they have loaned or invested almost $350 million to pay for personal lock boxes for nursing-home residents, a 24-hour crime-reporting hotline and entertainment including karaoke machines and video game systems.
While the foundation’s website states that its Senior Crimestoppers program cuts crime by 92.5 percent, its officers said they couldn’t release crime data from individual nursing homes because of confidentiality agreements. Interviews with some participating homes suggest the calculation isn’t rigorous.
The foundation’s financial structure and its close ties to the company that supplies the lock boxes depart from standard charity practices, according to analysts who reviewed the records at the request of Bloomberg News. The impact of the donated lock boxes also is unclear. Some nursing home administrators said they don’t need or use them because residents already have locking dresser drawers.
The foundation and regulators are giving banks a way to circumvent the spirit of the law known as CRA, said Peter Skillern, executive director of the Community Reinvestment Coalition of North Carolina, a nonprofit advocacy group.
“That is not in any way related to lending or investing in neighborhoods,” Skillern said in an interview. “This is an operation that allows banks to avoid substantive, meaningful CRA investment, and its operations lack transparency and accountability.”
Under the 1977 law, banks must lend and invest in their regions to benefit people with low and moderate incomes or face restrictions when they seek to expand. While some fairly large banks such as SunTrust Banks Inc. (STI) and BB&T Corp. (BBT) participate in Senior Crimestoppers, the program holds special appeal for institutions with a few billion dollars in assets that may have difficulty competing with bigger banks for CRA-qualified investments, foundation officials said.
Banks earning credit through Senior Crimestoppers take on less risk than they would in traditional projects. Their funds are parked in government bonds or other instruments of their choosing and they keep any returns above a one percent fee to Senior Crimestoppers — which uses its cut to pay for the lock boxes and other program expenses.
While the banks get their principal back after seven or more years, regulators routinely give them credit for the full amount on deposit with the program, rather than just the one percent in interest they effectively donate.
At annual conventions held to recruit new banks, the organization’s speakers have included Sheila Bair, then-chairman of the Federal Deposit Insurance Corp.; Martin Gruenberg, now acting FDIC chairman; Elizabeth Duke, a Federal Reserve Board governor; and John Reich, a former director of the Office of Thrift Supervision. All three agencies give community reinvestment credit for Senior Crimestoppers. Reich joined the foundation’s board after leaving OTS.
“The FDIC strongly supports these efforts, and we show it by granting CRA credit for loans and investments that banks make in the foundation,” Bair told about 200 bankers attending the 2009 convention at the Willard InterContinental Hotel down the street from the White House. “Your work will be increasingly relevant for many years to come.”
Senior Crimestoppers, on its website, bills itself as “the only initiative, public or private, that is having a measurable impact on the problem of nursing home crime in America.” It calls the 92.5 percent drop “a true barometer of results, based on fact.”
Peter Gwaltney, chairman, chief executive officer and president of the foundation, said the group doesn’t claim that its crime data is capturing every incident.
“We don’t hold it up to be perfect,” Gwaltney said in an interview. “It’s just the best we can do.”
Gwaltney, 48, said he’s proud of the service provided by Senior Crimestoppers, which he said is intended to supplement, rather than supplant, typical community development. It helps smaller banks seeking CRA projects that aren’t too risky in a difficult economic environment, he said.
“We just want to be a small part of every bank’s CRA program,” Gwaltney said.
For some banks, Senior Crimestoppers is their only major CRA investment. That’s been the case for the Bank of Oak Ridge in North Carolina, which in 2007 gave $1.6 million to be held for 10 years in a bond. The foundation’s one-percent take amounted to about $64,000 through 2010, according to a FDIC examination report. The rest of the earnings went to the bank. At the end of the 10 years, the bank gets its $1.6 million back.
The investment by the Bank of Oak Ridge sponsors Senior Crimestoppers at two nursing homes in nearly Greensboro. The FDIC, in its most recent published CRA examination of the bank, categorized the transaction with the foundation as an “affordable housing” investment worth $6.4 million — the $1.6 million loan multiplied by the four years it was held by the program during the exam period.
While the bank also makes CRA-qualified loans to a women’s shelter and small businesses, Senior Crimestoppers is a good way to serve the community, Karen Lewis, the bank’s CRA director, said in an interview.
“This is one of those ways that we can do it, and we can qualify for CRA credit as well — and also it is low-risk,” said Lewis, who said she visited the nursing homes to give supplemental talks on avoiding identity theft.
Senior Crimestoppers has its roots in a for-profit business started in 1995 by Charles C. King III of Memphis, whose previous ventures included a dumpster franchise and an invention he called Sun Centers — coin-operated Polynesian-themed kiosks where beachgoers could get sprayed with suntan lotion.
King was employed by a division of Memphis-based National Commerce Bancorp. that was looking to provide non-traditional services. “My brain started working, and I said, you know what would really be effective is if we could adapt local crimestoppers programs and couple that with lock boxes for residents in nursing homes,” King, 66, said in an interview.
He found a company that made the “lounge locker” — a box attached to pool furniture to protect swimmers’ valuables. King said the boxes and hotline proved popular in nursing homes where they were tested. The bank created a subsidiary called USI Alliance with King in charge and trademarked the Senior Crimestoppers name.
USI Alliance charged nursing homes a few dollars a month per bed, suggesting they pass the cost to residents “at an increased rate, thus creating an additional profit center,” according to a 2001 operations manual the company submitted to the Internal Revenue Service. The company offered a cut to nursing home associations that recruited their members.
The operation had nothing to do with the Community Reinvestment Act until 2000. National Commerce’s depository bank had been getting relatively low CRA scores from regulators and, according to King, wanted to raise its rating. He said he flew to Washington to convince the bank’s overseer, the Office of the Comptroller of the Currency, that Senior Crimestoppers should qualify as a service project under recently expanded CRA guidelines, because nursing home residents are typically poor.
The OCC agreed. “We reviewed it and it fit,” Barry Wides, the agency’s deputy comptroller for community affairs, said in an interview
King wanted other banks to participate. To claim CRA credit, those institutions would need entities to receive donations, loans or investments. King and colleagues set up a complex structure. USI Alliance would continue to operate as a for- profit, supplying the lock boxes, hiring a contractor to run the hotline, paying reward money for tips that lead to arrests and doling out cash grants for entertainment. A new non-profit Senior Housing Crime Prevention Foundation would accept bank loans. A new for-profit, the Senior Housing Crime Prevention Investment Fund, would handle bank investments.
The Internal Revenue Service initially rejected the foundation’s application for tax-exempt status, saying in a 2003 letter that it appeared to be little more than a “valuable, captive source of business” for USI Alliance, which also had several of its people on the foundation’s board.