[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE COMMUNITY REINVESTMENT ACT:
ASSESSING THE LAW'S IMPACT ON
DISCRIMINATION AND REDLINING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION
AND FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 9, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-16
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-447 PDF WASHINGTON : 2019
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Consumer Protection and Financial Institutions
GREGORY W. MEEKS, New York, Chairman
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri,
NYDIA M. VELAZQUEZ, New York Ranking Member
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DENNY HECK, Washington BILL POSEY, Florida
BILL FOSTER, Illinois ANDY BARR, Kentucky
AL LAWSON, Florida SCOTT TIPTON, Colorado, Vice
RASHIDA TLAIB, Michigan Ranking Member
KATIE PORTER, California ROGER WILLIAMS, Texas
AYANNA PRESSLEY, Massachusetts BARRY LOUDERMILK, Georgia
BEN McADAMS, Utah TED BUDD, North Carolina
ALEXANDRIA OCASIO-CORTEZ, New York DAVID KUSTOFF, Tennessee
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
C O N T E N T S
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Page
Hearing held on:
April 9, 2019................................................ 1
Appendix:
April 9, 2019................................................ 45
WITNESSES
Tuesday, April 9, 2019
Baradaran, Mehrsa, Professor of Law, University of Georgia School
of Law......................................................... 9
Glantz, Aaron, Senior Reporter, Reveal from the Center for
Investigative Reporting........................................ 14
Mitchell, Benson Doyle, Jr., President and CEO, Industrial Bank,
testifying on behalf of the National Bankers Association....... 12
Odom, Clint, Senior Vice President and Executive Director,
National Urban League Washington Bureau........................ 11
Roberts, Benson F., President and CEO, National Association of
Affordable Housing Lenders..................................... 16
Van Tol, Jesse, Chief Executive Officer, National Community
Reinvestment Coalition (NCRC).................................. 7
APPENDIX
Prepared statements:
Baradaran, Mehrsa............................................ 46
Glantz, Aaron................................................ 63
Mitchell, Benson Doyle, Jr................................... 71
Odom, Clint.................................................. 91
Roberts, Benson F............................................ 100
Van Tol, Jesse............................................... 114
Additional Material Submitted for the Record
Meeks, Hon. Gregory W.:
Written statement of Greg Baer, CEO, Bank Policy Institute... 143
Written statement of the Consumer Bankers Association........ 147
Written statement of the Credit Union National Association... 172
Porter, Hon. Katie:
Written responses to questions for the record from Mehrsa
Baradaran.................................................. 173
THE COMMUNITY REINVESTMENT ACT:
ASSESSING THE LAW'S IMPACT ON
DISCRIMINATION AND REDLINING
----------
Tuesday, April 9, 2019
U.S. House of Representatives,
Subcommittee on Consumer Protection
and Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks
[chairman of the subcommittee] presiding.
Members present: Representatives Meeks, Scott, Clay, Heck,
Foster, Tlaib, Porter, Pressley, McAdams, Ocasio-Cortez,
Wexton; Luetkemeyer, Lucas, Tipton, Williams, Loudermilk,
Kustoff, and Riggleman.
Ex officio present: Representatives Waters and McHenry.
Chairman Meeks. The Subcommittee on Consumer Protection and
Financial Institutions will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of this subcommittee are
authorized to participate in today's hearing.
Today's hearing is entitled, ``The Community Reinvestment
Act: Assessing the Law's Impact on Discrimination and
Redlining.''
I now recognize myself for 5 minutes to give an opening
statement.
Ranking Member Luetkemeyer, members of the subcommittee,
welcome to this hearing on modernizing the Community
Reinvestment Act (CRA). The work of our subcommittee is
critical because we consider the complexities of an evolving
banking sector enabled by rapid developments in technology and
critically important issues of consumer protection.
Today's hearing is an example of these opportunities and
challenges and the importance of not losing sight of our
obligations to American families, small businesses, and the
least fortunate among us.
The Community Reinvestment Act was enacted into law in 1977
as a direct response to the long, painful legacy of structural
discrimination, financial exclusion, and economic suppression
of racial minorities in America. Banking, finance, housing, and
access to capital more broadly are key pillars to the
opportunity in breaking cycles of poverty and exclusion.
I come from a family of very humble means. My parents'
access to financing to purchase their home was among the most
important circumstances that laid a path for me to go to
college, become an attorney, and ultimately to serve as a
Member of Congress. My siblings' lives were equally impacted by
my parents' ability to build equity and allow us to grow up in
a home.
Conversely, I have relatives who were deprived of this
opportunity and whose children's and grandchildren's lives have
equally been impacted in a negative form. We could not downplay
the legacy of redlining, structural discrimination in the
financial sector, and how its impact echoes through time to
this very day.
We will hear in the testimony of the witnesses here today
how the CRA has contributed to redressing some level of
discrimination in access to banking services and lending,
including specifically mortgage lending. But we will also hear
how shocking patterns of discrimination persist, and how racial
minorities continue to find themselves disproportionately
denied mortgages and the chance at home ownership.
Sadly, we will also hear how a brutal combination of
disproportionate impacts from the financial crisis combined
with a retrenchment of bank branches have effectively erased
nearly all of the gains in Black homeownership over the past 50
years and led to a situation with a gap between Black and white
homeownership, and that Black wealth is at a level comparative
to the pre-civil rights era. I repeat: We must do better.
I look forward to hearing from our witnesses their thoughts
on effective ways to modernize CRA to address these issues,
consideration of Fintech, the rapid increase in urban and rural
banking deserts, and the importance of nonbank lenders who are
not covered by the CRA.
Ultimately, I believe that we are interested in ensuring
that banks and lenders continue to meet their obligations to
the unbanked and underbanked, and that evolving business models
and emerging technologies do not lead to increased exclusion or
new patterns of discrimination.
The CRA undoubtedly needs to be modernized. And last year,
the Office of the Comptroller of the Currency (OCC) put forward
an advance notice of proposed rulemaking (ANPR), which laid out
some important questions for discussion but also raised some
red flags for advocates of CRA.
My office submitted a comment letter, which I am entering
into the record here, raising some concerns and calling on the
OCC to protect the integrity of the CRA. The OCC revived some
1,500 comment letters, and it was rewarding to see that the
idea of protecting the integrity of the CRA was a common thread
through most, alongside many good ideas for consideration with
respect to assessment areas, transparency, accountability, and
focus on impacting others.
It has also been very helpful for the Federal Reserve to
weigh in, including specifically Governor Brainard, whose
comments on CRA modernization have been thoughtful and offer a
constructive framework for tackling complex issues.
In private meetings, and now here on record, I urge the
OCC, the FDIC, and the Fed to work in concert on CRA
modernization in good faith, to take a thoughtful, inclusive
approach, and to consider carefully the original intent of the
legislation.
I was very encouraged to hear that the OCC, the FDIC, and
the Federal Reserve have been working to harmonize their CRA
review process and will meet on April 11th, 2 days from now, to
begin mapping out a notice of proposed rulemaking. I very much
look forward to discussing these issues further today with the
panel of witnesses and members of the subcommittee.
With that, I now recognize Ranking Member Luetkemeyer for
his opening statement.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And thank you for
bringing this important issue and topic in front of the
subcommittee. I am glad we are having this hearing today to
discuss how banks meet the credit needs of their local
communities.
Throughout my career in the financial services industry,
and my time in Congress, I have championed access to credit for
all individuals and businesses. Banks should not decide to make
loans based on the gender or race of an individual and should
not deny loans to individuals based on the neighborhood in
which they live.
Similarly, banks should not be forced to deny loans and
eliminate accounts of legal operating businesses simply because
certain regulators or public officials do not like the industry
in which they operate.
It is the role of banks to take into account
creditworthiness to determine if an individual business is
eligible for access to financial services. While the vast
majority of banks work very hard to support and serve their
communities, the truth remains that too many Americans are
either unbanked or underbanked.
Enacted in 1977 to address the banking needs of underserved
communities, the Community Reinvestment Act was well-intended
and the original objective was noble. It sought to combat
redlining, the practice where individuals were discriminated
against based on where they lived and what their neighborhood
looked like.
Unfortunately, the CRA as it exists today is very
different. Over 40 years later, the CRA has proven to be an
overly burdensome requirement for financial institutions while
granting broad authority to regulators with little transparency
and clarity on how to comply.
Although the CRA has been amended numerous times since
1977, many of the rules associated with CRA are not only from
the pre-cellphone era, but they are from the pre-internet era.
Since 1977, the banking industry has gone through a major
evolutionary shift thanks to constantly changing technology. We
now see Fintech companies popping up everywhere looking to meet
the challenging credit needs of American consumers.
Local bank branches are seeing shorter lines as consumers
turn to online banking. In fact, everyone in this room could go
online right now and do nearly all of their banking without
leaving their seat. As banks partner with and acquire these
Fintech companies, changing the way they serve their customers,
so must the CRA change the way it applies to banks.
In reassessing the CRA, banks should be aware of the
specific requirements they must meet. For example, the CRA
requires regulators to examine the innovativeness banks use to
service groups of individuals they previously did not. However,
no formal definition of ``innovativeness'' has been
established, leading banks to face a subjective process.
Across the nation, bankers want clarity on how to comply
with CRA and better serve low- and moderate-income individuals
in their communities. In order to solve the many issues of CRA
over the last year, financial regulators have begun the process
of utilizing their authority to bring the CRA into the 21st
Century and align it with the realities of the banking industry
today.
I believe this is the correct approach and regulators
should continue their work to fix this outdated regulation.
These changes are well overdue, and I look forward to the
discussion with the panel today to determine what is not
working with CRA as it exists today and what changes must be
made going forward.
I thank the panel of witnesses for appearing this morning
to discuss this important matter, and I yield back.
Chairman Meeks. The gentleman yields back.
And, without objection, the chairwoman of the Full
Committee, Chairwoman Waters, is recognized for 2 minutes, and
I will also give the ranking members an additional 2 minutes if
they want it.
I now recognize the chairwoman of the Full Committee.
Chairwoman Waters. Thank you very much, Mr. Chairman. I
thank you for holding this long overdue hearing on the
Community Reinvestment Act, a law of immense importance that
was put in place to ensure fair access to credit and banking
services.
CRA is one of the most important and impactful civil rights
laws applicable to federally insured banks. Enacted into law by
Congress in 1977, CRA addresses how banks meet the credit and
capital needs of the communities they serve. CRA was passed in
response to redlining, a pernicious practice by which banks
discriminated against prospective customers based primarily on
their racial or ethnic background and where they live rather
than credit worthiness.
However, recent data compiled by one of our witnesses finds
discrimination in lending continues to be a problem and
redlining continues to be pervasive in more than 60 metro areas
across the country. In addition, in 2018, bank regulators gave
98 percent of banks a passing CRA grade. There is a clear
disconnect, and these outcomes are simply unacceptable.
CRA must be strengthened to ensure that neglected
communities are fully and fairly served by banks that enjoy the
backing of all U.S. taxpayers. Furthermore, policymakers should
strive to strengthen CRA's legal framework and explore ways to
improve how it is implemented and administered.
Mr. Chairman, I think that the leadership that you and
others are providing on this issue at this time is extremely
important. The days are over when banks could get CRA credit
for a church banquet and a banner on the wall. The days are
over when it was 50 cents to the Boy Scouts and 25 cents to the
Girl Scouts. It has to be better. It has to be about doing what
this law was intended to do. So I thank you for today's
hearing, and I yield back the balance of my time.
Chairman Meeks. I yield 2 minutes to the ranking member of
the Full Committee, Mr. McHenry.
Mr. McHenry. I thank the chairman.
Chairman Meeks, thank you for holding this hearing.
And thank you, Ranking Member Luetkemeyer.
In 1977, the Community Reinvestment Act was passed. This
was 6 years before the first mobile phone became available to
the public. And while the objectives of CRA are not a relic,
the means to reach it are, in fact, antiquated in our current
marketplace.
Today, the CRA is an analog approach in a digital world.
Ninety-five percent of Americans own a cellphone, so you can no
longer measure a bank's commitment to its community based on
the number of physical branches. So we can and we should do
better. This should be a bipartisan understanding that we have.
So we should do more to ensure that there is equal access to
consumer credit.
There are, in fact, banking deserts in this country in both
urban and rural areas. So, while the goal of the CRA is
laudable, the results aren't quite as sterling as we need them
to be. We need to update this regulation, update the law, in
fact, if we are able, to ensure that banking is available to
people on their terms through the medium they choose.
It is time to reform CRA, not to allow financial
institutions a free pass but to ensure they are in the best
possible position to serve their communities, serving their
communities as those communities deserve to be served by the
means that they deserve to be served, like all good consumers.
So I hope we can work on this in a bipartisan fashion.
I appreciate the panel, the six of you for being here, and
I look forward to the testimony
Chairman Meeks. Thank you.
We now welcome the testimony of our guests. First, let me
introduce Mr. Van Tol, who is the chief executive officer of
the National Community Reinvestment Coalition. Mr. Van Tol has
been with the NCRC since 2006 and has held a variety of
leadership positions.
His work championing fair and responsible banking has
resulted in nearly $90 billion in new investments in low- and
moderate-income communities through community benefits
agreements with 8 banking institutions. He serves on the board
of the Maryland Consumer Rights Coalition and the executive
committee of the Americans for Financial Reform.
He also sits on a variety of advisory boards, including the
Federal Reserve Board, the Consumer Advisory Council, and
Fannie Mae and Freddie Mac's Affordable Housing Advisory
Councils. He is a member of the consumer advisory councils of
several banks, including Bank of America, Fifth Third, and
others. Mr. Van Tol received his BA in history and
international studies from the University of Wisconsin,
Madison.
Second, Ms. Baradaran is the Associate Dean of Strategic
Initiatives and the Robert Cotten Alston Chair in Corporate Law
at the University of Georgia School of Law. As an associate
dean, she focuses on diversity and inclusion efforts and
national and international faculty scholarships recognitions.
Her teaching portfolio includes contracts and banking law. She
is the author of books entitled, ``How the Other Half Banks,''
and ``The Color of Money: Black Banks and the Racial Wealth
Gap,'' both published by the Harvard University Press.
She also has published articles including ``Banking and
Social Contract,'' ``How the Poor Got Cut Out of Banking,'' and
the ``New Deal with Black America,'' which was selected for
presentation in the 2017 Stanford/Harvard/Yale Junior Faculty
Forum.
She came to UGA from Brigham Young University where she
taught banking regulation, property, and administrative law.
She earned her bachelor's degree cum laude from Brigham Young
University and her law degree cum laude from NYU, where she has
served as a member of the New York University Law Review.
Third, Mr. Odom is senior vice president, policy and
advocacy, and the Washington Bureau executive director of the
National Urban League. Mr. Odom currently serves as the
National Urban League's senior vice president for policy and
advocacy and executive director of the Washington Bureau.
Mr. Odom previously served for a decade in the United
States Senate as Legislative Director for Senator Kamala D.
Harris of California, as Democratic General Counsel of the
Committee on Commerce, Science, and Transportation, and as
General Counsel to Senator Bill Nelson of Florida.
He also served as a Senior Adviser at the Federal
Communications Commission, and practiced law at the law firm of
Dow Lohnes & Albertson, now Cooley LLP. He served as a law
clerk to the Honorable Henry T. Wingate of the U.S. District
Court of the Southern District of Mississippi. He is a graduate
of Louisiana State University and the University of
Pennsylvania Law School.
Fourth, Mr. Mitchell is the president and CEO of Industrial
Bank, and is testifying on behalf of the National Bankers
Association. Mr. Mitchell leads the largest minority-owned
commercial bank in the Washington metropolitan area and the
fifth largest African American-owned financial institution in
the country.
Mr. Mitchell is the third-generation president of
Industrial Bank, which was founded by his grandfather, Jesse H.
Mitchell, in 1934. After receiving his bachelor's degree in
economics from Rutgers University in 1984, he began a full-time
career at Industrial Bank.
He was elected to the board of directors in 1990 and
succeeded his father as president in 1993. Mr. Mitchell is the
immediate past chairman of the National Bankers Association,
which represents the nation's minority banks. He served two
consecutive terms as chairman of the NBA and continues to serve
on the board.
At the request of Chairman-Elect Preston Kennedy of the
Independent Community Bankers of America (ICBA), Mr. Mitchell
now serves on the ICBA 2019/2020 Legislative Issues Committee.
He is also a former member of the ICBA Safety and Soundness
Committee.
Fifth, Mr. Glantz is a senior reporter for Reveal from The
Center of Investigative Reporting. He is author of the book,
``Homewreckers,'' to be published by HarperCollins this fall.
He produces his journalism with impact. His work has
sparked more than a dozen congressional hearings, the signing
of new laws, and criminal probes by the DEA, the FBI, the
Pentagon, and the Federal Trade Commission. His reporting has
been honored with a host of awards, including the George Foster
Peabody award, the Selden Ring, and the duPont-Columbia award.
His work has appeared in many leading media platforms,
including the New York Times, ``NBC Nightly News,'' ``Good
Morning America,'' and the ``PBS News Hour,'' where he has
twice been nominated for a national Emmy award. A recent JSK
fellow at Stanford University, his previous books include,
``The War Comes Home,'' ``Washington's Battle Against America's
Veterans,'' and ``How America Lost Iraq.''
And, finally, we have Mr. Roberts, president and CEO of the
National Association of Affordable Housing Lenders (NAAHL),
which is a national alliance of leading banks, community
development financial institutions, and other capital providers
for affordable housing and inclusive neighborhood
revitalization.
Mr. Roberts was the Director of the Office of Small
Business Community Development and Housing Policy at the U.S.
Treasury Department from 2011 to 2015. He was previously senior
vice president for policy and program development at the Local
Initiatives Support Corporation, a leading nonprofit investor
in low-income community development.
Mr. Roberts has helped to create the low-income housing tax
credit, the new markets tax credit, the HOME Housing
Partnership program, regulatory change to the Community
Reinvestment Act, the Capital Magnet Fund, and Treasury funding
for the FHA multifamily risk-sharing loans to finance
affordable rental housing and bond guarantees for the CDFIs.
We welcome all of our witnesses today. And I want to remind
all of the witnesses that your oral testimony will be limited
to 5 minutes. And without objection, your written statements
will be made a part of the record.
I now recognize Mr. Van Tol for 5 minutes to give his oral
presentation.
STATEMENT OF JESSE VAN TOL, CHIEF EXECUTIVE OFFICER, NATIONAL
COMMUNITY REINVESTMENT COALITION (NCRC)
Mr. Van Tol. Chairman Meeks, Ranking Member Luetkemeyer,
and members of the subcommittee, I want to thank you for
providing me the opportunity to testify. I am the CEO of the
National Community Reinvestment Coalition, which, along with
its 600 grassroots member organizations nationwide, champions
fairness and fights discrimination in banking, housing, and in
business.
I want to start by saying that CRA has been effective.
Federal, academic, and NCRC's own studies have documented the
way CRA has increased the provision of mortgage loans, small
business loans investments, and other financial services in
low- and moderate-income neighborhoods and to low- and
moderate-income people.
But measuring CRA's impact involves proving a
counterfactual: What would happen if it didn't exist? The
Federal Reserve Bank of Philadelphia found that a loss of CRA's
Census tract designation leads to a 10 to 20 percent decrease
in mortgage lending, and we see a similar thing with small
business lending.
Conservatively, we estimate a $52 billion to $105 billion
loss or shift in lending in LMI areas nationwide were CRA to be
significantly weakened or assessment areas transformed. All
told, banks have done over $1 trillion in community development
lending since 1996.
The impact is not just by the largest banks. Even
intermediate to small banks finance about $3 billion annually
in community development projects or about the same amount of
annual funding as the community development block grant program
in its entirety.
Though CRA could do more for rural America, we also see a
positive impact there. For example, in Appalachia we found that
CRA-regulated lenders made nearly $2.5 billion annually in
community development loans and investments.
But CRA has been limited by changes in the market. CRA's
overall impact has declined as the share of loans covered by
CRA has declined. In 1993, 41 percent of mortgage loans were
directly covered by a CRA review. By 2016, only roughly 30
percent of mortgages were covered.
There are two driving forces here: increased lending by
nonbanks; and more out-of-assessment area lending by CRA-
regulated banks. This trend is likely to continue and will be
exacerbated by the growth of financial technology firms with no
CRA obligation.
The fact that regulators are examining less and less bank
lending on CRA exams limits its impact to only a portion of the
market. Most nonbank lenders trail CRA-regulated banks in
lending to LMI borrowers in tracts. In addition, nonbank
lending is consistently more likely to be high cost than bank
lending. For example, government-insured loans to LMI borrowers
by nonbanks were higher cost twice as often as loans to the
same borrowers made by banks.
Weak enforcement and implementation has stymied the law. As
effective as CRA has been as currently structured and enforced,
it has not been enough to reverse the effects of redlining and
discrimination: 98 percent of banks receive passing CRA grades.
It hasn't always been this way. The Clinton Administration
rigorously enforced CRA, failing as many as 10 percent of banks
at one point. Then-Comptroller Eugene Ludwig noted in 1997
that, ``Since 1993, home mortgage loans to low- and moderate-
income Census Tracts have risen by 33 percent in just 4 years.
Mortgage loans to minorities are up almost 38 percent with
African Americans and Hispanics accounting for most of that
gain.''
CRA enforcement has often been encouraged by community
activism and by DOJ litigation then leading to regulatory
action. The differences between the tenure of Comptroller Curry
and Comptroller Otting are also worth noting. Comptroller Curry
downgraded CRA ratings for several banks for fair-lending
violations and placed conditions on bank mergers.
In contrast, his OCC successors issued guidances weakening
CRA enforcement, including imposing limits on downgrades for
fair-lending violations and speeding up mergers. Not only has
the OCC stepped away from conditional merger approvals, but it
is also approving them more quickly.
CRA regulatory reform must be consistent with the law and
the legislative history. All three regulators have weighed into
the discussion over CRA regulatory reform with differing
approaches.
The OCC has suggested a transformational approach to reform
with some ideas that would weaken CRA significantly. Voices
across the spectrum have impugned the OCC's notion of a single
metric or one ratio that could overly weight a rigid
quantitative analysis by regulators and facilitate more CRA
grade inflation.
The approach would undermine the qualitative local
analysis, which is critical to CRA, that is designed to assess
whether banks are meeting credit needs in all communities and
then in the neighborhoods they are chartered to serve.
I look forward to making additional recommendations on ways
to strengthen the Community Reinvestment Act during the Q&A
session. Thank you.
[The prepared statement of Mr. Van Tol can be found on page
114 of the appendix.]
Chairman Meeks. Thank you. Ms. Baradaran, you are now
recognized for 5 minutes.
STATEMENT OF MEHRSA BARADARAN, PROFESSOR OF LAW, UNIVERSITY OF
GEORGIA SCHOOL OF LAW
Ms. Baradaran. Chairman Meeks, Ranking Member Luetkemeyer,
and Chairwoman Maxine Waters, thank you very much for having me
here.
In passing the CRA in 1977, Senator William Proxmire stated
that the Act was based on the widely shared assumption that a
bank's public charter conveys numerous economic benefits, and,
therefore, it is fair for the public to ask for something in
return.
The underlying theory of the CRA is that banks have duties
to the public because they benefit from significant government
subsidies. This bank-government social contract seems to have
been forgotten entirely.
Banks enjoy a monopoly on the Federal Reserve payment
system, receive subsidized funding through FDIC-insured
deposits, make loans supported by Federal guarantees, and
invest in mortgage-backed securities markets enabled by GSCs.
And all of this still doesn't cover the bailouts when the
industry fails or the unprecedented monetary policy actions of
the Federal Reserve, including trillions of dollars in
quantitative easing.
Banks need this support, without which their customers
would lack sufficient trust to permit them to function
properly, for trust is the currency of banks. In return, banks
are to serve as the engines at the center of the economy. They
provide credit, financial services, and liquidity. It is their
role to connect the people to commercial markets and administer
government credit policy and monetary policy.
For most of U.S. history, banks were forced to stay local,
small, and safe so that they would meet the needs of their
communities. Yet, during the deregulatory era started right
after the CRA was passed and seems to still be ongoing, these
restrictions were eroded. Wave after wave of deregulatory
legislation completely transformed the banking sector to one
that is large, complex, laden with risks, very profitable, and
highly competitive.
Small community banks have struggled to survive this
hypercompetitive environment. As banks grew larger through
mergers and became more efficient, they dropped their
unprofitable branches and their unprofitable customers. Banks
also shed their public duties. All of this deregulation
happened slowly and promised more efficiency. But at the end of
the day, the government was left holding the bag. Because banks
operate using, in the words of Louis Brandeis, ``other people's
money,'' they are not like other businesses.
Congress and regulators therefore must be watchful that
reforms promising modernization and efficiency do not become a
Trojan Horse, hiding even more deregulation, relieving banks of
their last remaining public duties. Of course, the CRA should
be updated, and compliance should be transparent.
But when regulators promise changes that have ease of
compliance or efficiency, we must step back and ask a few
questions: Efficient for whom? Why should efficiency be our
primary concern? More importantly, what kind of banking sector
would best meet the needs of the public, and how can we design
laws to achieve that outcome?
We need a banking system that provides equal access to
credit and services for all. The problems that the CRA was
meant to address have not been solved, and we must remember
that these problems that we are talking about are not just
numbers.
Poverty, exclusion, predatory lending, segregation, and an
intergenerational racial wealth gap affect human lives and real
communities. These are the communities that we are talking
about when we are talking about CRA duties. Low-cost bank
accounts and credit products are not a cure to poverty, but
they do help.
These problems are too large and too complex and too
entrenched for one law or one industry to solve. Yet, the
democratization of banking is necessary. It is still, I think,
too important a public imperative to be left solely to the
private sector.
If we are serious about financial inclusion, it is time
that we consider a public option. Insofar as the States enable
credit markets, deposit accounts, and payment systems, all
Americans should have equal access to these public utilities.
But short of that, banks have public duties because they
benefit from significant public support. The CRA is the only
law that places affirmative duties on banks. Most major banking
laws have some sort of public benefit test. In other words,
before a bank is supposed to merge or add any other activity,
all of the laws--the Bank Holding Company Act, the National
Bank Act--require that the regulators ask, what is the benefit
to the public? In other words, when a bank merges, will
communities lose branches?
Today's CRA is meant to encapsulate the entirety of this
public benefit test. In recent years, bank mergers have only
increased, as has disinvestment from LMI communities. The Fed
just set two records last year: the highest ever approval rates
for M&A proposals; and the quickest-ever time to approval,
especially for mergers that received adverse comments from the
public. The only question asked was whether the bank was in
compliance with the CRA. That is not enough.
A strong CRA should be one step in an effort to match the
large inequalities in the credit system, the conglomeration of
the banking sector, and the historic injustice of the racial
wealth gap. Thank you.
[The prepared statement of Ms. Baradaran can be found on
page 46 of the appendix.]
Chairman Meeks. Thank you. Mr. Odom, you are recognized for
5 minutes.
STATEMENT OF CLINT ODOM, SENIOR VICE PRESIDENT AND EXECUTIVE
DIRECTOR, NATIONAL URBAN LEAGUE WASHINGTON BUREAU
Mr. Odom. Good morning, Chairman Meeks, Ranking Member
Luetkemeyer, and Chairwoman Waters. Thank you for the
opportunity to present the National Urban League's views on the
Community Reinvestment Act. My name is Clint Odom, and I am the
National Urban League's senior VP of policy and director of its
historic Washington Bureau.
Established in 1910, the National Urban League is the
nation's oldest and largest civil rights and direct services
organization. Each year, we serve 2 million people through 90
affiliates in 36 States and the District of Columbia. Our views
and recommendations are based on decades of direct experience
in urban communities across the country and our historic role
in documenting and fashioning remedies to root out the
pernicious practice of redlining.
Congress passed the CRA because of concerns that federally
insured banking institutions were not making enough credit
available in the communities they served. Disinvestment
practices allowed depository institutions to accept deposits
from African Americans in the inner city but reinvest them in
more affluent, suburban areas.
Faced with substantial evidence of redlining, Congress
decided that market forces alone could not break down
residential segregation patterns. Thus, the CRA was enacted--
and we will hear this a lot today--``to reaffirm the obligation
of federally chartered or insured financial institutions to
serve the convenience and needs of their service areas and to
help meet the credit needs of the localities in which they are
consistent with the prudent operation of the institution.''
Redlining prevented African-American and other communities
from securing affordable homes and mortgages in decent
neighborhoods and purposely segregated communities. Segregated
into slums, African Americans were concentrated into poverty by
way of intentional discriminatory policies.
They were denied credit to purchase homes, start small
businesses, and to meet everyday living expenses. Blight,
crime, and decreased property values often ensued. Cities were
left behind with no adequate tax base for basic services. With
no desire to invest in these communities, many African-American
communities continue to deteriorate today, as you will hear
from other panelists.
To be clear, the CRA is one of the most important civil
rights and economic justice laws of the 20th Century. In the
21st Century, however, the law is in dire need of reform to
better serve low- to moderate-income communities.
CRA-regulated institutions have not always met the needs of
their communities, allowing an array of nonbanks to enter the
marketplace, many of which provide high-cost and often
predatory products. Advocates in industry agree the CRA can and
must do more.
My submitted testimony offers several reform suggestions
for the committee's consideration. I will highlight three here.
First, modernizing the CRA service test to measure how well
banks are serving low- to moderate-income communities. The
service test must do more to incentivize banks to offer credit
products. There is a problem when 98 percent of CRA-regulated
institutions get a satisfactory or outstanding rating.
Second, developing regulations to encourage majority
institutions to invest in minority-owned institutions. We agree
with the American Bankers Association that, ``Minority-owned
institutions were pioneers in helping underserved neighborhoods
before the CRA existed, and their perseverance in serving those
markets has made them worthy partners in leading further
efforts to build stronger, more economically vibrant
communities.'' It is past time for the agencies to adopt
regulations that recognize and thereby encourage investments in
and support of minority institutions by majority institutions,
something that Congress authorized years ago but still has not
implemented in the CRA process.
Third, including nonbanks under CRA regulation. Nonbanks
have taken on the responsibility of serving LMI communities.
The only place banks have a stronghold in LMI lending is their
assessment areas. Including nonbanks under CRA's purview would
help ensure LMI communities' needs are met while limiting
access to excessive risk-based pricing.
Immediately following the Civil War, Congress enacted the
Civil Rights Act of 1866, which stated that every citizen of
the United States, including former slaves, had the right to
inherit, purchase, sell, hold, or convey property, both real
and personal. As a nation, we have been struggling ever since
to get this right.
The CRA is as relevant today as it was in 1977, and we urge
Congress through its oversight powers to do more to access
affordable credit and quality investments in communities of
color. Thank you.
[The prepared statement of Mr. Odom can be found on page 91
of the appendix.]
Chairman Meeks. Thank you.
Mr. Mitchell, you are now recognized for 5 minutes.
STATEMENT OF BENSON DOYLE MITCHELL, JR. BENSON DOYLE MITCHELL,
JR., PRESIDENT AND CEO, INDUSTRIAL BANK, TESTIFYING ON BEHALF
OF THE NATIONAL BANKERS ASSOCIATION
Mr. Mitchell. Good morning, Chairman Meeks, Ranking Member
Luetkemeyer, Chairwoman Waters, and members of the
subcommittee. Thank you for this opportunity of allowing me to
testify on the Community Reinvestment Act. It gives me great
hope that one of this committee's first hearings of the 116th
Congress is shining light on this critical issue.
My name is B. Doyle Mitchell, Jr., and I am president and
CEO of Industrial Bank. Industrial Bank has been serving
individual customers and small businesses in Washington, D.C.,
and Prince George's County, Maryland, since 1934.
I am also on the board of the National Bankers Association.
The NBA is a leading trade association for the country's
Minority Depository Institutions, or MDIs. Our mission is to
serve as an advocate for the nation's MDIs on all legislative
and regulatory matters concerning and affecting our member
institutions as well as the communities that we serve.
Many of our member institutions are also community
development financial institutions, CDFIs. And many of our
member institutions have become banks of last resort for
consumers and businesses who are underserved by traditional
banks and financial services providers.
The National Bankers Association supports a strong CRA. In
enacting CRA, Congress stated that the purpose of the CRA was
to ``ensure that regulated financial institutions demonstrate
that they serve the convenience and needs of the communities in
which they are chartered to do business.'' As such, these
institutions have a continuing and affirmative obligation to
help meet the credit needs of the local communities in which
they are chartered.
While the CRA has made great strides in ensuring access to
credit in low- and moderate-income communities and among
minority and low-income borrowers, systemic economic and social
challenges remain, perpetuating a lack of access to fair credit
services for many, and allowing predatory providers to thrive.
Given growing economic inequity in urban, rural, and Native
American communities, it is important to get CRA right.
We strongly support the purposes and objectives of CRA. We
strongly support modernization that ensures CRA does not lose
effectiveness for LMI communities and that it also creates a
regulatory framework that streamlines financial institutions'
ability to comply with CRA. The success of CRA reform should be
measured by whether it will result in more credit and services
delivered to LMI communities and doesn't create unnecessary
regulatory burdens.
We recommend updating and preserving the flexibility. NBA
members believe that the current framework for CRA is
effective, but it needs modernization to reflect changes in the
financial services landscape. We strongly agree with the notion
expressed by regulators and lawmakers alike that CRA
examination should be conducted in a more clear, consistent,
transparent manner. We believe, however, that this result can
be achieved by modifying the existing framework.
We have great concerns about the proposed metric-based,
single-ratio framework outlined in the OCC's ANPR, and, thus,
we oppose its adoption. We believe that the proposed single-
ratio metric is too simplistic to fit all banks. We believe
that a single ratio would encourage a minimalistic approach to
CRA compliance where financial institutions would become more
focused on hitting their ratio rather than thinking
comprehensively about potential approaches for meeting credit
needs of LMI communities.
We believe that CRA can continue to be a powerful tool to
promote investment in LMI communities, and to this end, we
offer the following recommendations to the subcommittee on this
very important topic: First. create an MDI investment tax
credit that can accompany the CRA provisions encouraging
majority banks equity investments in MDIs.
The NBA strongly recommends enhanced interagency CRA
training for examiners. The NBA recommends the creation of a
robust public database of CRA case studies and peer-performance
data. We strongly recommend that CRA encourage banks to provide
long-term support to MDIs and CDFIs, as we are established
institutions that have a successful history of serving the
communities that are most distressed.
We recommend that bank investors receive significant and
consistent CRA credit throughout the life of an investment, not
just the origination of it. We recommend that studies of the
assessment areas covered by CRA and the CDFI fund be
streamlined. We also recommend that you streamline the
reporting requirements of CRA and CDFI. The NBA recommends that
CRA help promote financial literacy and inclusion among LMI
populations, as well as unbanked, underbanked, and other
vulnerable populations.
The NBA applauds the subcommittee for holding this
important hearing, and for the Full Committee's ongoing efforts
to assert and reassert the importance of CRA in the modern
banking marketplace. And we stand ready to answer any
questions.
[The prepared statement of Mr. Mitchell can be found on
page 71 of the appendix.]
Chairman Meeks. Thank you.
Mr. Glantz, you are now recognized for 5 minutes.
STATEMENT OF AARON GLANTZ, SENIOR REPORTER, REVEAL FROM THE
CENTER FOR INVESTIGATIVE REPORTING
Mr. Glantz. Chairman Meeks, Ranking Member Luetkemeyer,
Chairwoman Waters, I am pleased to join you and the rest of the
subcommittee today to speak about our kept-out investigation
into modern day redlining.
Reveal from the Center for Investigative Reporting is the
oldest nonprofit organization in the country focused on in-
depth investigative journalism, and our weekly radio show airs
on more than 400 public radio stations each week. My testimony
today was prepared with my colleague, Emmanuel Martinez.
First, a word about why we launched our investigation. We
asked a straightforward question: Since 1977, banks have been
required by the Community Reinvestment Act to lend in low-
income neighborhoods and to low-income people, and yet, 40
years on, the homeownership gap between Blacks and whites is as
great as it was during the Jim Crow era.
We wanted to know why. Why wasn't the Community
Reinvestment Act reversing the historic damage of racially
discriminatory redlining? So to find out, we analyzed 31
million mortgage records, nearly every loan application in
America in 2015 and 2016.
And we found 61 metro areas across the country where people
of color were more likely to be denied a conventional mortgage
loan even when they made the same amount of money, tried to
take out the same size loan, and buy in the same neighborhood
as their white counterparts: Atlanta; Detroit; Jacksonville;
St. Louis; Tulsa; Tacoma; base towns like Killeen, Texas; Santa
Fe, New Mexico; and right here in Washington, D.C.
And yet nearly every bank receives a satisfactory or
outstanding grade under the Community Reinvestment Act. So we
investigated further, and we found lenders were exploiting
three big loopholes.
The first we call the ``gentrification loophole.'' Because
CRA is race-neutral, we found that many banks loaded up making
a ton of loans in rapidly gentrifying neighborhoods that have
historically been home to communities of color. We found that,
in these neighborhoods, banks offered generous terms: low
downpayments; a pass on mortgage insurance; even looking the
other way on blemishes on applicants' credit reports. But
almost all of those loans went to white newcomers. When people
of color tried to get those same loans, we found they were more
likely to be denied.
Second, the ``bank branch loophole.'' Other people here
have talked about how old CRA is, and how it only applies to
banks when they have a branch in the city that takes deposits.
We found that in Boston, Philadelphia, and Washington, D.C.,
the biggest bank in America, JPMorgan Chase, was not assessed
under the Community Reinvestment Act.
Chase has a physical presence in these cities. It had an
office for the wealthy here in D.C. across the street from the
White House, but it wasn't technically a branch, and so it
didn't trigger a CRA assessment. The result is that, here in
D.C., Chase made more than 1,000 conventional home purchase
loans in 2015 and 2016, of which only 23 were to African
Americans and 35 were to Latinos.
Now, after we published our investigation, Chase announced
plans to expand its network in all three cities, and it will
now be following the Community Reinvestment Act in those
markets, but the loophole is still there.
And the third loophole is about nonbanks. The Community
Reinvestment Act doesn't apply to nonbank lenders at all, and
they make up an increasing share of the mortgage market. We
took a look at the mortgage companies controlled by Warren
Buffet's Berkshire Hathaway.
We found that across the country, Berkshire Hathaway's
mortgage lenders put most of their offices in white
neighborhoods, hired a primarily white staff of mortgage
consultants, and lent overwhelmingly to white borrowers in
majority white neighborhoods.
For example, in Atlanta, Berkshire's company made 1,300
loans for conventional home purchase in 2015 and 2016,
including just 63 loans to African Americans and 46 to Latinos.
And Berkshire is not evaluated under CRA.
So, finally, as a journalist at a nonprofit, nonpartisan
news organization, I want to make one thing very clear: We take
no position on any policy proposal. We are not here to offer
solutions or advice. We are here to present the facts we
uncovered in our 2-year loan investigation. One fact is that we
found persistent redlining across this country, and another
fact is that nearly every bank gets a satisfactory or
outstanding grade under the Community Reinvestment Act. Thank
you.
[The prepared statement of Mr. Glantz can be found on page
63 of the appendix.]
Chairman Meeks. Thank you.
And, Mr. Roberts, you are now recognized for 5 minutes.
STATEMENT OF BENSON F. ROBERTS, PRESIDENT AND CEO, NATIONAL
ASSOCIATION OF AFFORDABLE HOUSING LENDERS
Mr. Roberts. Thank you, Mr. Chairman. Good morning, Ranking
Member Luetkemeyer, Chairwoman Waters, Ranking Member McHenry,
and the rest of the subcommittee members as well.
The National Association of Affordable Housing Lenders is
the only alliance of banks, CDFIs, and other capital providers
for affordable housing and inclusive neighborhood
revitalization.
We support a strong CRA because America's economy,
financial system, and society can succeed only if every person
in every community has the opportunity to contribute to them
and benefit from them. CRA provides the capital that is vital
to the economic health of low- and moderate-income people and
communities.
In 2016 alone, banks made 3.6 million CRA loans totaling
$419 billion. That is a lot of money. That includes 2.7 million
small business loans for $172 billion, 724,000 home mortgage
loans for $108 billion, 26,000 community development loans for
$96 billion, 13,000 multifamily housing loans for $33 billion,
and 108,000 small farm loans for $10 billion.
Importantly, CRA is completely consistent with safe and
sound lending principles as the law requires and as experience
demonstrates. CRA is sustainable for communities and borrowers
and banks alike.
But CRA could do far more. Banks are willing to make more
loans and investments if they will get CRA credit for doing
them.
The bad news is that the CRA regulation is now 24-years-
old. It has fallen far behind fundamental changes to the
banking industry, local community needs and opportunities, and
the practice of affordable housing and community development,
all of which have evolved greatly over the last generation.
When the current CRA rule was finalized in 1995, Congress
had just authorized interstate banks. Today, interstate banking
comprises a majority of the banking system's assets. These
days, mobile banking and other Fintech innovations are helping
banks to serve low- and moderate-income people and communities
better as a convenient complement to branches, which also
remain very important.
And at the same time, CRA has not kept pace with
reinvestment needs and opportunities. Low- and moderate-income
people and communities are missing out on many loans and
investments either because it is unclear that they will count
for CRA or their location does not fit outdated CRA rules.
The good news is that many important improvements are
possible, even within the current statutory framework. One area
ripe for expansion is the financing of community development.
Under CRA, community development includes affordable housing,
economic development, community services, neighborhood
stabilization and revitalization, and disaster area recovery.
CRA has served as a foundation for an entire generation of
successful community development practice and public policies,
including the low-income housing tax credit, new markets tax
credit, the CDFI fund, and the HOME Investment Partnerships
program, all of which are far more effective because of the
participation of banks under the CRA. In fact, you could say
CRA is the oxygen that community development breathes.
To encourage more financing for community development, CRA
policy should allow all large banks to have a consolidated
community development test rather than fragmenting community
development among the three current tests of lending investment
and service; give banks credit for community development
activities nationwide if they have already served their local
area satisfactorily; evaluate the substance of community
development activities in all communities, including rural
communities and smaller metro areas where the current
examination process effectively discounts and disregards those
activities; and clarify the treatment of important activities,
like unsubsidized rental housing, economic development in
struggling parts of the country, and infrastructure, so that
banks can be confident when they make a loan or investment that
it will count for CRA. CRA should also provide more credit for
long-term community development loans and examine branchless
banks on a national basis rather than as local banks.
That concludes my testimony. Thank you.
[The prepared statement of Mr. Roberts can be found on page
100 of the appendix.]
Chairman Meeks. I thank each of our witnesses for your
excellent testimony. And I now recognize myself 5 minutes for
questioning.
And I will start out with Mr. Van Tol. In listening to the
reporting of Mr. Glantz where he talked about the three
loopholes, my concern has long been discrimination that has
gone throughout and the new style of banking that is going on
now, whether we are talking about Fintech or whether we are
talking about, you know, there are a lot of banking deserts
taking place.
What would you think is the best way, as we talk about
modernizing CRA--and we are in the middle of that--to try to
eliminate some of those loopholes? And do you agree with Mr.
Glantz's testimony as far as the reporting that he has done
with those three items?
Mr. Van Tol. I agree that those loopholes are an issue. And
I think in particular, what we would say is that CRA needs to
cover more loans and more lenders so CRA doesn't apply to
mortgage companies, which today are a significant portion of
the market.
In fact, as I said in my testimony, CRA only applies
covering about 30 percent of mortgage loans. That is loans that
banks make in their assessment areas, and it is loans that
mortgage companies make.
And so we need to apply CRA: one, to mortgage companies;
and two, assessment areas should be drawn to cover the vast
majority of a bank's lending. When banks are making a lot of
loans outside of their assessment areas, effectively what they
are doing is skirting scrutiny of CRA by doing that, and so we
need to adjust the way that we look at both of those things.
Chairman Meeks. And would you also agree that we can't just
go--I was concerned too by the initial findings of the OCC,
although I give them credit for at least starting some of this
dialogue--with the metric base, single ratio, that we have to
be more imaginative than that to make sure there are more items
that are included--would you concur with that?
Mr. Van Tol. I concur. One ratio is really problematic.
What it says is you take the sum of activities a bank does to
fulfill CRA measured by some measure of capacity, their assets
or deposits, and you do simple division, and if they get above
a certain threshold, you pass.
What that would do is it would drive a lot of activity away
from local communities, which was the original intent of CRA.
It would drive activities to the most profitable, lowest risk,
lowest effort type activities, likely very large mortgages in
low- and moderate-income Census Tracts to middle- and upper-
income people because that is how you would sort of gain a
dollar figure amount.
So we are not supportive. We are opposed to the one metric.
We think it would be detrimental for low- and moderate-income
communities and for communities of color.
Chairman Meeks. Now, Mr. Mitchell, I am concerned also--you
are a CDFI, and you talked about the strengthening of CRA. And
I know some of the larger banks don't have the same model that
you utilize because CDFIs are basically there to help the
communities.
How would you talk about the differences between how the
CRA should work and apply, because we even have some CDFIs, not
yours, that have not complied or have--and I found it amusing
that some CDFIs, more so than some of the bigger banks, do not
get CRA credit where the big banks, generally, I think some 96
percent, all were found either satisfactory or better as far as
CRA's concern.
Mr. Mitchell. One of the concerns, Mr. Chairman, is that
CRA and the CDFI requirements don't sync up. There are loans
that can get CDFI credit that will not get CRA credit and vice
versa.
The assessment areas can be different. If we have an
assessment area for CRA purposes, it may or may not sync up.
Generally it would sync up with the CDFI Census tracts. But
there are differences between the two.
Chairman Meeks. Should they sync up?
Mr. Mitchell. Yes, absolutely. And so should the reporting
requirements.
Chairman Meeks. Mr. Odom, I want to--because what is
critically important and central, I think, is access to credit.
And when I look at--I am running out of time already--what took
place with the Great Recession, can you describe how that
affected it, particularly in African-American and Hispanic
communities, the loss of wealth and whether CRA could have had
a hand in helping us if it was assessed properly?
Mr. Odom. The Great Recession had a deleterious on Black
home ownership. Lots of African Americans, minorities and other
people across the country lost their homes. A lot of bank
branches closed during that same period of time. There has been
a lot of reference here to banking deserts. Some of that root
cause of banking deserts relates back to the Great Recession.
A stronger CRA, especially one that doesn't--where
policymakers don't blame the CRA for the mishaps, certainly
like the Great Recession, goes a long way in avoiding those
kinds of problems in the future.
Chairman Meeks. Thank you. I now recognize the ranking
member of the subcommittee, Mr. Luetkemeyer, for 5 minutes for
questions.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
We have a law that is 40 years old, and everything needs to
be reformed. I think, over the course of 40 years--I don't know
anything that can go 40 years without some sort of tweaks to
it.
I think all of you indicated in your testimony that we need
to look at different ways to be able to tweak this law, and I
support that.
One of the things that has happened is the--I think, as our
ranking member indicated, we are living in a world now with
these sorts of devices that, whenever the CRA was implemented,
those were probably not even on the drawing board yet.
So, with regards to the many innovations in Fintech, which
have increased access to credit for Americans, what changes can
be made to CRA that will promote innovation in lending while
also ensuring that banks provide services to the communities in
which they reside, Mr. Mitchell?
Mr. Mitchell. Well, as I said, one of the things that we
believe strongly in at the NBA and in the CDFI banks is that
larger banks, I think, as one of my colleagues mentioned, can
invest in MDIs. We have historically had a wonderful history
and a successful history of investing in CRA-designated areas
and CDFI-designated areas, and we believe we do it well.
Our history has shown that we--Industrial Bank is the fifth
oldest Black-Owned institution in the country, and yet there
are others much older than us. And so we are proponents that
the CDFI fund, and large banks should be encouraged under CRA
to invest in our institutions.
Mr. Luetkemeyer. Mr. Roberts, do you want to answer that
question as well?
What do you think--how should regulators consider CRA
credit for bank partnerships with nonbank institutions and
Fintech firms? How would you go about that?
Mr. Roberts. I think there are tremendous opportunities for
those kinds of partnerships. And they can help further extend
access to depository accounts as well as mortgages and small
business lending. And those partnerships should be covered by
CRA because the banks are playing important roles in them.
In order to do that, though, there does need to be some
revision to the way assessment areas work so that those
activities can be recognized.
Mr. Luetkemeyer. This discussion that I am having here goes
now into an area about, is a lending institution providing
different kinds of products and services across the board? This
is one of the things about which I had long discussions with
Mr. Otting at the Comptroller's Office with regards to his
proposal.
And I think part of his proposal is to try and enlarge the
number of things that can be counted toward a CRA, to be able
to encourage investment in different areas that have not been
allowed in the past, things like churches, community buildings
and groups, infrastructure, the number of ATMs and facilities
in areas. And I think you mentioned, Mr. Roberts, also
community development and affordable housing.
So can you elaborate a little bit on how you would
anticipate some of that coming out? Because I think if there is
credit for it, I think there is encouragement in those areas
for banks to be a part of that in an area--in lending in an
area where maybe they haven't been in the past or didn't get
credit for it.
Mr. Roberts. I think you are very correct.
The key here--I would say there are two key elements. The
first is we have to make sure that these activities are
benefiting low- and moderate-income people and communities. And
to the extent that they are broader, there can be a pro rata
approach so that the focus on low- and moderate-income is
maintained within the broader community.
And, second, there needs to be a lot more clarity about
what counts.
Banks often won't know until an examiner comes through 3 or
4 years down the line whether an activity is going to count for
CRA. So, if you are a bank and you are operating in dozens or
even hundreds of assessment areas, and you have multiple
metrics to hit in each of those areas, you really don't have
time to focus on things that might not count.
Mr. Luetkemeyer. That is interesting. Because I think a lot
of times the institutions are not given credit for being part
of the community and doing those things. This is one of the
things that I think that Comptroller Otting is looking to do,
is he recognized that there is a lot of lending going on that
institutions are not being given credit for, that is enhancing
the ability of a community to be successful, to grow, to
provide opportunities for people.
And I guess my last concern would be nonbank regulation.
Would any of you like to talk for just a second with regard to
the high cost of the predatory products of nonbank lenders,
what we need to do to get ahold of that?
Mr. Van Tol?
Mr. Van Tol. Well, I think we need to apply CRA to them.
Look, CRA-regulated lending is safer, sounder, and it is
cheaper.
Mr. Luetkemeyer. What effect do you think it would have on
those lending products?
Mr. Van Tol. On nonbank lending products?
Mr. Luetkemeyer. Yes.
Mr. Van Tol. I think that bringing those companies into
CRA's scrutiny would be a positive thing.
Mr. Luetkemeyer. Would it curtail the products that are
being offered?
Mr. Van Tol. Pardon me?
Mr. Luetkemeyer. Would it curtail the products being
offered and raise costs?
Mr. Van Tol. I don't believe so, no.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentlelady from California, the
chairwoman of the full Financial Services Committee, Ms.
Waters, for 5 minutes.
Chairwoman Waters. Thank you very much, Mr. Chairman. I
would like to continue this discussion with Mr. Van Tol about
extending the CRA to these nonbanks.
I was informed that more than half of all of the mortgages
issued last year came from nonbanks, such as Quicken Loans, and
they have a larger share of the market than before the crisis,
and that 6 of the 10 mortgage lenders are nonbanks.
And so, while I absolutely support credit unions and the
ability to serve their constituency, all of that, I mean, fair
is fair.
Can you tell me what has been the response to the question
from not only members but from the nonbank lenders themselves
about CRA? Has there been any real discussion that you can
share with us?
Mr. Van Tol. Sure. Let me go back to something that
Professor Baradaran said. She outlined the ways in which banks
are really subsidized by the Federal Government. And I will
note that the entire system of mortgage lending in a way is
subsidized by the Federal Government. At the height of the
crisis, we extended $30 trillion in loans, investments, and
guarantees to ensure that liquidity continued to flow
throughout the mortgage system.
So I would say that, in fact, mortgage lenders are
subsidized in a similar way, and the rationale to apply CRA to
them exists. They are not in favor of it. I think some of
them--we certainly see an institution like Quicken Loans does
many CRA-type things in its headquarters City of Detroit, and
would probably do relatively well on a CRA exam.
Many of the lenders--or higher-cost lenders are not doing
the same kinds of positive things that they are, and we would
be in support of applying CRA obligations to the whole market.
We believe it brings scrutiny that will drive down the price of
those mortgages, and will encourage mortgage lenders to do more
positive things for low- and moderate-income communities and
communities of color.
Chairwoman Waters. Thank you.
I want to move to Mr. Glantz. I want to thank you for the
research that your organization has done. And much of what you
have said is absolutely known by this Congress and that we need
to take that research into consideration in forming
legislation.
What is it that would allow a bank operating, for example,
as you described with Chase in Washington, D.C., to be called
not a branch?
Mr. Glantz. The Chase office that was across the street
from the White House, still is, is part of their wealth
management operation. And in the FDIC dataset, it is identified
as a limited service office. So it is making loans to the
clients who go to that institution.
It is not a branch that takes deposits, however. And the
way CRA is written, a branch is only a branch if it takes
deposits.
So, that is what Chase was doing in these three markets we
mentioned: Philadelphia; Boston; and Washington, D.C. And as I
also mentioned, they have since announced a branch expansion in
those cities.
Chairwoman Waters. Is it fair to conclude that, despite the
fact it does not take deposits, that when you look at the
overall company and you consider that their profits come from
maybe all over the country and from various communities, is it
fair to consider that perhaps that should not be the definition
or the criteria for CRA enforcement, that we should be looking
at making them CRA-enforced also?
Mr. Glantz. As I said, Madam Chairwoman, we are not here to
make policy recommendations. But I would note that Chase was a
very active market player in D.C., Philadelphia, and Boston,
and in fact made over 1,000 conventional home purchase loans
during our study period and only 23 to African Americans. So
they were not assessed, but they were an active market player.
Chairwoman Waters. And do you have any comments about the
nonbanks, any research?
Mr. Glantz. One of the things that we noticed when we were
out on the streets--a lot of our field reporting focused on
Philadelphia, and that is how we ended up looking at Trident
Mortgage, which is the Berkshire Hathaway affiliate there. It
was the largest home purchase lender in Philadelphia, but it
lent overwhelmingly to white borrowers.
And it did not deny very many applications from people of
color. It simply did not get applications from people of color.
And that is what caused us to begin looking into Trident,
because it was the market leader, and it was not seeing any
applications from people of color.
Chairwoman Waters. Thank you so very much. I went over my
time.
I yield back the balance of my time, and I thank you very
much.
Chairman Meeks. The gentlelady yields back her time.
I now recognize the gentleman from North Carolina, the
ranking member of the full Financial Services Committee, Mr.
McHenry, for 5 minutes.
Mr. McHenry. Thank you, Mr. Chairman, and thank you for
holding this hearing today. I think it is important for us to
note that the Community Reinvestment Act at the time was a
landmark piece of legislation that has for decades served us
well.
And we have had this technology shift, a dramatic shift,
actually born out of mainly the iPhone, right? And I mentioned
in my opening statement, 95 percent of Americans have a
cellphone, and that is a dramatic increase from 5 years before.
About 80 percent of Americans have a smartphone. And that
actually breaks down the total population. Then every subgroup
of the population, ethnically, racially, is similar to that
overall standard.
We also have 13 million Americans who don't have a bank
account or are considered in the realm of unbanked. We have
urban areas that are left unbanked. We have rural areas left
unbanked. We still have work to do.
But this technology shift is something I am really
interested in. How do you acknowledge that, and how do we
change CRA to actually meet something that was not contemplated
at the time?
And the reach can be so much better if those regulations--
the impact can be so much greater if we update these
regulations appropriately. And that is what I really want to
get to.
So how do you acknowledge the use, really of--that branch
banking isn't what it used to be 15 years ago because of
technology? And how do we update and acknowledge that impact?
Mr. Roberts, can you touch on that?
Mr. Roberts. Yes. Thank you, Mr. McHenry.
There are two things that could be done. One is to take
into account mobile access much better under the CRA's service
test, which today focuses primarily on branch location, which
continues to be important but needs to be supplemented by a
greater consideration of mobile access.
And the second is to deal better with banks that really are
branchless today. You can have an internet bank that could be
headquartered in Salt Lake City or Wilmington. Its only
obligation under CRA is to Salt Lake City or Wilmington, even
though it is taking deposits nationally and it is providing
loans and other services nationally. And so that is just
outdated. These are not corner community banks in Salt Lake
City. These are really nationwide institutions, and they need
to be considered that way.
Mr. McHenry. Mr. Odom?
Mr. Odom. There is no getting around the impact that
technology has had on the financial services sector and many
other sectors of the economy.
They often, though, create a false promise of being able to
radically transform the environment. Cell phones, in order for
them to work as a payment device, have to have certain
applications, have to be backed up by credit cards, have to be
backed up by bank accounts.
Within my neighborhood, where the National Urban League is
headquartered, we don't have any vendors who take Apple Pay,
for instance. Also--and I am sure Mr. Mitchell could verify
this--a lot of the small business relationships will probably
always require some amount of face-to-face interaction between
the borrower and the lender.
So, while I am very encouraged by the rise of Fintech,
there are always going to be matters that have to be cared for,
especially in communities of color. Even where technology
adoption is at a high level, there are still some aspects of it
that are going to require face-to-face kinds of interactions.
Mr. McHenry. Right. But also, technology is imperfect, too.
Because if you can't afford a cell phone bill, you are cut off
from job interviews, access to transit, in many cases, and
financial services.
So I am not saying it is a pure solution, but it should be
acknowledged in some way and incorporated in sort of a
regulatory environment.
Mr. Odom. Absolutely. Minorities are overindexed for
smartphones and for cell phones. That is not usually the
problem. It is usually filling out a very detailed application
on a 5-inch screen.
Mr. McHenry. Right.
Mr. Odom. Sometimes presents--
Mr. McHenry. And that is an overall financial services
problem--
Mr. Odom. You are correct.
Mr. McHenry. --and regulatory problem as well, not solved
by this hearing.
But thank you all for your testimony. I am sorry it has
gone so long.
Thank you. I yield back.
Chairman Meeks. The gentlemen's time has expired.
I now recognize the gentleman from Georgia, Mr. Scott, for
5 minutes.
Mr. Scott. Thank you very much, Mr. Chairman.
This is indeed an extraordinary group of individuals that
we have before us. I mean, your presentations have been very
eye opening.
And I certainly want to say hello to Ms. Baradaran.
Did I get that right?
Ms. Baradaran. ``Baradaran,'' yes, close.
Mr. Scott. ``Baradaran.''
Ms. Baradaran. Yes. Go Dogs.
Mr. Scott. Go Dogs. And you have the red and black on.
Ms. Baradaran. Yes, you noticed.
Mr. Scott. I love Georgia. Welcome. Welcome to the
committee, ma'am.
Ms. Baradaran. Thank you.
Mr. Scott. Now, about 100--I think 108 years ago, one of
the greatest writers, literary geniuses, and educators, W.E.B.
Du Bois, made this statement. He said, ``Race is and will be
the central issue and problem facing our great nation in the
20th Century.'' We are now in the 21st Century, and his
proclamation rings even truer today, and nowhere does it ring
truer than within the racial discrimination in housing, for a
home.
And you all have stated some very brilliant things. But I
want to, first of all, because I am cochairman of the
bipartisan Caucus on FinTech, and this is a big issue, and I
want to get some exchange from you all about how we can better
address that.
Now, my Republican colleague, Barry Loudermilk, and I have
introduced the FINTECH Act. And I hope you all take a look at
that. It basically sets guardrails.
But we need a vehicle because, Mr. Glantz, Mr. Odom, all of
you, raised some interesting points.
But, Mr. Glantz, I know that you are not here--you said it
three times; I counted it--to make policy. But we are. And you
gave some very profound and somewhat disturbing information.
You said, number one--and this is where our technology and
our Fintechs come in--nonbank lenders are not even covered
under the CRA. Now that opened my eyes to something of which I
wasn't even dimly aware. We need to start there and deal with
that.
And then you said that every bank dealing with the CRA got
top grades from the CRA. But then you said that you have
evidence that targets high rates of racial discrimination. How
is that? Can you explain?
Because if we don't answer these questions, then this
hearing is not going to be as worthwhile as it should be. If we
have the CRA out there doing this, and then you have 98 percent
of all the people dealing with it getting top grades, but from
all of your devastating testimony, you are saying it is
rampant, fulfilling W.E.B. Du Bois' projection into the 21st
Century.
So can you help me with that, Mr. Odom, Mr. Van Tol, Ms.
Baradaran, each of you, please?
Mr. Meeks. You have 48 seconds.
Mr. Scott. I'm sorry. Maybe we can get it someplace else.
Mr. Mitchell. If I may start, Mr. Scott, I will say this:
Discrimination results from a lot of things. Some of it is
conscious bias, and some of it is unconscious bias. And some of
the unconscious bias is probably not going to wane too much.
And that is why I mentioned that I think some of the policies
that help to address lending discrimination or disparities in
certain areas should address supporting those institutions like
MDIs and CDFIs that do that lending in a vast majority of what
we do as institutions ourselves.
Mr. Scott. All right.
Thank you, Mr. Chairman.
Chairman Meeks. The gentleman's time has expired.
The gentleman from Colorado, Mr. Tipton, is recognized for
5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. I appreciate you
holding this hearing.
And I think I hear general consensus that when we are
looking at the CRA right now, that it is failing in some
instances to be able to adequately supply credit and financial
opportunities to some of the low- and middle-income
communities.
But it seems to me a lot of the focus is just on urban
America. I would like to be able to expand that out a little
bit to rural America.
As Ranking Member McHenry noted, we have 13 million-plus
people who are unbanked or are underbanked in the country, and
a lot of those are probably in areas much like mine. I have a
district that butts up against Utah, New Mexico, Arizona,
Wyoming, and a broad swath of rural Colorado.
And, last year, that was part of the purpose of actually
introducing legislation, which ultimately became law, for
mobile banking, to be able to allow customers to be able to
open up a bank account simply by scanning their driver's
license, to be able to start to create some of that access.
And as we are listening to the conversation right now and
some of the branch bank closings that we are seeing, just in my
State, we lost 19 more bank branches than were opened in 2018.
I thought it was interesting that the Federal Reserve Board
report noted that mobile banking is rising over the course of
the recent years. And the report goes on to suggest that mobile
banking can help address some of the challenges that consumers
face in the decline of those physical branches.
And so, Mr. Roberts, you had addressed this just a bit in
regards to Mr. McHenry's questions that have come up. If we are
losing these local branches and the access to being able to go
in, with mobile banking, can it help customers actually address
and access some of the needed financial service products, and
wouldn't it make sense to be able to expand CRA activity past
those delineated assessment areas into areas where the bank's
actual activity is taking place?
Mr. Roberts. Yes, Mr. Tipton, that would be very helpful.
Part of the challenge for CRA is that, for the larger banks
that cover multiple States, urban and rural communities, they
get very little attention in their CRA examination on their
work in rural areas.
In some ways, that is understandable, because if you are an
examiner and you have a lot of territory to cover for a bank,
you want to focus on the places that are generating the most
deposits. But those are always the largest metropolitan areas,
and then you never really look at what is going on in the rural
communities.
So we think there should be changes to consolidate the
examination of rural areas within a State, so they will have
more market presence within that examination process, and to
make sure that the substance of the activity, and not just the
top line numbers, are really considered so that banks can get
recognized for doing the important but oftentimes very
difficult work in rural communities.
Mr. Tipton. And I appreciate that. Because as I listen to
the conversation--and you are exactly right: the focus is on
concentrations of population and resources.
And one of the frustrations that many of us who come out of
rural America have is that the loss of 10 jobs could
extrapolate into the loss of several thousand jobs, as an
example, into those urban areas. And we don't want those people
to be forgotten. They have families as well that they want to
be able to provide for and to make sure that we are actually
incentivizing our banks to be able to do what, I can tell you
that our community banks in my district want to be able to do,
and that is to be able to reinvest in those communities, to be
able to help them grow, and to be able to create those
opportunities for families to be able to stay in the areas that
they live and they love.
And this question--Mr. Roberts, maybe you can start, and we
can just go down the line with our panel here.
In terms of CRA examination results, being able to get
those in a timelier fashion, rather than a few years later--you
don't know exactly what you are doing--and to be able to give
clarity, which has been brought up by the panel as well, what
actually qualifies for CRA, would those be useful things to
make sure that we are incorporating?
Mr. Roberts. Absolutely. If you look at the biggest 6
banks, the most recent examination for any one of them covers
2013. I think for 3 others of the 6, it is 2012, and for 2
others, it is 2011. So, if you are not getting feedback, either
as a bank or as a community about performance, it becomes as
meaningless as an X-ray that you don't receive for 2 or 3
years.
Chairman Meeks. The gentleman's time has expired.
Mr. Tipton. Thank you, Mr. Chairman.
I yield back.
Chairman Meeks. The gentleman from Missouri, Mr. Clay, the
Chair of our Subcommittee on Housing, Community Development,
and Insurance, is recognized for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman.
And, Chairman Meeks, let me thank you for holding this
hearing and shining a light on predatory practices of redlining
of mortgages and small business loans. And I look forward to
working with you in that area to eradicate it, to eliminate it
in our economy.
So let me try this. Ms. Baradaran, in an article published
in The Washington Post, you wrote about the need for more
government intervention, not less, in order to address the
racial wealth gap.
In communities like mine, in St. Louis, which have suffered
from historical discrimination in housing, banking, and
healthcare, we have seen a regression as many people are still
trying to recover from the financial crisis of 2008.
In your testimony, you suggest that the CRA test should
resemble the stress test that the Federal Reserve administers,
focusing on outcomes and not just actions taken.
Could you discuss that a little and tell us, should we
incentivize lending in say opportunity bank zones, or should we
prohibit all of that discrimination in the area based on ZIP
Codes? I would just like to hear your thoughts on that.
Ms. Baradaran. Thank you.
So one of the things that happened before the crisis is we
had a bunch of regulatory box-checking for safety and
soundness. So CAMELS and all of this stuff was basically, you
know, do you pass? Do you not? And what happened during the
crisis is those things did not catch the outcomes: Is this
banking sector safe or not?
And so the stress test in the Federal Reserve said: Let's
look at outcomes, let's look at the totality of what the bank
is doing, and see, do you have enough capital or not? So, if we
are looking for the CRA to fix the racial wealth gap--which we
should be, because the Federal Government created it in the
first place through those redline maps--then we should look at
the outcomes: Are you infusing capital and wealth into these
communities, or are you not? Not, ``did you do this or did you
do that,'' because those things are not outcome-tested.
Mr. Clay. So it is just checking a box really, the CRA
examinations now?
Ms. Baradaran. It sometimes amounts to that. And as the
other panelists said, it is really easy to find loopholes. And
if banks are not incentivized--these are low-profit loans, a
lot of times. And so banks are going to be incentivized to find
those high-profit areas or somehow find a loophole in that. And
so outcome-oriented tests, like the stress test, block those
loopholes, and they look at what is the result.
Mr. Clay. And if we are going to online lending, then
wouldn't a good indicator be where you place these loans by ZIP
Code?
Ms. Baradaran. Yes. And let me say something about Fintech,
because we keep bringing that up. Every Fintech company uses a
bank partnership to access that payment system. Fintech is not
this nonbank product. They link up with a few banks around the
country that use loopholes to get into that payment system.
And if you want to use Venmo or Square as a consumer, you
need a bank account. So, one in four Americans is unbanked, and
those people needed brick-and-mortar services to put their
cash, to pay their bills, and they are spending 10 percent of
their income just to use their money.
Mr. Clay. Thank you for that.
And, Mr. Van Tol, being that redlining and other forms of
discrimination primarily impact low- to moderate-income and
racial and ethnic minority populations, what steps should
policymakers consider in strengthening the CRA?
Mr. Van Tol. Well, among other things, they can strengthen
the fair lending reviews that are conducted as part of the CRA
exam. That is really the way that race comes into CRA.
Unfortunately, the OCC has weakened those reviews, resulting in
fewer CRA downgrades for racial discrimination. That is one
significant way it could be strengthened.
There are other ways. The American Housing and Economic
Mobility Act, which was introduced as S. 787 and H.R. 1737,
would modernize CRA, apply it to more loans, to more lenders.
We are supportive of designating areas that are receiving
relatively low loans per capita as underserved areas and
providing CRA credit for that. That would result in more urban
areas and more rural areas that are receiving very little in
the way of lending, more scrutiny under CRA, and would go a
long way to addressing redlining and historic disinvestment in
those communities.
Mr. Clay. Thank you all for your responses.
I yield back.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentleman from Texas, Mr. Williams, for
5 minutes.
Mr. Williams. Thank you, Mr. Chairman, for calling this
hearing today.
The business of banking has changed drastically since the
Community Reinvestment Act was signed into law in 1977. One
area in particular that I think is outdated is the geographic
assessment area. Many people now are turning to online banking
and other methods that make physical branches less relevant
than they were back in the 1970s.
So my question, Mr. Odom, to you, is, how would you
modernize the assessment areas to ensure that most people are
being helped under this law?
Mr. Odom. Well, this is a subject that is being taken up in
the advanced notice of proposed rulemaking. And I think some of
the parties who have submitted comments on that point are here
today.
It is not certain to me that the rise of--that the
geographic assessment area is fundamentally flawed. I
understand the rise of Fintech, as we have heard today, is
something of which to take notice. But all of those
relationships are going through established banks that have
geographic presence in certain parts of the country.
So I am very eager to hear what the regulators do in the
rulemaking with respect to the definition of how they assess
geographic areas, but I am not sure that is the home run to fix
the CRA.
Mr. Williams. Okay. I have heard that the number of
qualified investments for CRA credit is too narrow. In many
cases, banks are cautious to loan money to projects that are
innovative out of fear that they will not ultimately count
towards CRA requirements.
So, Mr. Van Tol, how would you recommend amending the
definition of qualified investment to allow for innovation and
a greater number of activities to be eligible as CRA
investments?
Mr. Van Tol. Well, let me just make a distinction. I think
when I was in school, if half of the class failed at an exam,
we said: Well, we weren't quite clear on what we needed to do
to pass.
But in this case, 98 percent of banks pass. They are
actually doing a good job of passing the exam. It is not the
case that they don't know in the aggregate how to pass the
exam. They do it all the time. Most of them pass, the vast
majority of them.
What they don't always know is, am I going to get credit
for this investment at this time? They do need clarity to know,
in real time, whether or not an investment strategy that they
are undertaking qualifies for CRA credit.
I think, in many cases, it is a matter of guidance. It is a
matter of providing feedback. It is a matter of training
examiners and making sure that there is consistency, not
necessarily a matter of changing the definition or qualifying
more activities.
Again, banks already qualify a great number of activities.
They are passing their exams with flying colors.
Mr. Williams. Thank you.
Mr. Roberts, in your testimony, you listed a bunch of ways
that the CRA can be improved upon, one of which is getting the
performance metrics right for CRA performance.
So how do you think banks should be rated for their
performance with CRA activity?
Mr. Roberts. What we could use is more clarity and
transparency for how those metrics are applied. Some have
commented on the idea of a simple ratio of dollar volume of
lending activity relative to a bank's size. We are concerned
that that could generate some unintended consequences.
For example, rural areas in smaller metros often have more
affordable home prices, but that also means that the mortgage
amounts are smaller there. It is already hard to make money on
small balance mortgages. But if the metric is just getting to a
dollar target, then banks will be incented to really focus on
higher-cost markets where they could make a loan to a high-
income borrower in a low-income neighborhood for, say,
$750,000, rather than 10 loans for $75,000 in a low-income
rural area.
So we just have to get the metrics right. But I think, with
better clarity, both about how things are measured and how they
are then added up within the exam, we can make some progress.
Mr. Williams. Okay. I believe I am done with my
questioning, and I yield my time back.
Chairman Meeks. I now recognize Mr. Luetkemeyer for 5
minutes.
Mr. Luetkemeyer. Thank you.
I have one quick question for Mr. Van Tol. You made the
comment a while ago that you didn't believe there was an extra
cost to putting any rules and regulations on lenders, on
nonbank lenders. Did you intend to say that?
Mr. Van Tol. No, I don't believe I said that.
Mr. Luetkemeyer. You don't think there would be any extra
cost to putting some rules and regulations on nonbank lenders?
Mr. Van Tol. No, that is not what I said.
Mr. Luetkemeyer. Okay. I misunderstood. What did you say
then?
Mr. Van Tol. Well, I think that applying CRA to those
companies would impose a cost. I think that it actually might
lower the cost--
Mr. Luetkemeyer. Okay. My follow-up question then would be,
do you think that would restrict services and products to
people as a result of that?
Mr. Van Tol. No, I think the evidence of CRA is that it has
expanded services and loans to--
Mr. Luetkemeyer. You just contradicted yourself there, sir.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
And thank you to our witnesses.
And I guess I would like to start by thanking Ms. Baradaran
for your shout-out to Senator Bill Proxmire. I grew up being
driven around in a rusty Studebaker with one of these
triangular Masonite signs with Bill Proxmire's name on it. My
mom actually ran the finance operation for Bill Proxmire's
reelection campaign. And the entire finance operation for a
Senate reelection campaign back then was one part-time faculty
housewife.
And so that tells you why you had Senators for enough time
to think deeply about the problems that our country faces. I
think the encroaching of Fintech and the implications for
community reinvestment are just a perfect example of that.
Now, when you look at this, it is clear that we are going
to need some new metrics for reinvestment, what is meant by
reinvestment when you look at these Fintechs that collect money
nationwide.
And there seems to be two different goals there. One of
them, socioeconomic and racial equality, is one of the things
we are trying to incentivize. The other one is to balance the
outcomes for different communities, particularly rural and
urban. And I would like to ask first about that one.
We were talking about Colorado recently. And in Colorado,
we know what the solution is there. The silver mine runs out of
silver, and you get a ghost town, and everyone moves to Denver,
and they are doing okay. So should the Community Reinvestment
Act have prevented that or not?
What do we do when the coal runs out or stops being mined
in communities?
Do we have a responsibility to communities to keep them
alive when there is no longer an economic reason for them to
exist? And to what extent should we lean against that natural
operation of the free market?
Does anyone want to take a shot at that?
Mr. Odom. There have actually been some banking
institutions in the face of these headwinds--technological
changes, changes in the economy--have actually doubled down on
bank branch activity. There have been some--probably have seen
some commercials with Capital One actually creating bank
branches that do more than just take deposits, take
applications, and do other sorts of things.
I think the appropriate balance is not to assume that the
secular trends that we are seeing in rural areas or urban areas
with respect to bank branches being gone or lending activity
being gone is a permanent one. I think there are good actors
out there who are trying to figure out what the right mix is.
Mr. Foster. Yes. But how hard should we try to convince
them to continue reinvesting in this ghost town that is
developing?
Mr. Van Tol. Well, the beauty of the CRA, as currently
constructed, is that it is responsive to local needs, the
performance context in the community. So, if the economy is
bad, you would expect CRA to motivate institutions to invest in
economic development. And certainly not in every area can the
banks dramatically transform the town, but you do see those
kind of investments.
And that is a structure that we are very concerned, that
the OCC has proposed looking at the definition of community and
defining it more broadly. We urge that the definition--
intention of CRA, being responsive to local community needs,
really measuring what is going on in the community, measuring
how well a bank is responding to those needs.
Certainly, not one bank can save a town like you described.
But it can recognize that the need there is very different from
a place that has a thriving economy, with lots of people moving
to it. There you would be concerned about displacement,
gentrification, maybe the economy being too hot.
Mr. Foster. Right. Along those lines, the second goal is
socioeconomic and racial equality. And so, for example, you
might want to adopt policies that if someone was--their
neighborhood was undergoing gentrification, you might do
something to make them stand up and survive the gentrification
better than they otherwise would have or provide opportunities,
low-cost rental, things that would not necessarily be provided
by the free market.
Has anyone ever tried to just write down a metric that
might incentivize the broad range of all of these different
goals that we have? Maybe thinking about opening up a sandbox
for the Fintech to play in, let them take the money that they
are collecting nationwide and try to gain a certain role and
see if that forces them to put money where it is actually
accomplishing our goals.
Has anyone tried to make a general purpose metric that
might steer the money where we are all trying to find a way to
make it go?
Ms. Baradaran. Let me go back to Senator Proxmire. What
Senator Proxmire understood here is that in some of these
communities, the investments are not going to be the highest
profits. But that is okay because banks have public duties. Not
all rural communities are created equal. Some of the people
have left. But there are still lots of communities where people
are not leaving.
Banks are easy, global. Money moves faster than people can
leave their hometowns. And so, in these communities where
people still exist, they are going to school, they are thriving
in these communities, but their banks are gone. And so those
are the communities that we are focused on. And some of them
are not going to be highest profits, but banks still have
public duties, even though there aren't high profits.
Mr. Mitchell. If I can just add to that, you have a CDFI
fund that produces a positive return on investment for the
taxpayers, and it is woefully underfunded. And every year
during the budget process, it seems to be on the chopping
blocks for elimination when it should be increased.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentleman from Georgia, Mr. Loudermilk,
for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman.
And I appreciate the opportunity to have this hearing
today.
Something that is very important, from my knowledge of the
Community Reinvestment Act, is that it served a great purpose
in this nation. And we are, in fact, a better nation because of
changes in our society, changes in business models and such.
And I commend the OCC for looking at bringing the CRA up to
date. When you look at the changes in society, you look at the
changes predominantly in technology. It is technology with
Fintech. These are bringing banking services to areas that were
traditionally unbanked or underbanked. And it is important, as
my colleagues said, to have sandboxes, the ability to get into
these areas and see how these new technologies can actually
enhance the original purpose of the CRA.
And so I believe and I think giving the OCC the ability to
make reforms collectively with all three of the banking
agencies to make sure that the CRA is meeting its original
purpose and doing it effectively and with the new technologies
is very important.
But one of the problems that I have particularly seen and
heard, especially with our community bankers in Georgia, is
inconsistency with a lot of the CRA exams. For instance, some
of the services, loans and investments, may receive CRA credit
at one bank but not another.
One example that was given earlier is, does partnering with
a nonprofit qualify for a CRA credit? That could be interpreted
in different areas by different examiners.
So, Mr. Mitchell, do you have any recommendations about how
we can address the inconsistencies in these exams?
Mr. Mitchell. First of all, training. I think also having a
database that shows which projects qualify. Individual banks
from time to time, as has come up several times this morning,
are not sure whether a particular project that they invest in
or may invest in or lend to would qualify. And I think if there
is a database that answers these questions, then the bankers
can go online and see that someone else has invested or lent to
a particular project that did qualify. So the clarity and
training among examiners is critical.
Mr. Loudermilk. Mr. Roberts, I saw your head nodding. Do
you have something you would like to add to that?
Mr. Roberts. I agree. But I would also suggest that the
banking agencies should have specialized examiners for CRA. The
same examiner who is doing anti-money laundering exams and
other kinds of compliance exams, or safety and soundness exams,
simply isn't going to know enough about not just CRA but also
how banks are really responding to local community needs. To
understand that is just a very important factor and would go a
long way toward consistency.
Mr. Loudermilk. Mr. Roberts, while I have you, going from
inconsistencies and how we can address those, I want to go to
the extensive time that it takes to actually receive exam
results. To me, it seems like the longer banks are waiting for
their exam results to come back, the less confidence they have
that they are meeting the goals and, therefore, delay serving
certain communities and demographics that they would really
like to be able to target for CRA and for the credit.
And as we have seen and has been testified to, the CRA
compliance is generally strong and banks are generally
interested in fulfilling these needs.
Do you think that these delays cause significant problems
in banks meeting these needs, and how can we address it?
Mr. Roberts. Tremendous problems. Banks are really flying
blind. They don't know whether the examiners and agencies think
they are doing a good job or not. They can't see the areas that
might be identified for improvement. They can't see the areas
where they are excelling and can double down and do even more
in that area.
And communities can't see what the banks are doing and how
well they are doing so that they can engage more constructively
with the banks.
Mr. Loudermilk. What can we do to fix this? Is that part of
some of the modernization that we need to look at in reforms?
Mr. Roberts. Yes. We recommend that performance evaluations
be published within 12 months of the close of an examination
period.
So, if you have a 3-year examination period that ended at
the end of 2018, you should have your CRA rating by the end of
2019.
Mr. Loudermilk. Thank you. I yield back.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentlelady from Michigan, Ms. Tlaib,
for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman.
Thank you all so much for being here and for your
incredible work.
I want to share a story. I used to walk down my block for
over 30 years. But even down my block, where I knew every
single homeowner--it was a predominantly beautifully diverse
block. Some were even born in their home, right? Some were able
to keep their home for 70 years, through 3 generations.
And growing up kind of in the 1980s and 1990s in the City
of Detroit, I mean leading the Nation, like 70 percent, in some
neighborhoods, of home ownership, was pretty incredible. It
stabilized not only our school system, but our environment.
Even economically, we saw more and more neighbors being able to
stabilize themselves and be able to provide an incredible
future for their children.
And the percentage of African Americans who owned their
homes dropped in Michigan more than any other State, down to 40
percent, from just over half in 2000. The decrease has been
greatest for middle-aged Black Americans in Michigan, between
ages 45 and 64. I think it was 60 percent in 2000 to down to 41
percent in 2016.
Much of that decline was in the City of Detroit. We flipped
from a majority home ownership to now 54 percent of my
residents are renters.
I essentially have been listening to this hearing, and
really understanding what the purpose of CRA was, which was,
you know currently now understanding there are loopholes, and
it needs to be updated. It is based on geography. And banking
institutions are skimming the larger, more profitable low- and
moderate-income communities and lending to higher-income
borrowers. That is the data I have been reading. So the loans
meet the CRA requirements and regulations.
Mr. Mitchell, let's say you are in a low/moderate-income
neighborhood, like the one where I grew up in, the one where I
am raising my boys in, where the borrower is making 125 percent
of the AMI and a borrower making 75 percent of the AMI, in your
opinion, which borrower would the banking institution most
likely lend to?
Mr. Mitchell. Well, that depends. We have a history, as an
MDI and a CDFI, of getting behind the numbers and looking at
the story. It is an integral part of how we do business.
And this is why you should have concerns about nonbank
lenders because they don't have the ability to do that. Their
algorithms don't do that.
So we look at the story. And we look at what you are
telling me, and we back it up with our own due diligence and
research. And it depends because we can lend to either one.
Ms. Tlaib. Yes, but under the CRA, though, the banking
institution would still receive the same CRA credit for lending
to a higher-income borrower in an LMI neighborhood as they
would a low-income borrower, correct?
Mr. Mitchell. Yes. We would do both in that case.
Ms. Tlaib. And my concern is, where there is little
incentive to lend to LMI communities, the CRA is of little
benefit to my constituents at this time because banks will not
issue mortgages for less than $50,000, forcing them to borrow
from nonbanking institutions such as Quicken Loans, as the
chairwoman mentioned, which is a leading mortgage loan creator
in my district, which leads me to the next question. And this
one is for Mr. Odom.
Mr. Odom, would you say that because nonbanking
institutions are obligated to follow CRA, that borrowers are
more subject to payday lending and discrimination and redlining
because of this loophole?
Mr. Odom. I believe that certainly plays a role,
Congresswoman. We have seen the rise of nonbank institutions,
particularly in the Census tracts associated most closely with
African American and minority owners. They filled a void; they
filled a vacuum that has been created by a lack of lending by a
lot of CRA-covered institutions.
We have talked a lot about nonbanks and banks today. And I
think the message that I would like to send to you is, whatever
regulatory structure we land on, it should be a leveling up of
our regulations, not a leveling down.
A lot of the organizations, a lot of nonbank organizations,
rightly are young. They are new. They have not grown up in a
regulatory environment. But we have to resist the impulse to
say, well, because we have new entrants who are taking market
shares, the incumbents should follow their lack of regulation.
That is what we are seeing here. We have not figured out
what this regulation is going to look like, but we should be
going to the highest measure, not the lowest common
denominator.
Ms. Tlaib. Thank you. And, Mr. Chairman, if I may--
Chairman Meeks. The gentlelady's time has expired.
Ms. Tlaib. If I may, I just wanted to submit an article
entitled, ``Loophole in law for the poor spurs
gentrification,'' into the record.
Chairman Meeks. Without objection, it is so ordered.
The gentlemen from Tennessee, Mr. Kustoff, is recognized
for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
And thank you for calling this important hearing this
morning.
I do want to thank all of the witnesses for testifying this
morning.
Mr. Roberts, if I could, my district is west Tennessee, so
I have the suburbs of Memphis and then west Tennessee and some
rural parts of west Tennessee.
Recently, I had the opportunity to speak to a roundtable of
bankers from all around my district. And one of the topics was
CRA modernization. One bank in my district told me that they
were recently required to open up a branch for CRA purposes and
that, because of that, it is losing about $100,000 a year
annually.
As we look at the CRA and the way it is constructed and
what is required of the different communities, it seems like
regulators increasingly have included in their CRA examinations
criteria, in my opinion, that may not be related to CRA,
including compliance with other financial laws or consumer
regulations that have their own standards and penalties for
violations. An example for banks in my district is that the
banks are being subjected to fair lending questions during
their CRA exams.
With all of that said, we have talked a lot this morning
and you all have talked a lot about modernization. How do you
envision modernizing CRA to best suit the needs of the 21st
century financial institutions and the communities that they
serve, including some of these rural communities?
Mr. Roberts. Yes, Mr. Kustoff. Rural communities certainly
need much better consideration under CRA. They are often
overlooked in the CRA process because they are smaller than the
larger cities, and so the examiners tend to focus more on them.
But there are a number of things that could be done to remedy
that.
Mr. Kustoff. And what are some of those areas?
Mr. Roberts. One thing we would suggest is that oftentimes
rural areas need economic development. Mr. Foster had raised
the anecdote of a town that loses its primary employer. And CRA
should do much more to recognize economic development efforts
in distressed communities, urban and rural.
So it is not just a numbers game. Even a small loan or
investment can sometimes make a big difference in a small
community. But it gets overlooked because of its size. So those
are some of the things we would suggest.
Mr. Kustoff. I appreciate that.
Lastly, if I could, financial literacy--I do think that the
banks in my communities do a pretty good job of trying to
educate through financial literacy. And, in fact, this week is
Financial Literacy Week in Tennessee with our community banks.
What I have heard from my banks is that unless financial
literacy is done in very specific areas, it doesn't count
towards those CRA requirements.
Do you believe that these requirements should be or could
be modernized, if you will, to allow for education done within
a bank's footprint to be counted towards the CRA?
Mr. Roberts. Yes, I think it could be done, and you can
maintain a faithfulness to the low- and moderate-income focus
of CRA by simply taking a look at what share of the broader
community is low- and moderate-income and provide pro rata
credit for those broad activities based on that so that you
don't reject those activities entirely because they are not
specifically targeted, but you recognize that a community that
is, say, 40 percent low- and moderate-income is really
benefiting in a different way from a community that is 10
percent low- and moderate-income.
Mr. Kustoff. Thank you. And I yield back the balance of my
time.
Chairman Meeks. The gentleman yields back the balance of
his time.
I now recognize the gentleman from Utah, Mr. McAdams, for 5
minutes.
Mr. McAdams. Thank you, Mr. Chairman.
I want to thank the panelists for their testimony today.
And I want to thank you, Mr. Chairman, for holding this
important hearing.
I also want to give a special shout out to Professor
Baradaran. I have had 20 years to practice her name, as we are
personal friends going back some time. So not only is she a BYU
grad from my State of Utah, but she practiced law at the same
firm I did, Davis Polk & Wardwell, in New York. So it is great
to see you, Professor.
Ms. Baradaran. Good to see you Ben, Mr. McAdams.
Mr. McAdams. The CRA has been an important tool in my
district, at both serving the credit needs and driving
investment to many of Utah's communities, and I want to ensure
that we don't weaken the CRA in any of our reform efforts. But
I have also seen the shortcomings of the current CRA structure.
As the mayor of Salt Lake County, I often teamed up with
many of the financial institutions in Utah to pursue innovative
investments. For example, Salt Lake County pioneered many of
the first Pay for Success or Social Impact Bond programs in the
nation. We expanded access to early childhood education, we
targeted homelessness, and we reduced recidivism in our jails.
And we couldn't have done these projects without our financial
partners.
What I learned while working on these projects for CRA
credit was that it--what I learned while working on these
projects is that the financial institutions we partnered with
often didn't do these projects for CRA purposes. They said it
sometimes just wasn't worth the hassle. It wasn't worth jumping
through the hoops to prove to their regulators that the
projects were CRA eligible. Oftentimes, they wouldn't have that
certainty until long after they had needed to make a commitment
for the projects, so there was a lot of uncertainty in their
CRA boxes they had to check.
Instead, they would rather do the same lending or
investment activity they had done the previous decades without
any indication that these projects were really what the
community needed because they knew that those investments would
be CRA eligible.
So the system we have today kind of forced them or
incentivized them to do the status quo and go through the
motions of that rather than innovate and think more creatively
about how they can reach into the populations we are trying to
help.
When considering CRA reform, I want to preserve both the
spirit and intent of the CRA to benefit low- and middle-income
communities and individuals, but I also want to push financial
institutions to innovate, to push beyond their comfort levels,
and to try new data-driven projects without the fear that they
would be punished by their regulators for taking a chance on
their communities.
Professor Baradaran, I think there was a great discussion
about--and I appreciated in your comments about the focus on
outcomes rather than simply checking the box. So as a local
mayor, I saw that as well, that we just encouraged and rewarded
checking the box rather than focus on outcomes, and shifting to
that focus on outcomes.
So first, just an editorial comment. I would like to see
local input on what some of those outcomes might be, but then
once outcomes are identified as we are looking at what
strategies might be deployed in our communities to extend
opportunities to those populations that we are targeting, what
can we do to create some certainty, maybe approval of a CRA-
eligible activity earlier in the process to know that these
strategies would be--what I would like to see CRA accomplish is
to encourage innovation and forward thinking rather than risk-
averse activities in the CRA to encourage that type of
innovation and risk taking.
And to some extent, I worry about--I think the shift to
outcomes is important, but I worry that doing that introduces
even more uncertainty into the process and discourages
financial institutions from innovating and pushing the limits.
So maybe, Professor Baradaran, and than any others who want to
comment on that?
Ms. Baradaran. Yes. Utah is actually a perfect example. And
the problem that you as mayor looked at is homelessness, right?
So you have this huge problem and then the solution that you
had, but you needed bank funding. And Utah happens to be the
home of many of these Fintech banks whose assessment area is
really undefined because they are basically partnering with
these global Fintech networks.
And so here you have a problem and then you have these CRA
duties, and there should be a way to match those. This is where
aligning incentives needs to be done at the regulatory level--
banks should definitely get CRA credit for partnering with
public institutions and mayors and other places who have sort
of shovel-ready projects ready to go.
And so, yes, there is some uncertainty with outcomes, but I
think it is--you know, when students come to me and say, tell
me exactly what to do to pass this test, I would rather say,
look, know the materials and you will get a good grade. I think
that is what I would say to banks is, do your duties and you
will pass the CRA. Don't look for the least you can do just to
check that box.
Mr. Van Tol. And CRA gives credit for innovation. Part of
the problem is innovation as defined is really something that
has never been done before rather than something that is really
responsive in an innovative--and to a local need. And so we are
supportive of specialized CRA examiners of more training for
examiners, of more guidance, of more certainty in realtime as
to whether or not an investment is going to qualify or not.
To your point, they will do the investment and then argue
later that it will qualify. Many of them do qualify and are
successful in doing that. It is the hassle and the not knowing
whether or not they are going to get credit that creates--
Chairman Meeks. The gentleman's time has expired.
Mr. McAdams. Thank you.
Chairman Meeks. I now recognize the gentleman from
Virginia, Mr. Riggleman, for 5 minutes.
Mr. Riggleman. Thank you, Mr. Chairman.
Thank you all for being here. I know it has been a long
morning going into afternoon, so thank you very much for being
here.
I want to start out by reading directly from the Federal
Financial Institutions Examination Council's website on the
purpose of the Community Reinvestment Act. I am actually doing
this for a reason, believe it or not.
So the CRA, ``is intended to encourage depository
institutions to help meet their credit needs of the communities
in which they operate, including low- and moderate-income
neighborhoods, consistent with safe and sound banking
operations.''
And I just want to--where my questions come from, my
district in Virginia--and I know it is hard to believe, but I
have the most rural district in Virginia that is bigger than
the State of New Jersey and parts of Delaware. Also, when it
looks at the disparate income in my district--and, again, I
don't know if you guys have--I don't know if any of you have
actually had to deal with districts like this, but in the
northern part of my district we have a median family income of
$91,000 per year. In the southern part of my district, near the
North Carolina border, it is $35,000 to $37,000 per year and
that is a $55,000 to $60,000 delta.
The questions that I am asking are actually based on the
fact that when this says low- and moderate-income
neighborhoods, I have low- and moderate-income regions. I have
one county that is massive that has 7,800 people.
So when you see these questions I am about to ask, and I am
going to roll through them because I know you guys have been
busy, but I am very interested in what you think about some of
the issues that we are facing in the parts of my district that
I have.
I fully support the mission of the CRA. I think a lot of
it, when I talk to the bankers in my district, it is about the
enforcement supervision. I had one banker in my district who
told me a story about how an examiner was in his institution,
and after reviewing a loan filed, the examiner okay'd it for
CRA credit.
And a year later another examiner came in from that same
institution and even--listen, this banker has been serving his
community for years, and then said that actually the file was
wrong and it did not actually--he could not get a CRA loan for
that exact same file.
And that frustration in my district has been pretty
noticeable. Not only that, again, I think is because we have a
limited number of banks and we have such a large area. I know
this is a yes-or-no question. And it is because I want to go to
the next thing and we could take a while, but--and I wouldn't
think anybody--does anyone on this panel think that this sort
of examination on CRA, and that is where you have this sort of
inconsistency in regulatory models, helps institutions meet the
credit needs of their communities, yes or no?
Mr. Roberts. No.
Mr. Riggleman. No. Thank you. I just don't think anyone on
this panel or otherwise could argue against a regulatory
structure that is clear, consistent, and works for all impacted
parties, including the lenders.
And, again, when I go back to these questions, it really
comes back to the simple fact that I have such a unique
challenge in my district, even under CRA, that it just puts us
in a really incredible position in trying to get loans for
these disadvantaged communities that are so widespread.
And I would think that if we had a regulatory structure
that is clear, consistent, and does work for all impacted
parties, including the lenders, the reason I think it is so
important is because I want to incentivize financial
institutions of all sizes to comply with the laws and
regulations, right, in coming on the government to ensure equal
and tailored treatment. So it is a little bit of a switch here
because I think fair treatment is the rationale for the CRA.
And I will say, Mr. Van Tol, I had a question for you. And
it really does come down to my banks and the questions that I
have. And by the way, there is no vitriol in this whatsoever.
Why does NCRC oppose recommendations to relieve regulatory
burden on small and intermediate banks under CRA by increasing
the thresholds for these respective CRA tests?
The question really is, is it appropriate to subject a $1.3
billion bank to the same community development standards as a
$100 billion institution even based on the facts I gave you
about our district?
Mr. Van Tol. Well, as I said earlier, those institutions in
their immediate small banks do about $3 billion in community
development loans and investments each year, and that is the
size of the entire HUD CDBG budget, which is a critical source
of community development financing in rural communities.
So if you were to exempt those institutions, you would
likely see $3 billion a year in community development
investments in your district and elsewhere, especially in rural
communities, go away. And that is why we are opposed to it. We
think it is a significant source of community development
financing for underserved rural communities and urban
communities alike.
Mr. Riggleman. Yes. And I appreciate that. And I think part
of it too is that just based on size, it is also the
consistency of the regulatory burden that they sort of carry.
And I think that is the problem that I had with this is that if
it is a one-size-fits-all with inconsistent regulatory
structures, you really can have a lot of confusion, which
happened when I started companies also, right. You have
multiple--you have confusion.
I know I have 28 seconds left. Mr. Roberts, in that 28
seconds, can you explain why counting farm loans based on
distribution or volume versus dollar amount is important to
ensure equal proliferation of CRA?
Mr. Roberts. Sure. Because those loans are small. And if
all you are looking at is their dollar volume, those loans are
just not going to move the needle on a CRA review.
Mr. Riggleman. Yes. Thank you very much. I know my time is
up, and I appreciate all of you. Thank you, sir.
Chairman Meeks. The gentleman's time has expired. And I now
recognize the gentleman from Washington, Mr. Heck, for 5
minutes.
Mr. Heck. Thank you, Mr. Chairman.
I would like to direct a question to Mr. Van Tol, Professor
Baradaran, and Mr. Mitchell. When the CRA was originally
adopted, it had to do with making sure that people weren't
being locked out of access to mortgages to buy homes in
redlined areas.
Obviously, we still need to be incredibly vigilant for that
policy objective. But frankly, I worry also that the threat has
changed and we have not adapted to it. It is also now, frankly,
whether or not somebody can find a home to purchase.
In the 1970s, by comparison, we were building 12,000 homes
per million people--12,000. Today, we are building 4,000 homes
per million people. And so there frankly aren't anywhere near
enough homes to go around for people who aspire to
homeownership, and that disproportionately burdens people of
color and people of low income.
So I am frankly wondering if there is any way in which the
CRA can help address this in redlined areas. My personal point
of view, developed over a long period of time, is that we
frankly have a problem with respect to construction lending in
particular. And I wondered if the CRA can or should be modified
to encompass construction lending, especially for workforce
housing.
We have passed out of this committee a very ambitious,
which I enthusiastically supported, ending homelessness bill.
But we still have the issue, I believe, of market rate housing,
especially workforce housing, enabling people to stay in the
communities they live in and be able to actually buy a home,
not because they can't access a mortgage but because they can't
find the home to buy because, again, 4,000 homes per million as
opposed to 12,000 homes per million when we passed the CRA.
So, Mr. Van Tol, Professor, and Mr. Mitchell, is this
something we should explore?
Mr. Van Tol. Yes. The answer is, yes, CRA can do something
about that. Let me start by noting that we have done a study
which found that 75 percent of redlined areas that were
redlined in the 1930s are still economically distressed today.
And so that remains an issue. The affordable housing supply
problem is a huge problem. And certainly, CRA, for example, can
motivate construction lending. That counts on a CRA exam.
I think the problem is, again, going back to the local
convenience and needs of communities, there is a real mismatch
between where the supply is. We know of many communities in the
midwest where there are ample numbers of houses. It is just
people can't get a loan, either because it is a very small loan
size or the house needs too much rehab, et cetera, et cetera.
And yet, there are places like Washington, D.C. where you
have a very hot housing market where you have an incredible
mismatch between the supply and the demand. We have actually
started a bipartisan affordable homeownership council to deal
and address with this issue because it is becoming an issue,
especially in gentrifying areas where you have this incredible
mismatch between the production of housing.
Remember, the community development part of CRA does
motivate institutions to invest in the development of
affordable housing, including multifamily housing. And so,
again, if you are to remove or raise the limits or exempt
certain institutions from that requirement, you are going to
see less production of housing, not more.
Mr. Heck. Thank you.
Professor Baradaran?
Ms. Baradaran. Yes. And this is where the outcome-oriented
goals are really important, like the stress test. So the CRA
says it is not just about mortgages, it is about the
convenience and needs of each community. And each community is
different. Not all banks are the same. And so this is where you
have to align these are the needs of the community.
And exactly as you said, affordable housing. Cities like
Detroit are in hyper vacancies where you can buy a house for
$5,000, but no one is going to give you the financing, whereas
in San Francisco, you can barely afford to get a house unless
you are a billionaire. These are two different cities, and so
those CRA requirements need to be matched to the convenience
and needs of that area.
Mr. Heck. Mr. Mitchell?
Mr. Mitchell. To use your example of construction lending
in, say, a CRA community, it requires that the examiners,
again, provide some clarity. If I am going to lend to a
construction lender who is wealthy and is going to build market
rate housing, would that count even though it is in a low- or
moderate-income community? I am not sure. That is something
that the examiner would have to determine.
If they are going to build affordable housing, then, yes,
it would--
Mr. Heck. If I may interrupt, sir, and I apologize, I have
so little time left.
But I am particularly focused on starter homes or starter
units because that is a place where I think the market has
failed us. And the fewer starter homes that are available, the
more people remain in a rental. The higher the occupancy rate,
the higher the rents go. The higher the rents go, the more
people become rent-burdened. The more people become rent-
burdened, the more people need subsidies. That more people
require subsidies, the more homeless there are.
It is an ecosystem, and I am totally convinced that we have
to look at this in the context of it being an ecosystem. And,
again, I am interested in how the CRA might be a means of
helping, especially starter homes, workforce housing.
My time is up. Thank you all so very much.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentlelady from Massachusetts, Ms.
Pressley, for 5 minutes.
Ms. Pressley. Thank you, Mr. Chairman, for your leadership
on this and so many other critically important issues.
I represent Massachusetts's 7th District, one of the most
diverse and unequal districts in the country. In fact, a recent
report by the Federal Reserve Bank of Boston found evidence of
a widening wealth gap among families of color compared to their
white counterparts. Across the City of Boston, close to 80
percent of white consumers own a home compared to less than
one-fifth across minority communities.
Many of my colleagues have already touched on the civil
rights origins of the CRA and the need to strengthen the bill
to ensure the banks and other financial institutions are doing
right by low-income communities. I fundamentally agree. It is
one of the reasons why I am so proud to have introduced the
American Housing and Economic Mobility Act with Senator Warren
and many of my colleagues, which would make housing more
affordable and reverse decades of discriminatory policies that
have denied Black and Brown families.
Our bill would also strength the CRA, extending it to
nonbank mortgage companies, promoting greater investment in the
communities that need it most, and strengthening penalties for
institutions that fail to follow the rules.
Mr. Odom, as you mentioned in your testimony, homeownership
among Black families and other communities of color continues
to lag at historic levels. How will strengthening the CRA lead
to increased responsible mortgage lending and expand
sustainable economic mobility for low-income communities of
color?
In the Massachusetts 7th, just in a 3-mile radius,
Cambridge to Roxbury, median household income drops by $50,000.
So how would strengthening the CRA address that?
Mr. Odom. Strengthening the CRA allows us to get the kind
of data to track what is going on in the marketplace. The CRA
is responsible for the data that we have seen presented by Mr.
Glantz and his partner today. We would be totally in the dark
if we didn't have the kind of CRA reporting requirements about
where money is going and who is getting it.
So first, I think from an informational standpoint, the CRA
is critical in creating that type of transparency, that ability
for lawmakers to at least see where the problems are and do
something about it.
Second, I would say that it is important to strengthen the
CRA because it is critical to the maintenance of our
communities. We talked historically in my testimony about the
fact that so many of the people who are in that 20 percent
homeownership that you mentioned, African-American families,
they are actually contributing to the depository institutions.
Small businesses are putting their money into these
institutions. And the money, at least historically, as what
motivated CRA, it flies elsewhere. It flies to the 80 percent
of your district or homeownership that you mentioned.
So it is important to keep this compact between local
communities and local banks, because without them--in my
testimony, we talked about the high incidence of blight,
unemployment, and lack of opportunity that results when you
don't have access to capital.
And third, I will put in a plug for Black-owned businesses
or minority businesses generally. Minority businesses tend to
be underfunded compared to other groups, even in loans of last
resort like SBA loans. I think the current data says that
something like 3 percent of minority businesses have access to
small business loans.
By keeping a requirement in place, in law, by keeping a
light of accountability on this, we are hoping we can keep our
communities intact and make them attractive. And when they are
attractive, the capital will follow hopefully.
Ms. Pressley. All right. Very good.
Mr. Glantz, your investigation found some troubling
evidence of the ongoing prevalence of redlining and
discrimination in our banking system, trends you largely
associate with the fact that the CRA, as currently drafted, is
race neutral.
Now, many States have moved forward with drafting their own
proposals to combat racial discrimination by the financial
institutions in their States by explicitly requiring them to
track lending data by race and ethnicity. What are your
thoughts on this approach, and do any other panelists have an
opinion on the matter?
Mr. Glantz. I would note that Massachusetts is one of the
States that has its own Community Reinvestment Act law.
However, when we look at the lending in the Boston and
Cambridge MSAs, we found that among the communities, Census
Tracts where there were at least 100 home mortgage loans, there
were 320 of them, and all but 7 of them were majority white
neighborhoods.
And of those 7 neighborhoods that got more than 100
conventional home purchase loans, in 2015 and 2016 in Boston
and Cambridge, those 7 majority people of color neighborhoods,
the majority of the loans from financial institutions went to
whites. And that is what we found in our investigation.
Ms. Pressley. Thank you.
Chairman Meeks. The gentlelady's time has expired.
Ms. Pressley. Thank you, Mr. Chairman.
Chairman Meeks. All time has expired.
Without objection, I would like to submit for the record a
statement from me in regards to the OCC; testimony from the
Bank Policy Institute; and a statement from the Credit Union
National Association.
I would like to thank our witnesses. You were excellent.
You were very informative. You have given us a lot to think
about.
And I would hope that the FDIC, the Fed, and the OCC have
been listening to this hearing and will take into consideration
all of your testimony and all of your thoughts as we drive and
strive to have a CRA that is effective for all Americans.
I thank my colleague, Ranking Member Luetkemeyer, and my
Republican colleagues for indeed, as we talked a broad range,
we talk about urban America and the need for CRA to be
appropriately applied in rural America. I think it will help
make us all balance the playing field so that everyone can get
an opportunity to enjoy the American Dream and the right of
homeownership and creating wealth.
I will end as I started, if it wasn't for my parents having
the opportunity to buy a home and to have that home appreciate
in assets, I would not have had the ability to pay for my
college education nor would my siblings.
So this is a goal that I think that we all should have
because the better informed as far as the opportunities are
concerned, the better it is for all of us. And you have truly
contributed a great deal to us by testifying this morning.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
A P P E N D I X
April 9, 2019