[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
EXAMINING DISCRIMINATION AND
OTHER BARRIERS TO CONSUMER
CREDIT, HOMEOWNERSHIP, AND
FINANCIAL INCLUSION IN TEXAS
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 4, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-45
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
42-313 PDF WASHINGTON : 2020
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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 Oversight and Investigations
AL GREEN, Texas Chairman
JOYCE BEATTY, Ohio ANDY BARR, Kentucky, Ranking
STEPHEN F. LYNCH, Massachusetts Member
NYDIA M. VELAZQUEZ, New York BILL POSEY, Florida
ED PERLMUTTER, Colorado LEE M. ZELDIN, New York, Vice
RASHIDA TLAIB, Michigan Ranking Member
SEAN CASTEN, Illinois BARRY LOUDERMILK, Georgia
MADELEINE DEAN, Pennsylvania WARREN DAVIDSON, Ohio
SYLVIA GARCIA, Texas JOHN ROSE, Tennessee
DEAN PHILLIPS, Minnesota BRYAN STEIL, Wisconsin
C O N T E N T S
----------
Page
Hearing held on:
September 4, 2019............................................ 1
Appendix:
September 4, 2019............................................ 57
WITNESSES
Wednesday, September 4, 2019
Ardoin, Raymond, President, Board of Directors, Brentwood Baptist
Church Federal Credit Union.................................... 29
Asante-Muhammad, Dedrick, Chief, Race, Wealth, and Community,
National Community Reinvestment Coalition (NCRC)............... 8
Everette, Belinda, Director, Housing Initiative, NAACP Houston
Branch......................................................... 5
Johnson, George, CEO, George E. Johnson Development.............. 28
Lindner, Gary, President and CEO, PeopleFund..................... 26
Park, Jeungho ``JP'', President and Chairman, Relationship
Bancshares, Inc................................................ 40
Pena, Celina, Chief Advancement Officer, LiftFund................ 25
Poyo, Noel Andres, Executive Director, National Association for
Latino Community Asset Builders (NALCAB)....................... 21
Robinson, Judson III, CEO and Chair, Houston Area Urban League... 3
Smith, Jeff, President and CEO, Unity National Bank.............. 23
Sun, Hua, Associate Professor of Finance, Iowa State University.. 10
Wong, John, Founding Chair, Asian Real Estate Association of
America (AREAA)................................................ 7
APPENDIX
Prepared statements:
Ardoin, Raymond.............................................. 58
Asante-Muhammad, Dedrick..................................... 60
Everette, Belinda............................................ 63
Lindner, Gary................................................ 70
Park, Jeungho ``JP''......................................... 72
Pena, Celina................................................. 73
Poyo, Noel................................................... 77
Robinson, Judson III......................................... 81
Smith, Jeff.................................................. 86
Sun, Hua..................................................... 92
Wong, John................................................... 95
Additional Material Submitted for the Record
Green, Hon. Al:
Letter from City of Houston Housing & Community Development
Department................................................. 97
Written statement of Community Home Lenders Association
(CHLA)..................................................... 100
Letter from Harris County Precinct One....................... 107
Wells Fargo press release.................................... 109
Garcia, Hon. Sylvia:
Street map of Houston........................................ 113
EXAMINING DISCRIMINATION AND
OTHER BARRIERS TO CONSUMER
CREDIT, HOMEOWNERSHIP, AND
FINANCIAL INCLUSION IN TEXAS
----------
Wednesday, September 4, 2019
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:17 a.m., at
the Fountain Life Center, 14083 South Main Street, Houston,
Texas, Hon. Al Green [chairman of the subcommittee] presiding.
Members present: Representatives Green, Tlaib, and Garcia
of Texas.
Also present: Representatives Meeks, Clay, Cleaver, and
Dingell.
Chairman Green. The Oversight and Investigations
Subcommittee will come to order.
The title of today's subcommittee hearing is, ``Examining
Discrimination and Other Barriers to Consumer Credit,
Homeownership, and Financial Inclusion in Texas.''
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, Members of the House who are not members of this
subcommittee may participate in today's hearing for the
purposes of making an opening statement and questioning the
witnesses.
And, without objection, members of the local media who are
invited to this hearing may engage in audio and visual coverage
of the subcommittee's proceedings. Such coverage is solely to
educate, enlighten, and inform the general public on an
impartial basis of the subcommittee's operations and
consideration of legislative issues, as well as developing an
understanding and perspective on the U.S. House of
Representatives and its role in our government. This coverage
may not be used for any partisan political campaign purpose or
be made available for such purpose.
The Chair now recognizes himself for 5 minutes for an
opening statement.
Today's hearing marks the first field hearing I have
convened in Texas in my capacity as Chair of the Oversight and
Investigations Subcommittee. Therefore, it is fitting that this
hearing focuses on a crucial topic for residents of Texas and
the 9th Congressional District, namely, discrimination and
other barriers to homeownership, credit, and affordable
financial services.
Whether for the financing of a home, for college tuition,
for a new business, or for day-to-day living expenses, fair
access to credit products, lenders, and services is at the
heart of financial inclusion. Yet for too many Texans, a
mortgage, credit card, or even a low-cost checking account that
is free of hidden fees remain out of reach.
This lack of access to affordable financial products and
services is exacerbated by the events of the past decade.
During this time, we have seen the number of minority-owned
banks plummet from 44 African American-owned banks in 2007 to
just 19 today; from 53 Hispanic-owned banks a decade ago to
just 26 today; from 99 Asian American-owned banks in 2010 to
just 63 today; and from 22 Native American-owned banks in 2010
to just 18 today.
Over the same period of time, the banking industry overall
has witnessed a massive and continuing consolidation, such that
today just eight megabanks hold fully half of all banking
assets in America. Some things bear repeating: Eight megabanks
hold fully half of all banking assets in America.
Further exacerbating the problem of effective lending for
minority-owned banks is the lack of capacity to fund the major
projects that can aid small businesses in their development, as
well as improve the quality of life in the community where the
banks are located.
For decades, regulators and researchers alike have found
overwhelming evidence of invidious discrimination in mortgage
lending, small business loans, and other financial products.
This is unacceptable, and it must end.
Prosecutors and think tanks have developed empirical
evidence validating what our community knows all too well:
Discrimination is a fact of life in the economic lives of
minorities seeking access to housing in 2019, 51 years after
the enactment of the Fair Housing Act. This is unacceptable,
and it must end.
Today, in 2019, 41 years since the Community Reinvestment
Act was enacted, new research released just this week reveals a
pattern of disinvestment, discouragement, and inequitable
treatment of Black- and Hispanic-owned businesses, a pattern
spanning the period from 2008 to 2016. This is unacceptable,
and it must end.
Some of the worst offenders in the financial industry have
been charged, convicted, and punished with just a slap on the
wrist for discriminatory and predatory practices against their
own customers. But these recidivists continue, often repeating
the same course of conduct and absorbing penalties and fines
for discrimination as merely a cost of doing business, allowing
the cycle to continue. This, too, is unacceptable, and it must
end.
Measured against the megabanks' record $780 billion in
profits over the past decade, the $160 billion in fines they
paid may become just another cost of doing business. If ever
this state of affairs were deemed acceptable by some, it is no
longer acceptable and it must end.
We are convened here today in Houston, as Members of the
Congress from around the nation, to begin the end of this form
of invidious discrimination, the end of discrimination against
small businesses, small businessmen and women seeking a fair
shake when they apply for a loan, the end of disparate
treatment against LGBTQ+ home buyers seeking a mortgage on the
same terms as their straight and cisgender counterparts, and
the end of financial institutions treating simply as a cost of
doing business the billions in fines they pay for recurring
discriminatory and predatory conduct against borrowers of
color.
It is my intention to explore the legal and policy
solutions that will ensure that no one is left behind, such
that finally, American economic life becomes truly inclusive
and equitable.
In conclusion, I wish to thank my colleagues,
Representatives Cleaver, Clay, and Meeks, soon to be joined by
Representative Tlaib, for making the trip here from Missouri,
New York City, and Michigan. And of course, we have Ms. Garcia,
who is my neighbor here in Texas, and I thank her for
traversing the short distance and being here with us as well.
I am pleased to be able to help to bring some visibility to
critical issues of equity and fairness for all Americans. That
is what this hearing is all about.
And at this time, I would like to introduce our first panel
of witnesses. I would like to extend a warm welcome to each of
the witnesses.
On our first panel, I am pleased to introduce now Judson
Robinson III, CEO and Chair of the Houston Area Urban League;
Belinda Everette, Director, Housing Initiative, NAACP Houston
Branch; John Wong, Founding Chair, Asian Real Estate
Association of America; Hua Sun, Associate Professor, Finance,
Iowa State University; Dedrick Asante-Muhammad, Chief of Race,
Wealth, and Community, National Community Reinvestment
Coalition.
Welcome to all of you, and thank you for being here. Each
witness will be recognized for 5 minutes to give an oral
presentation of their testimony. And without objection, the
witnesses' written statements will be made a part of the
record.
Once the witnesses finish their testimony, each Member will
have 5 minutes within which to ask questions. The timekeeper
will signal when you have 1 minute remaining. As a matter of
fact, this will be your 1-minute signal.
[Timer sounding.]
This will let you know you have 1 minute remaining. After
your time is up, you will hear the gavel.
[Gavel sounding.)
This will indicate that you should wrap up, if you have not
already wrapped up.
We will begin with Mr. Judson Robinson. You are now
recognized for 5 minutes for your statement.
STATEMENT OF JUDSON ROBINSON III, CEO AND CHAIR, HOUSTON AREA
URBAN LEAGUE
Mr. Robinson. Thank you, Chairman Green, and distinguished
members of the subcommittee, for allowing me to testify about
discrimination and other barriers to consumer credit,
homeownership, and financial inclusion in Texas.
In addition to my current role as president and CEO of the
Houston Area Urban League, I have the privilege of serving this
community as a member of our city council and as vice mayor pro
tem. I have considerable insight into the barriers that prevent
Houstonians from sharing in the great prosperity of our City.
A longer version of my testimony has been submitted to the
committee, which identifies sources of discrimination and
barriers and suggests solutions, so I will use my brief time to
highlight a few issues of particular concern.
The mission of the Urban League is to enable African
Americans and other underserved communities to secure economic
self-reliance, parity, power, and civil rights. We help our
constituents attain economic self-reliance through
homeownership, job training, good jobs, entrepreneurship, and
wealth accumulation.
Our views and recommendations are based on decades of
direct program experience in urban communities across the
country, and our historic role in documenting and fashioning
remedies to address our nation's long and unfortunate history
of discrimination against communities of color. The subject of
today's hearing falls squarely within the mission of our
organization, both nationally and here in Texas.
There is a serious lack of access to affordable credit in
communities of color. The 2008 financial crisis, during which
Americans lost more than $19 trillion in household wealth,
impacted minorities disproportionately. Perverse incentives in
the secondary mortgage market drove unscrupulous brokers and
loan officers to target otherwise creditworthy borrowers in
communities of color with abusive and predatory loans.
The result of targeting minority borrowers with predatory
mortgage products, in effect, set up these same borrowers to be
disproportionately affected when the housing market crashed.
African-American and Latinx borrowers were much more likely to
receive high-interest subprime loans and loans with features
that are associated with higher foreclosures.
The lingering effects on communities of color have been
devastating. In Texas, low- and middle-income families are
having particular trouble finding affordable apartments to rent
or houses for which they can secure a mortgage.
Houston has among the nation's most extreme income gap
between renters and homeowners. A typical renter's income of
$39,500 is 64 percent of a typical homeowner's income of
$61,470. The City's Black homeownership is about 32 percent,
far lower than before the 2008 financial crisis.
As in many cities, African Americans here are more likely
to lose their homes to foreclosure, and they continue to face
barriers to accessing credit today. Houston residents are also
facing the economic hardships brought about by Hurricane
Harvey, which increased the demand for homes and helped push up
real estate prices.
Redlining remains a serious problem. In 1977, Congress
passed the Community Reinvestment Act (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 and
reinvest them in more affluent suburban areas.
Redlining prevented African Americans and others from
securing affordable homes and mortgages in decent neighborhoods
and purposely segregated communities. Segregated into slums,
African Americans were concentrated into poverty by 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
resulted. Cities were left behind with no adequate tax base for
basic services, accelerating community deterioration.
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. CRA-
regulated institutions have not met the needs of the community,
allowing an array of non-banks to enter the marketplace, many
of whom provide high-cost and often predatory products. Simply
put, the CRA can and must do more.
Housing segregation reinforces racism and diminishes us as
a nation. Under pressure from the insurance industry, the
Department of Housing and Urban Development has proposed
weakening the regulation of disparate impact claims under the
Fair Housing Act. If this rule becomes final, victims of
housing discrimination will have very limited judicial
remedies. Their access to the courts will be all but gutted.
I will skip to public housing. The 1.1 million housing
units operated by public housing nationwide are in need of
repair and modernization. Funding to address necessary
maintenance repairs at public housing associations is generally
under the purview of Congress through the Public Housing
Capital Fund, which aims to help PHAs maintain their operations
and address any backlog in capital repairs. However, this
program is severely underfunded.
[The prepared statement of Mr. Robinson can be found on
page 81 of the appendix.]
Chairman Green. Thank you for your testimony, Mr. Robinson.
Ms. Everette, you are now recognized for 5 minutes.
STATEMENT OF BELINDA EVERETTE, DIRECTOR, HOUSING INITIATIVE,
NAACP HOUSTON BRANCH
Ms. Everette. Thank you for allowing me to serve on this
panel, and I am very appreciative to serve on the nation's
largest and oldest civil rights organization, as well.
A pivotal component to the challenge to increase African-
American homeownership has been, and continues to be, access to
credit, specifically residential home mortgages. Homeownership
is the most significant factor contributing to the disparate
gap in wealth between whites and minorities. A study by
Brandeis University reveals that years of homeownership, not
just homeownership, is the driving force at the core of the
gap.
Housing, lending, and insurance markets have served as the
bastions of overt discrimination through residential
segregation. The dual credit markets in the United States make
it easy for mainstream lenders to ignore and avoid minority and
low- to moderate-income communities, but provide easy access
for payday loan stores, pawn shops, and hard money lenders with
their specialized products designed to drain the life's blood
from many communities of color.
Drive through many of Houston's historic minority
communities and you will see a plethora of fast-money resources
with high interest rates and easy payroll deduction repayment
structures. Most payday lenders enjoy 400 percent interest on
loan amounts from $50 to $500. This is the level of credit that
is readily available to Houston's minority population.
Since 2007, African-American homeownership has experienced
the most dramatic decline of any racial or ethnic group.
African-American homeownership declined 5 percent in the past
10 years, while Caucasian, Asian, and Hispanic homeownership
declined by only 1 percent. Researching the most recently
published Home Mortgage Disclosure Act (HMDA) data for the
Houston-Woodlands-Sugar Land Metropolitan Statistical Area
(MSA), these numbers are supported by an alarming ongoing trend
in mortgage origination.
Of less than 5,000 applications, conventional mortgage
loans originated in the entire Houston MSA consisted of 2,921
loans, for a 58-percent approval rate. The Hispanic Americans
in this great City originated 13,000 applications and had a 54-
percent approval rate for 7,000 loans. That is contrasted by
52,346 applications for white or Caucasian Americans, with a
71-percent approval rate for 37,000 loans.
The statistics reveal a systemic and pervasive
discriminatory system at work. According to the City of
Houston, the demographic makeup of the Houston MSA is 25
percent white, 22 percent Black or African American, 45 percent
Hispanic American, 7 percent Asian American, and 1 percent
other or mixed race. Whites are provided homeownership
opportunities at a rate that is 10 times that of African
Americans, and 4 times that of Hispanic Americans.
One of the most important steps in stabilizing and
expanding sustainable homeownership within minority communities
is to expand their access to credit. We need to have a greater
focus on consumer education and housing education related to
building credit and using low-down-payment and down-payment
assistance programs. More than 70 percent of all adults are
unaware that down-payment assistance exists, and that 87
percent of all homes sold in the United States qualify for
down-payment assistance.
While nationally, the African-American homeownership rate
peaked at 45 percent during the first 6 years of our new
millennium, it is currently at 42 percent, and Houston is at
only 38 percent.
However, in celebration of the 100-year anniversary of the
NAACP, we developed and introduced a housing initiative, Homes
for Houston, featuring a Home Buyer Education Program to
address the rapid decline in minority homeownership. The Home
Buyer Education Program took a comprehensive approach to
educating consumers on every aspect of the home acquisition
process, from learning financial and credit management, to
understanding sales contracts, appraisals, and title work. The
curriculum provides common-sense, comprehensive education for
consumers. Additionally, the seven-module course includes a
detailed module on down-payment assistance programs.
In its inaugural year, over 230 people completed the
program, with 22 new homeowners for $3.8 million in the first 6
months, and by year's end, we had an additional 50 people in
the process for $12 million in new mortgages.
Education and access to resources are the key, but a
partnership and alliance with the financial services community
is the driving factor to the success of our program. Meeting
people where they are and providing true investment in the
community by investing in its people is the solution to
increasing and sustaining minority homeownership.
[The prepared statement of Ms. Everette can be found on
page 63 of the appendix.]
Chairman Green. Thank you for your testimony, Ms. Everette.
Mr. Wong, you are now recognized for 5 minutes.
STATEMENT OF JOHN WONG, FOUNDING CHAIR, ASIAN REAL ESTATE
ASSOCIATION OF AMERICA (AREAA)
Mr. Wong. Chairman Green, members of the Oversight and
Investigations Subcommittee, and members of the audience, I
thank you all for the opportunity to speak on behalf of the
Asian Real Estate Association of America (AREAA), and the Asian
American and Pacific Islander (AAPI) communities whom its
members serve.
AREAA represents over 17,000 real estate and mortgage
professionals from across the country. AREAA is the largest
AAPI professional association in the United States and is
comprised of professionals who work directly with AAPI families
in the real estate and mortgage lending markets. On a daily
basis, AREAA's members work with clients who experience
discrimination and barriers in their quest to achieve the
American Dream of homeownership. It is on their behalf that I
rise before you to testify.
HMDA data shows that Asian-American mortgage applicants
face the highest proportional denial rates due to incomplete
applications. These incomplete applications result from hurdles
and barriers faced by AAPI applicants.
One such barrier is language comfort. AREAA's 2019 State of
Asia America report declares that the AAPI community is
linguistically diverse and vibrant: 77 percent of AAPI families
responded that they speak a language other than, or in addition
to, English at home; 19 percent said they spoke English well,
but not very well; 12 percent stated they did not speak English
well; and 4 percent do not speak English at all.
To address this reality, AREAA actively advocates for
inserting an information-gathering language question on the
Uniform Residential Loan Application, the URLA form. AREAA was
pleased that the Federal Housing Finance Agency (FHFA)
originally agreed to the inclusion of this language preference
question for borrowers. AREAA regrets that the inclusion of
this question has now been reversed, and we will continue to
work on language access to strengthen the understanding for
AAPI communities.
AREAA is an active member of the Language Access Working
Group, formed jointly by FHFA, Fannie Mae, and Freddie Mac, to
improve the ability of mortgage-ready, but limited-English-
proficiency (LEP) borrowers to understand and participate in
all facets of the mortgage life cycle.
AREAA fully supports development of an online library with
standardized definitions of mortgage terms in multiple
languages. This library would bring consistency to the
understanding and definitions that consumers, industry
professionals, and regulators have for the terms used in the
loan application.
The library is currently available for Spanish translation
at the FHFA website. The Asian languages to be included are
Chinese, Vietnamese, Korean, and Tagalog. Chinese and
Vietnamese are scheduled to become active on the website this
year. AREAA urges that this FHFA-Fannie Mae-Freddie Mac plan
continue.
The evaluation methodology for creditworthiness is a second
major hurdle for AAPI borrowers. Many Asian Americans and
Pacific Islanders, especially foreign-born immigrants, come
from cultures in which taking on debt is rare or frowned upon.
The methodology for measuring likeliness to repay a loan does
not work for borrowers from such cultures.
The denial rate for mortgage applicants based on
insufficient credit histories identifies that Asian Americans
are denied at double the rate of other demographics. HMDA data
shows that AAPI mortgage applicants disproportionately faced
the highest denial rates due to unverifiable credit
information.
We are pleased that FHFA has announced that Fannie Mae and
Freddie Mac are adding additional credit-measuring metrics to
their creditworthiness evaluations.
The Asian Real Estate Association of America believes in a
housing market that is free from discrimination for all
participants. AREAA opposes policies and practices that are
known to have disparate impact on any demographic group defined
by race, color, religion, national origin, sex, handicap,
familial status, sexual orientation, and gender.
There is a fairness component in AREAA's goals and actions
to evolve. The Federal Reserve 2018 Survey of Consumer Finances
reports that families who own their homes have an average net
worth of $231,400, when compared to the $5,200 average net
worth of families who rent. This is a 44-percent differential.
This is validated by the experience of AREAA members and their
clients' experiences.
[The prepared statement of Mr. Wong can be found on page 95
of the appendix.]
Chairman Green. Thank you very much, Mr. Wong, for your
testimony.
We will now recognize Mr. Asante-Muhammad for 5 minutes.
STATEMENT OF DEDRICK ASANTE-MUHAMMAD, CHIEF, RACE, WEALTH, AND
COMMUNITY, NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC)
Mr. Asante-Muhammad. Good morning. And thank you, Chairman
Green, and members of the subcommittee, for inviting me here as
a representative of the National Community Reinvestment
Coalition to speak about entrepreneurship, credit, and racial
wealth inequality.
NCRC was formed in 1990 and has grown into an association
of more than 600 community-based organizations that promote
access to essential banking services, affordable housing,
entrepreneurship, job creation, and vibrant communities for
America's working families.
In January of 2019, the Institute for Policy Studies
released a report entitled, ``Dreams Deferred,'' that
highlights that racial wealth inequality has been increasing
over the last 33 years.
In 2016, white median wealth was $146,984, Latino median
wealth was $6,591, and Black median wealth was at a low $3,557.
There is growing recognition that wealth is an essential
indicator of the economic well-being and stability of
households, and that such low levels of wealth among Blacks and
Hispanics is a significant indicator of continuing, deep,
racial economic inequality.
Professor Ed Wolffs' 2017 paper, ``Deconstructing Household
Wealth Trends in the United States, 1983 to 2016,'' notes that
throughout the last 33 years, unincorporated business equity
has consistently been the second-largest percentage of gross
assets for households behind only principal residence. Business
equity is a foundational part of wealth development in this
country, making small business development a central aspect of
strengthening financial well-being for many Americans.
Today, NCRC released a White Paper examining the reality
and the practices of bank investing in small businesses. NCRC
and our academic partners--Dr. Jerome Williams at Rutgers, Dr.
Glenn Christensen at Brigham Young University, and Dr. Sterling
Bone at Utah State University--conducted a two-part study to
evaluate differences in small business ownership and lending
opportunities.
In one section, NCRC analyzed small business ownership and
lending at the national and metropolitan level in seven cities
using data from the Federal Government. The seven areas we
examined are Atlanta, Houston, Los Angeles, Milwaukee, the five
boroughs of New York City, Philadelphia, and Washington, D.C.
Next, NCRC and our partners conducted a series of mystery
shopping tests of banks to evaluate the customer service
experience of prospective borrowers of different races and
ethnicities in the Los Angeles metropolitan area. The title of
our paper, ``Disinvestment, Discouragement, and Inequity in
Small Business Lending,'' speaks to much of what we found in
our research. Our paper highlights that there are tremendous
gaps in Black and Hispanic business ownership relative to their
population size. Although 12.6 percent of the U.S. population
is Black, only 9.5 percent of African Americans are business
owners, and only 2.1 percent of businesses with employees are
Black-owned. Hispanics are 16.9 percent of the population but
only own 5.6 percent of small businesses with employees.
There is also a lack of access to capital through the
traditional banking market, especially for Black business
owners, who have seen a steep decline in Small Business
Administration (SBA) 7 lending from 8 percent of loans to 3
percent of loans.
NCRC's mystery shopping test indicates substandard customer
service, including inadequate presentation of loan information
for all testers regardless of race. It is also true that white
testers received superior customer service by being asked fewer
questions about eligibility and obtaining more information
about the loan product than were their Black and Hispanic
counterparts.
One of the barriers that NCRC's research team found when
analyzing the lending data in the small business arena is the
lack of publicly available data. It is imperative that Section
1071 of the Dodd-Frank Act be implemented. Section 1071 would
require lending institutions to submit data on small business
loans made to minority- and women-owned businesses. The
nonimplementation of Section 1071 of Dodd-Frank inhibits the
ability to understand whether capital is allocated in an
equitable way to women- and minority-owned small businesses.
Chairman Green has introduced two bills, H.R. 149 (the
Housing Fairness Act), and H.R. 166 (the Fair Lending for All
Act), during this congressional session. Both bills would
strengthen fair housing and fair lending laws by increasing the
support for testing at both HUD and the Consumer Financial
Protection Bureau, allowing for more in-depth analysis of
investment and capital that becomes the basis of financial
security for so many American households.
Thank you, Chairman Green, for the opportunity to highlight
our research in the small business arena.
[The prepared statement of Mr. Asante-Muhammad can be found
on page 60 of the appendix.]
Chairman Green. Thank you.
At this time, we will hear from Professor Sun for 5
minutes.
STATEMENT OF HUA SUN, ASSOCIATE PROFESSOR, FINANCE, IOWA STATE
UNIVERSITY
Mr. Sun. Good morning. I want to thank Chairman Green and
the subcommittee members for giving me the opportunity to
testify at this hearing. My name is Hua Sun, and I am an
associate professor of finance at Iowa State University.
I am pleased to discuss our findings on potential disparate
lending practices to same-sex borrowers. I recently published a
paper--Lei Gao is my co-author--that looks at this issue.
The primary data we used is a 20-percent random sample from
HMDA from 1990 to 2015. It gave us over 30 million observations
on residential mortgage application records that involved both
a borrower and a co-borrower.
We then merged this data with Fannie Mae single-family loan
performance data on over 400,000 mortgages originating after
2004. And this merged data gave us a chance to look at
financing costs and succeeding loan performance.
Our findings show that compared to hetero-sex applicants
with similar characteristics, same-sex borrowers, on average,
experienced about a 3- to 8-percent lower approval rate.
Further, among approved loans, lenders charged, on average,
a higher interest rate and fees in the range between 2 to 20
basis points. Our inferred dollar value on the higher financing
costs imposed on same-sex borrowers is between $8.6 million to
$86 million nationwide every year amongst same-sex borrowers.
Yet, we were unable to find statistical evidence that same-
sex borrowers are more risky. Indeed, our data reveals that
same-sex borrowers appear to be slightly less risky than
comparable hetero-sex borrowers. They exhibit similar default
risk, but statistically significant lower prepayment risk than
comparable hetero-sex borrowers.
In one other robustness check, we looked at a subsample of
same-sex borrowers to rule out the possibility that they are
only relatives. So, basically, we looked at a subsample of
same-sex borrowers who are of a different race, and we
continued to find a significantly lower approval rate on this
restricted sample.
One serious limitation of HMDA data is its lack of
information on the borrower's characteristics, such as their
credit history. To mitigate this problem, we cross-validated
our study by using a small sample of mortgage borrowers from
the Boston metropolitan area in 1990.
The strength of this Boston data is that it has very
detailed information on borrower characteristics such as their
credit history, work experiences, and educational backgrounds.
And the Boston data, after we controlled for a wide range of
mortgage and borrower characteristics, revealed that same-sex
borrowers are 73.12 percent more likely to be denied when they
apply for a loan.
We also looked at time series performance of loan
underwriting nationwide, and we found that the gap of the lower
approval rate to same-sex borrowers is rather persistent.
Indeed, the HMDA data shows that the gap was even larger in
2015 than in the year 1990.
In regard to the agency versus non-agency loans, we found
that the largest gap seems to be on conventional loans, where
the raw approval rate on same-sex borrowers is about 7 percent
lower. The gap is about 4 percent for VA loans and 0.8 percent
for FHA loans.
To summarize, our findings document some statistically- and
economically significant findings on adverse lending outcomes
to same-sex borrowers. The disparate lending practice seems to
be throughout the life cycle, from applying for, to paying off
a loan.
Given the fact that current credit protection laws, such as
the Fair Housing Act and the Equal Credit Opportunity Act, do
not explicitly list sexual orientation as a protected class, it
is my wish that our study and this testimony will help initiate
a constructive discussion on the need and the means to provide
better protection to same-sex borrowers.
Thank you very much.
[The prepared statement of Mr. Sun can be found on page 92
of the appendix.]
Chairman Green. Thank you, Professor.
At this time, the Chair will recognize the gentlelady from
Texas, Ms. Garcia, who is a memberof the subcommittee, for 5
minutes for questions.
Ms. Garcia of Texas. Thank you, Mr. Chairman, and I would
like to start off today by thanking you for convening this very
important hearing. I know we have looked at this topic some in
the broader sense on the committee, and certainly you have
filed some legislation that might address some of these issues.
But it is always so great when we can go in the field and hear
directly from the folks at home.
The Houston region is one of the most diverse metropolitan
areas in the country. Our diversity is one of our strengths,
and it is one that should make us all very proud.
At the same time, we need to wrestle with some hard truths
locally and as a nation. The legacy of discrimination and
racism has kept some communities and some of us here today from
succeeding.
I have here a redline map of Houston from 1930. Sadly, if
we look at it even today, we can certainly see that some of
these lines still mirror some of what is happening today.
I know that in my district, the yellow is noted as being a
definitely declining area, an area that we need to stay away
from. Hazardous in red includes, sadly, part of your district
and part of mine. And if we look at some of the numbers that
some of you all have mentioned today, certainly we may not have
made much progress when you look at it in that respect.
So, today, the most--
Chairman Green. Would the gentlelady like to introduce
these documents into the record?
Ms. Garcia of Texas. I ask for unanimous consent to enter
this in the record.
Chairman Green. Without objection, it is so ordered.
Ms. Garcia of Texas. Thank you.
Today, the most blatant and obvious discrimination in
redlining mostly doesn't occur, but it continues under the
guise of gentrification, where changes are made to a community
that do not help those who live there and, instead, pressure
them out of their homes.
This committee saw that in Detroit, where Congresswoman
Tlaib hosted us earlier in August, and I can only guess that it
is repeated all across America.
I also believe, and this committee is looking at this very
issue, that we need to make sure that discrimination impacts do
not get incorporated into new ways of banking and other
financial institutions as they use new technology such as
artificial intelligence or algorithms to make lending
decisions.
We know discrimination exists. It is sometimes just more
subtle and maybe a little more quiet. But we know it is there,
and Mr. Chairman, thank you for bringing us together so that we
can end it.
I wanted to start my questions with Mr. Wong. Mr. Wong, you
mentioned language barriers. Many have talked about economic
issues. Some have talked about financial stability.
If you had to name the one factor that we can look at to
try to address this, what would that be, that would widen the
doors of opportunity for all minorities with respect to the
issue that we are talking about today?
Mr. Wong. I think AREAA's perspective is that the language
barriers that are faced by individuals not only impact their
ability to obtain a loan, but it affects their ability to
maintain the loan sustainably, and even at the very end, should
something horrible happen, to not understand what resources are
available to help them if they come into problems.
During the foreclosure crisis, a number of AREAA members
were involved in the AREAA disposition process. And many noted
that homes that had foreclosed owners of Asian surnames, when
they did their initial inspection of the property, they were
spotless. These individuals had cleaned the floors, mopped
everything, and just left. And in discussions with the agencies
and other banks, these individuals had never, ever called the
lenders to note that there might be an issue.
So I think that, generally speaking, to have something like
the language library that is in the process of being
implemented--it has been successful with the Spanish language--
if that is continued, rather than deterred in another
direction, I think that would be very helpful.
Ms. Garcia of Texas. All right, thank you.
And Mr. Robinson, you know I had to pick on you. It is good
to see you here.
Tell me, when we talk about funding, are we seeing
disparity in funding for some of the public housing projects
and some of the projects that I know that the Urban League is
working on? Can we say that other groups--you know, white
groups, if you will--get more dollars in funding and less cuts
than, perhaps, the Urban League and some that address minority
housing opportunities?
Mr. Robinson. Let me speak first from the national
perspective.
The most recent study by HUD on the public housing capital
backlog was published in 2010 and found that the nationwide
backlog of deferred maintenance to address needed repairs and
improve the living conditions in public housing stood at $26
billion and would grow at a rate of 8 percent, or $3.4 billion,
annually, if not addressed.
According to the same study, 10,000 public housing units
are lost each year due to disrepair. The key drivers of the
capital backlog in this report were needed household
improvements that ensure human health and safety.
To speak locally about the access to resources to ensure
that we have adequate public housing, I would say it is pretty
general across-the-board. These numbers would impact Texas just
as disproportionately as they do any other State as it relates
to minorities.
Being strong advocates for the population of underserved is
our challenge. Making sure that we have the resources necessary
to ensure that our voices are being heard is an ongoing
challenge. It always has been. But looking at the national
perspective of the overall impact, it is pretty daunting.
Ms. Garcia of Texas. All right, thank you.
Thank you, Mr. Chairman. I yield back.
Chairman Green. The gentlelady yields back.
We will now recognize the gentleman from New York, Mr.
Meeks, who is also the Chair of our Subcommittee on Consumer
Protection and Financial Institutions.
And I might add that we all serve under the leadership of
the Honorable Maxine Waters, who is the Chair of the full
Financial Services Committee.
Mr. Meeks, you are recognized for 5 minutes.
Mr. Meeks. Thank you, Chairman Green. And I want to thank
you for your extraordinary leadership in Washington, D.C., and
the methods by which you handle the Oversight and
Investigations Subcommittee as its Chair, and your strong
advocacy in making sure that the people of the 9th
Congressional District are receiving the kind of attention they
should on the Financial Services Committee, as well as
throughout the Congress of the United States, as to
accessibility to financial institutions, and your continuing to
look into the root causes of the kind of disparities that we
have heard from our panelists today, and digging into it and
not allowing just courtesy answers by some of the institutions,
digging deep into the reasons and how we can stop the kind of
discrimination that I have heard here, the redlining that still
continues.
Your pursuit of justice and equality in creating wealth in
communities of color is unparalleled. And thank you also for
bringing us down to your district and to Texas so that we can
continue to have this very, very important dialogue and
conversation.
As you indicated, I am from New York, which is probably
home to more of the huge financial institutions than any place
in the world. And they have a great deal of wealth. Yet, we are
seeing the disparities between the haves and the have-nots in
this country like never before.
The one aspect, the one way that we saw, particularly in
African-American and Hispanic and Asian communities, that you
could start closing that wealth gap was two ways: one,
homeownership, which after 2008 was devastated; and two, as Mr.
Asante-Muhammad has said, ownership of your business, equity
ownership. And both of those things, we have recently begun to
lose.
We see our role on the Financial Services Committee to
restore the focus on the roles of our regulators to make sure
that discrimination is stopped; and on the role, particularly
of small and minority banks, that they can play in the
communities in which which our people live.
Indeed, when I think about 2008 in my district--I am sure
it is no different than Houston--we suffered the greatest
amount of homeownership loss of anybody in New York City.
Yet, the cause of the problem was not the small and
minority banks. They were not the ones that were giving out the
exotic mortgages. They were not the ones that were giving out
the no-document loans. They were not the ones that were giving
out the adjustable-rate mortgages that they knew people could
not pay for after 2 or 3 years.
So, we are focused now on trying to make sure that we
remedy those scenarios. We are coming up--Mr. Robinson, as you
indicated, we are looking at now, how do we bring a revised and
new and energized CRA so that we can begin to level the playing
field?
So I will ask you the first question, Mr. Robinson, because
we are talking to the OCC and the FDIC and the Federal Reserve
about CRA. And given technology today and how people evolve,
what do you see? What would you suggest that we look at and
focus on, on our committee, to make sure that they are an
integral part of correcting and moving forward with CRA?
Mr. Robinson. Well, a couple of the stats that I think
someone on the panel mentioned were pretty eye-opening in that
the banks had--I think it was actually our Congressman Green
who mentioned that there was a profit of $780 billion in the
banking industry of just the top-tier banks and $160 billion in
losses, and that is a way of just doing business, that they
have a $620 billion gain and will take that.
One of the things that we have seen that has helped us to
prepare future homeowners to be better prepared for addressing
their mortgages and their responsibilities is the fines
associated on these banks that have harmed communities of
color, and others, to ensure that those dollars come back to
agencies like the Urban League and the NAACP, so that we have
foreclosure-prevention programs, so that we have first-time
homebuyer programs, so that we have financial literacy
programs.
I think that there needs to be an increase in those types
of fines and assessments, to ensure that banks are pushing
those dollars back into these organizations that can help
address language barriers and all of the other things that we
have talked about today because the money, I think, is there.
And we need to, in turn, try to make sure that the money comes
back to the communities that have been impacted by those who
have taken advantage of those very same communities.
Mr. Meeks. Thank you.
Chairman Green. The gentleman yields back.
At this time, a brief announcement: This hearing is part
one of a two-part process. We will convene again in New York in
the 5th Congressional District, which is Mr. Meeks' district,
for a continuation of this process because we are trying to
develop legislation, and we believe that Mr. Meeks will provide
us with the additional intelligence necessary to have
efficacious legislation developed.
With that said, we will now hear from the gentleman from
Missouri, Mr. Cleaver, who is also the Chair of our
Subcommittee on National Security, International Development
and Monetary Policy, for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Asante-Muhammad and Dr. Wong, it is counterintuitive,
but when you look at the stock market exploding and growth and,
at the same time, look at or listen to all of the proclamations
about how great the economy of the United States is going, but
when you look at the low-income Americans, their lives are not
being impacted. I think only about half of the country is
involved in the stock markets, anyway.
And so the government, from my perspective, needs to do
something, and I would like to find out what you think we can
do. I know CRA has been something that we have all talked
about. And as odd as it may seem, in the 1930s Congress
actually created an agency to discourage banks from providing
loans in what they considered to be hazardous neighborhoods,
the antithesis of the CRA.
But with the CRA, something has to be done, I think, and I
am interested in your response. Because a bank, for example,
can invest in a CRA area and still not help poor folks because
they can make investments in or provide loans to people in that
area who could get a loan anywhere in town. And so, providing a
loan to him or her is not helping, and they can then still
claim CRA credit.
What do you think we can do? Yes, please?
Mr. Wong. Thank you.
I think the intention of the Community Reinvestment Act is
to support those communities that are underserved, and is an
appropriate origination of the concept. And in recognition of
the need to revise and revitalize it today, one of the causes
for that, from my understanding, is because there are now
artificial intelligence metrics and stuff that can be used in
some ways to disguise the penetration and use of such products.
My personal perspective--and this is not an AREAA
perspective, but I am from the San Francisco Bay area and I am
familiar with many of the technology firms that are in Silicon
Valley down the road--AREAA also works closely with
institutions and academics from across Asia on its real estate
work, but also look at those. And I think that the important
thing is that because the data is available, we can actually
identify true impact, both in the communities it reached, the
individuals it reached, and also to determine their
performance.
Right now, when you look at individuals who use payment
that is online or use these apps, you have a deeper sense of
how they are living their lives as it relates to use of credit.
And so that if CRA, as it moves forward, manages to take in
not just the large traditional financial institutions, but
broader ways that people are accessing credit, but also
requires, in fact, the data that comes from there, so that we
can see in a very rapid--you do not have to wait 5 years to get
data to see how it is going--then, in fact, as to allow the
regulators to make adjustments that are based on data, rather
than just on positioning innuendo.
So, that is a personal perspective. And I sense that--and
you mentioned you have some international oversight--regardless
of what one believes of activities in other countries--and it
is clear from my American perspective that the privacy laws in
China are not what we are comfortable with here--the data and
the methodology is being developed to understand more
personally how products are penetrating into the market and
what the response is.
So I think that is a way to, in fact, eventually become
demographic-blind to see how things really work, but then you
can better help those who are underserved.
Mr. Cleaver. Thank you. Mr. Asante-Muhammad?
Mr. Asante-Muhammad. Yes. One thing I would note is, again,
we do think it is very important that HUD firmly enforce the
disparate impact rule, and I think things like the disparate
impact rule is essential to make sure the CRA lives up to its
promise.
I think we also have to have much more fine-tuned
measurements of what we are trying to achieve. Even in the
negotiation of CRA, there was a limited focus on income, a
limited focus on not getting racial data. I think a racial
wealth divide analysis is essential because, as you noted,
investing in a low-income area, but making most of that
investment with high-income businesses, is very limiting in the
impact, in the development that is occurring.
So you must have a much more clear racial wealth divide
analysis of who are these funds going to, and making sure that
there is a positive impact on the community as a whole, because
we are seeing, in the last 30 years, a regression of
investments, but the lower-income, even medium-income
communities aren't benefitting. And actually, I think, even for
African Americans and Latinos, even high-income African
Americans and Latinos who are very low wealth are not seeing
the benefits that other communities are seeing.
Mr. Cleaver. Thank you, Mr. Chairman.
Chairman Green. The gentleman's time has expired.
At this time, the Chair recognizes himself for 5 minutes.
Ms. Everette and Mr. Robinson, quickly, if you would, give
us some intelligence on this question related to small
businesses not getting loans in certain areas?
In Houston, the intelligence that I have been afforded
indicates that small business loans mostly go to upper-income
areas at a rate of about 49 percent, with just 5 percent going
to low-income areas, 19 percent to moderate-income areas, and
27 percent to middle-income areas.
Now for edification purposes, all of these persons who ask
for small business loans have to qualify to the same extent. So
the question becomes, why is it that they can go in certain
areas, but not in other areas?
I will start with you, Ms. Everette, and then Mr. Robinson.
And if you can be as terse as possible, I have another
question.
Ms. Everette. Thank you, Congressman Green.
One of the key indicators or, I should say, qualifiers for
a small business is a consideration of the applicant's assets,
and this goes back to the homeownership and how important it
is. When you apply for a small business loan, they are looking
at your overall assets, and if you have none, if you don't own
a home, you don't have the collateral.
So I think when you try to look at or understand the lack
of availability for small business owners in certain census
tracks, unless the financial institution is incented by some
program or some guarantee, they are less inclined to take, I
guess, a chance on an unsecured loan or an unsecured business
loan.
The other thing that I also find when they talk about CRA,
when we were vetting financial institutions for the housing
initiative, I was, quite frankly, very surprised to learn how
many institutions actually meet their CRA requirement through
the secondary market. So they will buy pools of loans to
artificially inflate their CRA numbers, which will give the
impression that they are reaching into certain census tracks
and certain communities. But it is not through organic
origination; it is through secondary marketing.
Chairman Green. Mr. Robinson, would you comment quickly,
please?
Mr. Robinson. I would have to agree that having a strong
financial history of wealth in our community has created huge
issues that have cast generations of challenge for minorities
and underserved populations. Lack of inheritance, lack of
strong credit, lack of just the resources necessary within your
own local family band, in addition to all of the traditional
resources that people typically see as avenues for opportunity,
is lacking in our community, and that will only be built
through opportunities that you all can help to generate
successful avenues towards changing that direction.
The other thing that we typically see, especially on the
entrepreneurship side, is access to angel funds. Access to
capital is a huge challenge in our communities. Now, be that a
racial matter, I think that there is some legacy of traditional
comfort levels with certain populations that does not extend to
the people with whom we try to do business.
Chairman Green. Thank you.
I would like to go to Mr. Asante-Muhammad. Mr. Asante-
Muhammad, pairing and testing, first, explain the process, and
then explain, if you would, how can these two pieces of
legislation, H.R. 149, the Housing Fairness Act, and H.R. 166,
the Fair Lending for All Act, benefit from this testing, and
how can these two bills benefit the public?
Mr. Asante-Muhammad. Yes, sir. So the two-pair testing,
what we do is we choose an area, and then we choose a certain
amount of banks in that area, and we send, depending on what we
are testing on, gender or race--we send in maybe a B lack man
and a white man, or maybe a Latino woman and a white woman--and
then we usually give a slightly stronger profile.
Most recently, we were doing small business lending, where
there is very little information actually on small business
lending. But we give a slightly stronger profile to the
minorities. We send them both in to see how they are treated
and what the process is. And we can do that through different
ways of audiotaping, sometimes videotaping. We have been doing
that in the different cities across the country.
And what is clear is--and I think all of the data that
everybody has been showing--is that there has been an ongoing
negative impact, inequality in lending, whether it is related
to homeownership, whether it is related to entrepreneurship.
And so we are looking--we are exploring, what are the practices
in banks themselves that might be supporting that result?
And we feel that these two pieces of legislation, H.R. 149
and H.R. 166, and their ability to strengthen fair housing and
fair lending laws, and increase support for testing at HUD and
the CFPB, are essential to having a better understanding of the
inequality and the way people are being treated.
And actually, I just want to highlight one of the important
things that we noted in our study is that all people,
regardless of race, were not receiving good treatment, not
receiving treatment we think is appropriate for small business
lending. So, I think there is an overall crisis in investing
and in developing true small business, and it just
disproportionately falls on people of color, particularly
Blacks and Latinos.
Chairman Green. My time has expired.
Without objection, I would like to introduce three letters
into the record: the first is from Harris County; the second is
from the City of Houston; and the third is from the U.S.
Department of Housing and Urban Development.
All three relate to the replacement of homes after they
have been damaged due to some natural disaster, and there seems
to be a dispute about how these homes should be replaced.
Without objection, I am going to ask Ms. Everette if you
can just quickly tell us why these letters are important in the
record.
Ms. Everette. Thank you, again.
The City of Houston has, of course, received a substantial
amount of money to assist Harvey victims, and that money is
being administered by the Texas General Land Office (GLO). The
General Land Office has a requirement that, regardless of house
size--how many bedrooms or square footage--that they will only
replace a two-bedroom home.
They also have restrictions that are basically cost-
prohibitive for senior citizens or many people in that they
require environmental studies. Then, the environmental study
has to be submitted. You have to get an appraisal. And then,
all of that has to be submitted.
Then, you have to get your contractor approved. The GLO has
to approve the contractor. Then they have to approve the
contractor's bid. And it is not just going directly from the
consumer to GLO. It has to go through the City. That is an
approval process.
But the biggest issue is that the City has reached out to
not only GLO, but to HUD, to try to get an exception to this
two-bedroom guideline that they have. And basically, everyone
is pointing their finger, saying, well, I don't have the
ability to do this, or it is within the State's guideline to
have this restriction of two bedrooms.
So what I find astonishing is that there is no square
footage guideline, but there is a--if you have a four-bedroom
home, the maximum repair will be to two bedrooms. So, your
four-bedroom home will now be replaced with a two-bedroom home.
Chairman Green. Does any panel member wish to ask a
question concerning this?
Ms. Garcia of Texas. I just want to be clear, you are
saying that the rule says that if the house has more than two
bedrooms, they won't get coverage?
Ms. Everette. They are saying if it has more than two
bedrooms, they will not repair the home or replace it.
Ms. Garcia of Texas. Regardless of the square footage of
the two bedrooms?
Ms. Everette. Regardless. There is no square footage
guideline at all. It is just simply two bedrooms.
Ms. Garcia of Texas. That surely doesn't make common sense,
does it?
Ms. Everette. No, it doesn't.
Ms. Garcia of Texas. No wonder people say we do things that
don't make sense. All right.
Chairman Green. Does any other Member wish to be recognized
on the issue?
[No response.]
If not, thank you very much to all of the members of this
panel. You may now be excused, or you may stay and watch the
rest of the hearing.
At this time, friends, we have concluded, but we will go
forward with the next panel. We are scheduled to take a break,
but because we have some flight issues and various other things
that would be infringed upon if we prolong this, we will go
right into our next panel.
So if you will give us just a moment, we will move this
panel away, and the members of the next panel will come
forward. I am going to ask the persons who are assisting us
with the name plates to do so quickly and bring out the new
name plates, and we will move forward.
And if you can, friends, please stay. This is going to be
an exciting panel. It will deal with banking, credit unions,
and lending, some of the things that are important to you in
terms of acquiring and accessing capital, credit, the things
that can allow for homeownership, as well as small business
development.
[brief recess]
Chairman Green. The Oversight and Investigations
Subcommittee will again come to order.
This session is a continuation of the subcommittee's
hearing begun this morning on, ``Examining Discrimination and
Other Barriers to Consumer Credit, Homeownership, and Financial
Inclusion in Texas.''
Without objection, members of the local media who are
invited to this hearing may engage in audio and visual coverage
of the subcommittee's proceedings. Such coverage is solely to
educate, enlighten, and inform the general public on an
accurate and impartial basis of the subcommittee's operations
and consideration of legislative issues, as well as developing
an understanding and perspective on the U.S. House of
Representatives and its role in our government. This coverage
may not, N-O-T, be used for any partisan political campaign
purpose or be made available for such purpose.
I will now present a brief statement, after which we will
hear from witnesses that I will introduce.
From this morning's panel, we heard compelling testimony
about the depth and breadth of discrimination that regularly
occurs against minority borrowers here in Houston and around
the country.
We turn now to our second panel, which will speak to the
experience of minority-owned banks and community development
financial institutions that are working to be part of the
solution to the discrimination that exists in the lending
marketplace.
These institutions do vital work in underserved communities
and make loans that other banks will not, according to a recent
FDIC study. That is why it is important that we do all that we
can at the Federal level to strengthen and boost minority-owned
banks. The testimony of our next panel will help us to better
understand how Federal laws and policies can do just that.
I would like to extend a warm welcome to each of the
witnesses on the second panel. I am pleased to introduce you
now. The first witness will be Noel Andres Poyo, executive
director, National Association of Latino Community Asset
Builders. The second witness will be Jeff Smith, president and
CEO of Unity National Bank. The third witness will be Celina
Pena, chief advancement officer, LiftFund. The fourth witness
will be Gary Lindner, president and CEO of PeopleFund. And the
final witness will be George Johnson, CEO, George E. Johnson
Development.
I am also honored to recognize that our colleague from
Michigan has joined us. She is the honorable colleague whom we
visited in Michigan not so very long ago, when we had a field
hearing there. The gentlelady from Michigan, Ms. Tlaib, is with
us, and will be a part of the panel as well.
With that said, let us now proceed with our first witness.
Mr. Poyo, you are now recognized for 5 minutes for your
statement.
I will, if I may, just remind witnesses that at the end of
4 minutes, you will hear this bell.
[Timer sounding.]
This will indicate that you have 1 minute left.
And then, at the end of that 1 minute, you will hear this
sound from the gavel, indicating that your time has expired.
[Gavel sounding.]
Mr. Poyo, you are now recognized for 5 minutes for your
statement.
STATEMENT OF NOEL ANDRES POYO, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION FOR LATINO COMMUNITY ASSET BUILDERS (NALCAB)
Mr. Poyo. Thank you for this opportunity to speak with you.
My name is Noel Andres Poyo. I am the executive director of
NALCAB, the National Association for Latino Community Asset
Builders.
NALCAB is a national nonprofit organization, based in San
Antonio, Texas. We have offices in Washington, D.C., and we are
the hub of a network of more than 120 mission-driven
organizations in 40 States and D.C., that build affordable
housing, address gentrification, support small business growth,
and provide financial counseling.
I want to thank you for bringing the business of Congress
to the people here through a field hearing. It shows particular
respect, especially for people who don't have the resources to
go and see your work in Congress, and I am deeply appreciative
of it.
Earlier, you heard testimony on barriers to credit,
affordable housing, and banking services, and I hope that my
testimony helps to advance the discussion of solutions.
It is important to recognize that the future strength and
competitiveness of the U.S. economy relies on achieving far
broader financial inclusion. To illustrate the point, consider
that Hispanics have fewer assets, lower income, and strikingly
less access to credit and capital than non-Hispanic white
populations. And yet, Hispanics are driving demographic growth
in this State and in this country.
So, this is a pressing macroeconomic concern that a
population that is driving our growth really has these gaps
economically, right?
And this is the same reality for African Americans, and
significant segments of the Asian Pacific American population.
For many rural communities, there is the same gap. This is not
a Latino thing. This is not a rural white thing. This is not an
African-American thing. This is a future of the U.S. economy
thing.
And I will say it again, the future strength and
competitiveness of the United States of America relies on us
achieving far broader financial inclusion. And we are all in
this together. The good thing is that our communities, our
diverse communities are a good investment.
Advancing financial inclusion requires two equally
important things: fair access to capital and credit; and the
capacity to use that capital and credit to build assets.
Some people in our economy have the good fortune of having
relatively easy access to fair capital and credit. Those people
buy homes and start businesses and build assets, and that is
good for our economy.
Imagine how much better it would be for our economy if
everyone shared in that privilege? It should be a highest
priority of our domestic economic policy to open fair access to
capital and credit for people who do not already have the
privilege of that access.
One size does not fit all when it comes to effective
solutions for expanding financial inclusion, and we need local
and culturally relevant solutions. So, I want to focus
particularly on the role of community development financial
institutions (CDFIs) and minority depository institutions
(MDIs).
CDFIs are certified by the Treasury Department. They are
private financial institutions that deliver responsible,
affordable financing to underserved communities. They include
nonprofit loan funds, community development credit unions, some
banks, and some venture capital organizations.
And minority depository institutions are banks that are
controlled by Black Americans, Asian Americans, Hispanic
Americans, and Native Americans. The FDIC recognizes
approximately 150 MDIs. Some of those are also certified as
CDFIs.
CDFIs and MDIs have a proven and prudent track record of
investing in low- and moderate-income and minority communities
and businesses, including through difficult economic times.
CDFIs and MDIs make up a critical part of the ladder of
economic inclusion in our country and provide realistic and
responsible financing opportunities in our communities.
One of the requirements of certifying a CDFI is that they
represent communities, so MDIs and CDFIs are a dramatic
demonstration that representation in the boardroom matters.
Imagine how far we could advance financial inclusion if the
boardrooms of the Federal Reserve Banks of America or of our
largest banks reflected our communities, as do CDFIs and MDIs?
I will also say that these are a very important validation
of the Federal investments and efforts that have been made to
strengthen CDFIs and MDIs, including investment in the CDFI-
funded treasury and the efforts of the FDIC and other agencies
to strengthen MDI banking partnerships.
While local and culturally relevant efforts through CDFIs
and MDIs are critical solutions, it would be a mistake to lose
focus on the larger macroeconomic and policy matters that
profoundly shape opportunities for everyone in this country,
but especially low- and moderate-income (LMI) populations,
rural communities, minorities, and immigrants, on issues
including monetary policy, trade and immigration policy, a
strong and independent CFPB, GSE reform, and the Community
Reinvestment Act.
I just want to say a word about monetary policy, in
particular. We often think of monetary policy as set by the
Federal Reserve in the context of the stock market or
international finance, when, in fact, it is as consequential
for low- and moderate-income people as it is for anybody in
this country, and sometimes more so.
We need to be cognizant of the fact that rising rates can
impact the ability of LMI workers to find employment.
Similarly, we need to be worried that when the rates are too
low, we may incentivize risk-taking that creates bubbles, such
that when those bubbles pop, it is low-income people and people
of color who most often are hurt first and worst.
We need more focus and research to understand the
consequence of monetary policy for low-income people and for
minorities in this country. And I will say that former Chair
Yellen and Chairman Powell have made important strides in this
regard. In a recent speech in Jackson Hole at the Economic
Policy Symposium, Chairman Powell pointed to the disaggregated
employment rate and the wage growth among LMI communities as a
key sign of breadth and depth of strength in the economy. We
need our Federal Reserve looking at these disaggregated issues
in LMI and minority communities.
I also will just say a word on the Community Reinvestment
Act, which is critical infrastructure for capital flow to low-
and moderate-income people in this country.
I want to encourage the Members to strongly exercise their
oversight role, particularly with regard to the OCC's efforts
to modernize the CRA. We need CRA modernization that keeps the
needs of low- and moderate-income people front and center. The
go-it-alone approach that we have seen from the OCC, without
the concurrence of the Federal Reserve or the FDIC, is of deep
concern. And if something is passed, it will ultimately
undermine the CRA because we will see inconsistent use of the
CRA across different regulatory agencies, which then will drive
the banking industry towards greater concern about the CRA.
Finally, just a word on the strong and independent Consumer
Financial Protection Bureau (CFPB). A truly free and efficient
market has clear rules of the road to prevent abuse. The CFPB
plays a central role in placing reasonable limits on predatory
activity that strips wealth from LMI communities, including
such practices as payday lending, auto title lending, and
abusive collections practices.
We should all be concerned by the actions taken by the
current Administration to eliminate prudent financial
safeguards on our consumer financial markets. On these issues,
I now collaborate very closely with the Center for Responsible
Lending, where I also serve as a board member.
Thank you for the opportunity to present my testimony.
[The prepared statement of Mr. Poyo can be found on page 77
of the appendix.]
Chairman Green. The Chair thanks you, Mr. Poyo, for your
testimony.
And Mr. Smith, you are recognized for 5 minutes.
STATEMENT OF JEFF SMITH, PRESIDENT AND CEO, UNITY NATIONAL BANK
Mr. Smith. Chairman Green, Chairman Cleaver, Chairman
Meeks, and members of the committee, good afternoon, and thank
you for the opportunity to speak on behalf of the minority
depository institutions (MDIs) like 56-year-old Unity National
Bank. Unity is the only African American-owned bank in Texas.
First, I would like to say that the number of MDIs has been
declining for so long that data strongly suggests if this trend
is not reversed, there will be no more African American-owned
banks in the country.
CRA plays an important part in this. In my opinion, the
time to act is now. You see, MDIs do not have the same access
to capital that other big banks have. The issues are complex,
and the suggestion that MDI banks have been poorly run is
false. Rather, it is because of the high cost associated with
providing the banking services and products to the low- to-
moderate-income areas and the unbanked.
To illustrate my point, Unity National Bank is a $104
million bank with over 11,000 customers. My previous bank,
Houston Community Bank, was a $310 million bank with 6
branches, twice the number of branches that Unity has, and 3
times larger than Unity. But Houston Community Bank only had
5,400 customers. This was a bank that was making $4.9 million a
year in profit.
Even a billion-dollar bank in Houston, Texas, today is
likely to have 10,000 customers or less. Unity's operational
costs are many times greater, and thus, across banking lines,
whether you are talking about IT costs, customer service,
operational, or administrative costs, are 3 to 5 times that of
banks that are 10 times larger than Unity.
CRA has a role to play here. The flexibility of CRA can be
its strength, but also its main weakness. Larger banks want to
comply with CRA because they have to, but they want to do it as
minimally as possible. They are charged to be profitable to
their shareholders. So as a result, we end up with low-hanging
fruit.
In my entire 40-plus years, I have been president, or
president and CEO for the past 20 years at the State and
national level. I know what goes on with the CRA regulations in
the boardrooms and in the executive suite. I know how to
navigate the regulations, and I see my brethren doing it today.
The low-hanging fruit opportunities will always be the ones
picked, whether that includes a $249,000 deposit, which is a
liability to the MDI, or a legal-limit participation loan with
a prime rate, or mentoring. These are all easy for the big
banks. They have little expense associated with them. And what
I think we need to do is to incentivize the big banks to do
more and to consider other ways to utilize the CRA.
More meaningful examples of how to help the MDIs would
include specific CRA credits to a big bank by purchasing the
preferred stock of the MDI. This additional capital could be
used to grow the asset size of the MDI, expand products and
services, and assist in specific programs designed by the MDI
to help its customers break away from high-interest payday
loans, non-bank small business loans, and check-cashing fees.
The big banks would carry the MDI-preferred shares as an asset
on their balance sheet, and it is even possible that the
preferred shares would pay a dividend.
Let me close by saying MDIs are not looking for a handout,
but rather, a hand-up. It is the MDIs who are the ones that are
banking the LMIs, while taking on the brunt of all of the cost.
But this is not a one-way street. This type of meaningful
collaboration and partnership between the banks could result in
a valueship proposition for both banks. MDIs can assist bigger
banks in growing and understanding the robust market that the
LMIs could offer.
Thank you for your time, and I look forward to answering
any questions you may have.
[The prepared statement of Mr. Smith can be found on page
86 of the appendix.]
Chairman Green. The gentleman's time has expired. Thank
you, Mr. Smith, for your testimony.
Ms. Pena, you are now recognized for 5 minutes.
STATEMENT OF CELINA PENA, CHIEF ADVANCEMENT OFFICER, LIFTFUND
Ms. Pena. Thank you, Chairman Green, and thank you to the
subcommittee for hosting us today.
Good morning. My name is Celina Pena. I am the chief
advancement officer at LiftFund, a Texas-based community
development financial institution serving 14 States in the
South Central United States.
Since 1994, our mission has been to level the financial
playing field for entrepreneurs. During our 25 years, we have
provided over $300 million in capital to over 20,000
entrepreneurs. In the greater Houston region, we have provided
$54 million to 3,000 small business owners.
Our direct business loans range from $500 to $500,000. We
are also a partner with SBA on all of their small business
lending products, including the SBA 504, the SBA 7(a),
Community Advantage, and the SBA Microloan program.
We also partner with institutions to provide a pathway to
financial inclusion. I am taking some liberty to share some
examples as it relates to our organization and partnerships.
Our first relationship is with Woodforest National Bank,
headquartered here in the Woodlands. They actually purchase the
fund-generated loans. They have purchased a total of $9 million
in loans over the past 2 years, with an average of $13,000 a
loan. LiftFund provides the loan to the client, Woodforest
purchases the loans, as it demonstrates the criteria of service
and impact per CRA, and LiftFund also continues to service the
loan. We believe this is a win-win, as it relates to serving,
obviously, the populations that we think are deserving.
We also partner with CNote. It is a California-based B
corporation, and it is a unique online investment platform that
focuses on social impact investing. LiftFund currently has $4.7
million in investment that started this year dedicated to
serving minorities and women-of-color entrepreneurs. CNote is a
woman-owned firm, and it is creating a space where investments
can be made that create inclusivity with capital while
providing a modest return on investment.
We pride ourselves on successfully serving those
traditionally left out of the economic mainstream: 38 percent
of our borrowers are women; 85 percent are entrepreneurs of
color; and over 36 percent are startups with less than 2 years
in business.
As we are in the midst of hurricane season, I would be
remiss if I didn't bring up our commitment to disaster
recovery. LiftFund clients and businesses along the Gulf Coast
impacted by Hurricane Harvey have been served by our disaster
relief loan program, thanks to investments by Goldman Sachs and
JPMorgan Chase.
Along with those two banks, Rebuild Texas and the OneStar
Foundation provided operational funding and a guarantee fund as
well. Together, we have provided over $7 million in capital to
322 small businesses impacted by Harvey that did not qualify
for SBA loans.
The U.S. Economic Development Administration is also
helping us continue this effort with a $3.5 million investment
to continue the efforts into the second phase of rebuild.
These next items are LiftFund's approach to improving our
business model to ensure we sustainably provide products and
services that bring financial inclusion. Our work requires us
to raise debt to provide our financial solutions. That is the
community loan fund model.
To change this model, we have created the Dream Makers
Fund, a permanent revolving loan fund where local donors and
investors can provide equity into a local fund dedicated to
serving the underbanked. Our goal is to create this fund and
provide affordable capital in cities like Houston, San Antonio,
and Dallas. This solution will reduce LiftFund's balance sheet
challenges and meet the demand in providing capital to, and
leveling the financial playing field for, the populations we
serve.
One of our biggest successes is our investment technology.
LiftFund has created an internal micro-business risk model. You
have heard of big data. Well, our risk model specifically
focuses on serving underbanked entrepreneurs in the U.S., and
we have a 96-percent repayment rate when we couple this risk
model with our underwriting.
Now more than ever, financial inclusion in Texas and the
U.S. requires steadfast investment and participation at the
local, regional, and national level.
Finally, I should point out that none of this would have
happened without the framework of CRA. In addition to the
partnerships reflected, LiftFund currently has 36 bank
investments totaling $35 million. Your important oversight
ensures a CRA policy that is transparent, accountable, and
mindful of the continued disparities of accessing credit.
Without the CRA, the National Community Reinvestment
Coalition (NCRC) estimates that low- to moderate-income
neighborhoods would lose up to $105 billion in home and small
business lending nationally, including a $24 billion loss in
CRA commitments in the States that LiftFund serves.
I hope the insights provided today give you a better
perspective on how partnerships, CDFIs, and the CRA are vital
to financial inclusion.
Thank you for your time.
[The prepared statement of Ms. Pena can be found on page 73
of the appendix.]
Chairman Green. Thank you for your testimony, Ms. Pena.
Mr. Lindner, you are now recognized for 5 minutes.
STATEMENT OF GARY LINDNER, PRESIDENT AND CEO, PEOPLEFUND
Mr. Lindner. Thank you so much for the time to share our
experience with you this morning.
Small businesses are the economic hub that keeps the City
of Houston, the State of Texas, and the entire nation moving.
According to the Small Business Administration (SBA), last
year, small businesses accounted for 66 percent of all new jobs
in the country.
In Texas, small businesses represent 90 percent of
businesses in the State, but access to affordable capital and
the tools to grow remain a critical challenge. In 2018, the
Kauffman Foundation released a report stating that 81 percent
of entrepreneurs cannot access a bank loan or venture capital.
The barriers for entry for the diverse and low-income small
business owners are mounting. Large banks continue to expand,
while small and medium community banks shrink and underwriting
criteria tightens. Since 2008, the number of banks with assets
under $50 million has declined 41 percent, and large banks
simply cannot make a profit on small, risky loans.
Community development financial institutions (CDFIs) like
PeopleFund were created to bridge the void between the banking
sector and a business in need. Mission-driven and committed to
underserved populations, CDFIs help startups, low-income, and
minority borrowers by extending capital and wrapping funds with
tailored financial education and technical assistance and
guiding them on a journey to prosperity.
At PeopleFund, we have a minority-majority staff and a
minority-majority board, and that is to ensure our programs,
products, and services are responsive to client needs and that
everyone has a voice at the table. Our target market is
minorities, women, veterans, and those in low- to moderate-
income census tracts. Ninety-seven percent of our loans go to
our target market, greater than 65 percent to minorities,
greater than 50 percent to startups, and greater than 50
percent to women business owners.
We also are very inclusive. We have loans to ex-offenders
and to the LGBT community at a significant level.
PeopleFund was founded as a nonprofit 25 years ago, and
became a U.S. CDFI later on. We have all SBA products like
LiftFund, $50,000 on the microloans, $250,000 on Community
Advantage, and 504s up to $5 million.
We also have been very successful in competing for new
markets tax credits. It is our experience that right now, only
two CDFIs in Texas have earned new markets tax credits, and
that is PeopleFund and Texas Mezzanine Fund in Dallas. These
projects are really important because they go to nonprofit
projects and census tracks to provide essential services and
create jobs. We have received over $100 million in new markets
tax credit, and $28.6 million has gone to 4 significant
projects in Houston.
PeopleFund is the leader in veteran lending with financial
support from two national banks. PeopleFund began a national
program to provide veteran business owners and spouses with
single-digit interest rate loans. Currently, 12 CDFIs have
joined, and we cover 20 States and 60 percent of the veteran
population.
Although certified by the U.S. Treasury Department and the
SBA, CDFIs are not subject to the same regulatory oversight as
banks, however, we remain accountable to the 48 organizations
that provide us with low-cost capital.
We have greater latitude in our lending practices, and we
can be agile to fill the gaps that arise. For example, in the
wake of Hurricane Harvey, 90 of our clients with loans from
PeopleFund sustained severe damage. In response, PeopleFund
made a conscious decision that, under the circumstances, we
would make loan payments for them with our capital for a period
of 6 months.
That was a game-changer, and I am happy to report that
after that time, 88 of them are still in business; one of them
passed away, and one of them made the mistake of leaving Texas.
One other thing that I think is really important is that we
are collaborative. We work with LiftFund. We work with all of
the CDFIs in the country. And we think that is important from a
collaborative standpoint. We work together on build projects,
whether for people of color, for minorities, or any other
segment of the population.
Despite the fact that none of the businesses that we lend
to qualify for a bank loan, we also lend to people with an
Individual Taxpayer Identification number (ITIN), in this
country. The 2018 default rate, despite our risky loans, has
been less than 1 percent, and I attribute that to the education
and training and the work we do as partnerships with our
clients.
Small businesses have the power to elevate communities,
bring in critical goods, and spur future development, thus
ensuring future generations have access to capital. CDFIs are
the point of entry to spark this change.
Thank you very much.
[The prepared statement of Mr. Lindner can be found on page
70 of the appendix.]
Chairman Green. Thank you, Mr. Lindner, for your testimony.
We will now recognize Mr. Johnson for 5 minutes.
STATEMENT OF GEORGE JOHNSON, CEO, GEORGE E. JOHNSON DEVELOPMENT
Mr. Johnson. I want to thank you, Chairman Green, and your
subcommittee for bringing this hearing here to Houston.
I don't think that there is any doubt that discriminatory
financial practices exist in minority communities, making it
difficult to access capital for both homeowners and business
owners in the creation and expansion of their businesses.
The wealth gap continues to grow as homeownership declines
from a high of approximately 57 percent to currently 47
percent. In addition, minority businesses continue to struggle
for much-needed capital for creation, acquisition, and growth.
Major banks, for the most part, do not place bank branches
in minority areas, nor do they actively offer borrowing
opportunities to minority businesses. I believe one of the
potential solutions promoting financial inclusion and to
strengthen minority communities is through the partnership of
major banks with minority-owned banks operated and located in
minority communities to provide those banks with additional
capital to operate.
Another potential solution to promote financial inclusion
is to increase funding to community development financial
institutions (CDFIs). About 3 years ago, I received the
opportunity to serve on a CDFI, on the board of directors for
Houston Business Development Inc. (HBDi), a CDFI nonprofit
501(c)(3) corporation established to stimulate economic growth.
I was familiar with HBDi, however, I did not fully understand
the number of ways the organization was serving the community,
including training and education programs for small business
owners.
Under this particular CDFI, under the leadership of Mr.
Marlon Mitchell, who is the CEO, and Mr. Larry Hawkins, who was
the chairman of the board, HBDi started a program of buying
abandoned and rundown properties in and around the Palm Center
area, which is located in Southeast Houston, and tearing these
buildings down and rebuilding commercial and residential sites.
This effort is playing an important role in revitalizing this
Houston corridor.
Additionally, HBDi, as a U.S. Treasury-certified lender,
extends loans to small businesses. And since its inception 33
years ago, HBDi has facilitated over $98 million in small
business loans and assisted thousands of aspiring entrepreneurs
and business owners with accessibility or access to affordable
capital and management assistance not readily available from
banks and conventional lenders.
This particular CDFI has also successfully administered
several government-funded, non-bank loan programs designed to
expand the capacity of small and minority business enterprises
operated in low-income communities.
Additionally, the corporation also operates an SBA-
certified development company making SBA 504 loans up to $5.5
million throughout the State of Texas. The loan committee,
which consists of professional current and former business
owners, utilizes the same basic business prudence that other
banks do, but the CDFIs have the opportunity to dig deeper and
to make loans that typically banks--and national banks, in
particular--would not make.
Currently, this particular CDFI, Houston Business
Development, Inc., serves approximately 5.5 in loans
representing over 300 borrowers. The lowest loan is $3,000. The
highest loan is in excess of $400,000.
Because CDFIs have more latitude in reviewing community
business and their needs, we feel that the increased
capitalization of these proven organizations can make a huge
difference in the creation and capitalization of businesses in
a minority community.
Chairman Green. Thank you for your testimony, Mr. Johnson.
Please allow me to introduce now Mr. Raymond Ardoin,
president of the board of directors of the Brentwood Baptist
Church Federal Credit Union.
And we assure you that you arrived quite timely. We
accelerated the program. So, thank you for coming, and we
greatly appreciate hearing from you at this time. You are now
recognized for 5 minutes.
STATEMENT OF RAYMOND ARDOIN, PRESIDENT, BOARD OF DIRECTORS,
BRENTWOOD BAPTIST CHURCH FEDERAL CREDIT UNION
Mr. Ardoin. Good afternoon. And thank you for the
opportunity to testify today on this very important subject.
My name is Raymond Ardoin, and I am the board chairman of
the Brentwood Baptist Church Federal Credit Union here in
Houston. We are a small credit union currently with 833
members, which was formed in 1992 by our church, Brentwood
Baptist Church, and we are a low-income-designated credit
union.
We currently have total assets of $1.2 million. We have not
entered the real estate and mortgage lending business, but we
do offer automobile financing, share secured loans, signature
loans, and secured debit cards to our members.
Our credit union was formed to provide the availability of
financial services to our church members. At that time, in
1992, most members had proximity to a financial institution
near their jobs, but there was no particular institutional
loyalty, and most members complained about the cold,
impersonal, and insensitive way that they were treated at
banks.
Our credit union worked diligently to provide our members
with a fair and convenient place to save and borrow money. And
although we do not currently handle real estate and mortgage
loans, we know that the basic rules of credit extension are
involved in all types of lending.
Equal access to mortgage credit for minorities remains a
serious issue. The Fair Housing Act makes it unlawful to
discriminate in the rental or sale of housing or to impose
different terms and conditions of a transaction based on race,
color, religion, national origin, and gender.
To avoid mortgage discrimination, minority borrowers should
shop multiple lenders. Not only will that help you to find the
best mortgage interest rate, but it could also identify lenders
that are discriminating with higher rates or a lack of access
to capital.
If lending discrimination is suspected, the following are
several other potential solutions that one should consider
doing. First, contact the lender and enter a complaint. Contact
their State attorney general's office and report it. Consider
retaining a local attorney. File a complaint with the Consumer
Financial Protection Bureau and the Department of Housing and
Urban Development. Research and read reviews in an effort to
find a better lender.
One should also check that their chosen lender is committed
to Federal anti-discrimination laws. Most good lenders announce
this in the disclosures section of their website.
Fortunately, although many of the banks in the U.S. have
exhibited discriminatory tendencies, many minorities are
finding success with online banks, where they find the color of
their skin is less of an issue.
Like many community banks, MDIs face difficulty accessing
capital markets and competition from larger banks. In the
aftermath of the most recent financial crisis, despite moderate
improvements in earnings and capital levels, MDIs continue to
struggle with compressed net earnings. In many cases,
compounding MDI challenges are effects of economic hardships on
MDI customers, many of whom reside in low- or moderate-income
communities.
In 2013, the Federal Reserve reaffirmed its commitment to
MDIs in its Consumer Affairs Letter, ``Federal Reserve
Resources for Minority Depository Institutions.'' This letter
also discusses technical assistance that is available to MDIs
through the Federal Reserve's Partnership for Progress Program,
a national outreach effort to help MDIs confront unique
business model challenges, cultivate safe banking practices,
and compete more effectively in the marketplace.
This concludes my testimony. Thank you.
[The prepared statement of Mr. Ardoin can be found on page
58 of the appendix.]
Chairman Green. You have one additional minute.
Mr. Ardoin. Well, I am all done with the--
[laughter]
Chairman Green. Thank you for yielding back your time.
The Chair will now recognize Members, and each Member will
have 5 minutes to ask questions.
Ms. Tlaib, the gentlewoman from Michigan, is now recognized
for 5 minutes.
Ms. Tlaib. Thank you so much, Chairman Green, and thank you
all so much for being here to talk about something that I think
is incredibly important in our country.
I know in my district, in the 13th Congressional District,
we have lost more Black homeownership than anywhere in the
country. So, this is an incredibly important issue.
The Community Reinvestment Act came up at our field hearing
in the City of Detroit as well. Just yes or no, do you think
CRA is working now?
Mr. Poyo. Yes, absolutely.
Ms. Tlaib. You think CRA is working?
Mr. Poyo. CRA is working for our communities.
Ms. Tlaib. Yes?
Mr. Smith. I think the strength of CRA is its flexibility,
and I think it is also the weakness of CRA. So, I think it
could be improved from where it is today.
Ms. Tlaib. I am going to follow up with you on that, Mr.
Smith, in a minute. Yes?
Mr. Johnson. It could work better. It could be improved.
Ms. Tlaib. Okay. So many people I have been talking to kind
of on a frontline who do similar work in Michigan to what you
all do, have talked about this idea around teeth. I think, Mr.
Smith, you mentioned trying to incentivize big banks to do so?
And CRA, to me, it is like getting that A grade that you
are looking for, right? That is what they want to seek out.
Now, it has become somewhat of a checklist. And some, you are
like, why did they get a CRA credit, and they shouldn't have?
So what I am trying to figure out is--and maybe you can
answer, anybody on the panel--where do we fall short? Because
some banks are--maybe on paper, it seems like they are
following through on some CRA commitments that maybe require
them to work with many of you on this panel, but where do you
think they really do fall--where do you think it does fall
short?
Because in practice, it seems like our families are not--it
is not increasing access to our families. Maybe a handful, but
not as much as it used to. Mr. Smith?
Mr. Smith. In my experience, in 20 years in the C-suite, it
is pretty easy to invoke CRA regulations to say, well, if I did
this, it is a safety and soundness concern for my bank. And all
of a sudden, the regulators' ears perk up, and they say, ``Oh,
well, we don't want you to do anything. That is a safety and
soundness concern.'' So I can't really do this investment, but
I can send 10 employees to do a weekend cleanup at the local
neighborhood. And, ``Oh, well, okay. Well, that will be CRA
credit.''
I can substitute very easily the way it is written now with
what I call low-hanging fruit, rather than the higher-hanging
fruit that has more meat for the MDIs.
Ms. Tlaib. We call that sustainability. We don't want
trinkets. We want sustainability.
Does anybody else want to add anything? Yes, Mr. Lindner?
Mr. Lindner. Yes. Where it does work is we get an
incredible amount of low-cost capital, around 2 percent, that
we can relend. And that comes from large banks that are trying
to get CRA credit. So we help them by lending to those whom
they cannot lend to, and that is--
Ms. Tlaib. Okay.
Mr. Lindner. Now what I would also say is the net is not
wide enough to capture some other banks that could potentially
be supportive of low-cost capital for CDFIs.
Ms. Tlaib. And if I may, Mr. Chairman, if I have a few more
minutes--I am not sure--but I would like to ask all of you--
this is something that has been on my mind and has been very
disturbing recently.
The Department of Housing and Urban Development announced
it would rescind enforcement of the 2013 disparate impact rule,
a standard which is so central to the framework of the Fair
Housing Act, which really ensures families are treated fairly
with no discrimination when trying to secure housing and
housing-related activities and services.
Many of you, probably within your agencies, within your
banking institutions, have folks who work on these specific
issues around access, not just the lending. But can you talk a
little bit about what this would do to your work on the ground
when we can--and this is the only place--by the way, the Civil
Rights Act has been watered down by the courts left and right.
We now have to show a threshold, a higher threshold of
intentional discrimination versus disparate impact. And we are
going to try to restore that. I hope all of my colleagues
support my bill when I introduce the Justice for All Civil
Rights Act.
But in this instance, them trying to do it in the
regulations in this way, how is that going to impact your work?
What do you think this would do to the people you serve?
Mr. Poyo. This is a deeply problematic development. No one
gives you a certified copy telling you that they have
discriminated against you. And so many, many fair housing
arguments and other civil rights arguments have to be made on
the basis of what the impact is.
For example, if you choose not to give mortgages on houses
with a certain width, and it happens that all of the houses
with that width are in a certain neighborhood in the city, you
can say we have discriminated against no one because all we are
talking about is the width of a house, when, in fact, all of
the people who potentially want to buy that house, or a large
portion of them, are of a given race.
So gutting the disparate impact rules will, in effect, take
the teeth out of our fair housing work in this country.
Chairman Green. The gentlewoman yields back.
The Chair now recognizes the gentlewoman from Texas, Ms.
Garcia, for 5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman.
I wanted to start with Ms. Pena in sort of a follow-up
question to my colleague's questions about the CRA.
As a representative of a CDFI, how can the CRA be improved?
I notice you said it was working. A couple of people said it
needs improvement. But specifically to get them to focus on
investments in communities of color, particularly when it comes
to economic development?
Ms. Pena. Sure thing. So one of the things in terms--there
are several things. But the first would be that, as Gary
mentioned, just expanding the network and looking at what
assets are required to participate in CRA and thinking of that
approach.
Another area that, as you all know, is evolving is just
online lending, and so we have a whole new arena of lending
online. So, thinking about how they should be participating in
oversight is also something--
Ms. Garcia of Texas. Tell me what you think. What do you
advise us? They should be complying just like banks?
Ms. Pena. I think that there is probably more investigation
and thought that needs to go into it. But I do believe that,
based on our experience and what we have done in refinancing
some of these deals, that there should be some consideration of
fair lending opportunities to specifically address financial
inclusion.
I think that in terms of where we have seen the biggest
challenge for folks who enter into merchant service accounts or
do quick online loans is that there is a high interest rate,
and it tends to be asset-stripping.
Another element, as you all know, as native Texans, is just
predatory lending in general, and that is not addressed through
CRA, but we see that as a challenge as well.
As it relates to CRA, in terms of sustainability, we think
that the SBA 7(a) guarantee program provides a model where, if
there were more guarantee programs, potentially, you would see
more capital flow in allowing an organization like LiftFund to
provide more capital with the purchases on the secondary
market.
I know there was a reference earlier to secondary market
purchases from a home perspective. But the Woodforest example
that I gave, the average loan size is $13,000. And so really
thinking about, how do we approach in a way that allows us, as
CDFIs who know our client base and provide more than just
capital, but empathy, guidance, really a hand in a journeying
experience for folks, so that more banks would invest in us. So
I think looking at guarantee programs is another solution for
us to really open up more capital to the clients that we serve.
Ms. Garcia of Texas. When did you start your partnership
with Woodforest?
Ms. Pena. That has been in place now for 3\1/2\ years.
Ms. Garcia of Texas. Okay. And the total number of loans
that they applied for from you is 650 during that whole time
period?
Ms. Pena. Yes, ma'am.
Ms. Garcia of Texas. Do you have partnerships like that
with other banks?
Ms. Pena. We had a previous one with Citibank that we had
launched in 2010. Their footprint has evolved, as you all know,
and they do not serve Texas anymore.
Ms. Garcia of Texas. Okay. One last question for you. You
say in your written testimony that the CRA's policy--that we
need one that is transparent, accountable, and reflective of
the continued disparities of accessing credit.
What specific recommendations do you have for the
committee?
Ms. Pena. The first one would be specifically to expand, as
it relates to including more banks with a bigger asset base.
The second is in terms of--and we actually submitted a letter
to the OCC specifically about addressing the varianced approach
of that checklist that you were talking about to ensure that
there is weight and really complexity and not just an effort to
be present within the community.
So, those are the three recommendations we actually had put
into our letter to the OCC.
Ms. Garcia of Texas. Okay. Thank you.
Mr. Chairman, if I can just have one last question to Mr.
Poyo, please?
Mr. Poyo, you talked in your remarks and in your paper
about barriers for the limited English proficiency customer.
Could you expand more on that, and what we can do ensure that
that data is collected and that it is reported and that we
really fully address it?
Mr. Poyo. Absolutely. One, it is, I think, incredibly
important to think about limited-English-proficient communities
as a market that should be served, not people whom we need to
serve charitably.
Certainly, in the efforts we have made to translate
documents, in particular into Spanish, we have made a lot of
progress. I think we need a lot more progress with regard to
Asian languages, and many languages of African origin, Arabic
and Farsi.
But we need to go beyond just thinking about translation
and looking at hiring in institutions that are delivering
services and making sure that bilingual, bicultural people are
out there across whatever industry you are looking at.
And then, regulatory enforcement in other languages. For
example, with the CFPB, when you look at the rules that are
enforced and then you go to the Spanish language market, you
don't see any enforcement in that language. And that is
challenging, I grant, and yet there are millions and millions
of people operating only in Spanish who deserve the protection
of those regulations.
And so I think we have to get beyond thinking only about
translation as our solution and get to hiring and enforcement
activities across multiple languages.
Ms. Garcia of Texas. All right, thank you. I yield back.
Thank you, Mr. Chairman.
Chairman Green. Thank you.
The Chair now recognizes the Chair of our Subcommittee on
Consumer Protection and Financial Institutions, Mr. Meeks, the
gentleman from New York.
Mr. Meeks. Thank you, Mr. Chairman.
Let me start with Mr. Poyo. As Chair of the Consumer
Protection and Financial Institutions Subcommittee, we had a
hearing not too long ago, and we discussed at length the
seriousness of the concerns that I think that you talked about
in your testimony, and that is the OCC go-alone position, as
opposed to working with the Fed and the FDIC.
The Fed appears to have taken a more thoughtful approach,
in my opinion, and we have consistently encouraged all three
regulators, including the FDIC, to coordinate their efforts and
for them to move in lockstep.
You discussed the risk of the the OCC's approach. Can you
also tell us key factors that you think we should consider in
modernizing CRA, including non-bank financial institutions,
fintechs, and the branch loophole?
Mr. Poyo. Yes, sir. Absolutely, we have this concern about
the OCC moving without--and particularly the Federal Reserve. I
think you are absolutely correct. The Federal Reserve has had a
10-year process of examining updates to the CRA, which has been
careful and gotten lots of input. And the OCC's approach in
many ways, I think, began by disregarding those many years of
effort at the Fed. And so, I think we should be looking to the
Fed to take leadership on this.
Some of the early statements by the Comptroller of the
Currency about his intent with regard to CRA when he was first
confirmed, he has not been repeating them lately, but we are
very concerned about where that started.
But I think that we need to look at a couple of key issues.
You mentioned fintechs. And both with regard to CRA and with
regard to fair lending practices, just because you use an
algorithm to discriminate doesn't mean you are not
discriminating, right?
And so the same laws--if we are doing banking, if we are
doing investment, and we have laws that cover the banks and
create a level playing field among banks, we cannot allow the
legs to be taken out from under institutions that are regulated
by organizations that are going out and doing things like, for
example, rating whether someone should be lent to based on
their social network. Right? These are things that are deeply
concerning, and because it is a new technology doesn't mean
that new kinds of discrimination should be things that we are
okay with.
I also suggest that expanding the applicability of CRA
helps to broaden that level playing field. I think regulated
banks have a legitimate concern when they say, well, there are
people doing mortgages and there are people doing--large credit
unions that are doing the same business we are, and yet they
are not covered. Fair enough. Let's bring everybody into the
fold and cover financial institutions that are competing with
regulated institutions, and the mortgage market in particular,
into having a CRA obligation.
Mr. Meeks. Thank you.
Mr. Smith, I have been working on some legislation to
promote minority banks, which have been disappearing at an
alarming rate in my district. In fact, we have banking deserts
that are there.
And a few areas I have been paying particular attention to
include the creation of programs for the Federal Government to
deposit funds with minority-owned banks, creating initiatives
for large banks to avail their technology platforms to minority
banks, and holding bank regulators accountable for the lack of
diversity of the bank examiner coops.
Can you please speak in regards to those items, those
issues, and any other areas that you consider critical to help
promote minority banks?
Mr. Smith. Yes, sir. I think all of them are critical. I
think the work that you have been doing is spot-on, as far as
what we need at our level.
I would say that there seems to be a new momentum for
capital investment, not just in preferred shares, if you were
to purchase that, but in other investments that could be made
to help the MDIs.
But I think the CRA regulations have to be defined more
specifically in areas of assisting MDIs. It is not the only
thing that CRA is talking about, but that section that deals
with MDIs and credits needs to be specific and more detailed.
In addition to their involvement in us, we have things that
we need the big banks' help on that are our loans. I will give
you a great example. There is an Invest Atlanta right now, that
the City of Atlanta is looking at some $40 million. They want
to have, as part of their regulation, a minority bank to be the
lead. They understand that the minority bank can't do it all.
So, I have to have a big bank partner in order to participate
in this Invest Atlanta.
It's the same thing in Houston, and he same thing in other
cities where we are. If we want to participate in a larger
program that is maybe government- or city-based, I need a big
bank to be a partner with me, and we can bring them in and
share that.
Mr. Meeks. My other question would be, I have found in
certain communities where you don't have access to banking or
banking services, this is where the payday loans come in. This
is where the pawn shops come in, et cetera.
What could we do? What kind of legislation? What do you
think that we could do as Members of Congress to help the small
minority bank, the bank that is in the community, to put these
payday loaners out of business by getting folks back into
regular banking? What do you think that we could do? What are
we missing to make that happen?
Mr. Smith. I think it goes back to the regulations. In
other words, let's incentivize the big banks to give us
programs that we can deploy--they don't have the means to
deploy, but we can deploy in our neighborhoods, city block
after city block, the Community Reinvestment Act on the street
where the rubber hits the road. We can have it in community
meetings. We can get the word out through our customers in a
mailout. We can get the word out to our prospects by
advertising in the paper that we have a loan program that is
designed to take out the payday loan, for instance.
But that program has to be backed by dollars. That program
has to be backed by meaningful participation with a larger
institution that would help do that. This is just one example.
You could go on and on, whether it is car title loans, whether
it is non-bank small business loans. These are at 18 percent.
It is choking the business itself out of existence.
Mr. Meeks. And if I have time, Mr. Johnson, I would like to
ask you--yesterday, we had the opportunity to see the
extraordinary work of you and your development company and how
you have turned it around to make a difference.
I think that you indicated that to a large extent, that you
have done so without the aid of HUD or Federal dollars, is that
correct?
Mr. Johnson. In most of the developments that we have done
in Corinthian Pointe, we did it without the aid of Federal
dollars. We did have Federal dollars in the independent living
facility. We had a grant through HOME funds through the City of
Houston for $3.4 million to go with a mortgage loan from
Trustmark Bank for $6 million to develop that particular site.
Mr. Meeks. So the individual who has a business like you--
because I know a number. I know in New York, there are very few
African-American developers who have equity in the land and are
able to build. And many of them come to me, and they say they
lack access to capital so they can grow and develop.
What would you recommend be done so we can create more
developers, such as you, and entrepreneurs who are hiring folks
and making a difference in people's lives?
Mr. Johnson. Capital is extremely important in real estate
development across-the-board. Listening to all of the various
organizations, major banks, when we were doing the project for
the nonprofit in Corinthian Pointe, most of those loans were
made through the major banks. We could not utilize the smaller
banks for that.
And that is why, one of the reasons that I mentioned that.
And I continue to hear from these gentlemen there is just a
tremendous need for capital. The smaller banks need more
capital. In order to do most of these deals, we have had to go
to Chase, to Wells Fargo, to Amegy Banks for these types of
loans. When we go to the smaller banks, the capital is just not
available.
Chairman Green. The gentleman yields back.
At this time, the Chair will recognize the gentleman from
Missouri, Mr. Cleaver, who is also the Chair of our
Subcommittee on National Security, International Development,
and Monetary Policy.
Mr. Cleaver. Thank you, Mr. Chairman.
A number of you have at least touched a little on this
issue. I represent Missouri. I always like to tell people I
represent Missouri because they will ask me how are things in
Kansas, and I haven't been there in months.
But one of the concerns I have is that we have an
agricultural component to our economy that depends on $80
billion of Missouri products being sold around the world, the
most significant of which, in terms of revenue, is soybeans.
The tariffs are wreaking havoc all through the State of
Missouri, whether you are eating soybeans or not. And we just
had an announcement yesterday concerning one of our large
companies, with probably 25,000 people across the globe working
for them, and they just announced a big layoff in Kansas City.
And of course, that is the home office, so I am nervous about
what can happen. And we just ended the longest--well, maybe not
ended, but we are experiencing the longest economic expansion
in U.S. history.
I am wondering what you believe--and I am interested,
seriously--the Fed can and should do at a time like this,
understanding that one of the mandates is, of course, making
sure that employment remains steady, and how can that happen if
we are beginning to see layoffs happen around the country?
And so I thought maybe I could raise this issue to the
intelligentsia, and then I can tell the Chairman of the Fed
what he should do. Thank you.
Mr. Poyo. Thank you, Congressman.
You bring up an incredibly important issue that is
obviously particularly relevant here in Texas, and for low- and
moderate-income people.
This Administration's erratic approach to trade and
immigration policy has created some really significant
headwinds, and we are seeing that. I will point you to a recent
interview that was done with the president of the Federal
Reserve Bank of Dallas at Jackson Hole, where he was asked
about these issues.
And in his words, he talked about how the trade and
immigration policy are right now the fulcrum of the economy. It
is what it is going to turn on, right, and we are seeing that
happen.
And his concern stated was that monetary policy is not
going to be enough, one way or another, to overcome that. As
they say, the headwinds created by a very strong trade and
immigration policy heading in one direction, monetary policy
can't solve everything, right?
So, fiscal policy and trade policy simply just can't be
outbalanced. And so, as we see the Fed right now I think trying
to make some decisions about what to do with monetary policy, I
think it would be problematic for us to expect that the Fed is
just going to sort of balance us out of this situation. The
core policies that we are seeing in trade and immigration are
causing a huge problem in our economy right now.
Mr. Cleaver. If we are trying to fight it from a government
point of view, for example, the President decided to provide a
$12 billion package to farmers who were wiped out last year.
Now, for this year, it is $16 billion, which is, of course,
what, $38 billion added to the deficit.
So, even when you try to help the problem that you
created--editorial comment, I apologize, but the President did
create this--and then spend $38 billion to try to soften what
he created.
The President is demanding that the Federal Reserve reduce
interest rates right now, and he is demanding all kinds of
things. What you just said created some heartburn, but I
appreciate your candor.
And if anybody else would like to address this? Yes, ma'am?
Ms. Pena. I would just add, and not necessarily from the
Federal Reserve perspective, but thinking of the evolution of
workforce development as it relates to entrepreneurship, and
one of the things that we, as all organizations, see--whether
they are coming to access capital or asking for guidance--is
this notion of, should we have layoffs, what is our strategy of
workforce development, and does it include an element of
entrepreneurship?
The gig economy continues to grow. It still has, obviously,
its gaps from earnings perspective and asset-building. But can
we, together and collectively, provide a pathway that allows
workforce development, plus entrepreneurship, specifically as
we see the evolution of people in tenured jobs as well?
Mr. Cleaver. I kind of try to keep up on this, but there is
no discernible strategy that I know about such that we can say,
okay, this is what is happening today. But don't worry, in 3
weeks, it will all be fixed, and we can be happy and sing
``Kumbaya.'' If you had the Chair of the Federal Reserve
sitting right here, would you advise anything or ask anything?
Mr. Poyo. Congressman, I didn't mean to suggest earlier
that there is nothing the Fed can do. I think that these
tactical moves in interest rates downwards really can have
substantive protection for low-income people who are being put
in a very difficult position by the ups and downs in this
economy.
But I, myself, have some real doubts about whether even a
significant move in interest rates is going to overcome what we
are seeing as a really hard-driven policy, which is having
clear negative consequences, ironically as much for a farmer as
for a low-income person of color in urban America.
We can help to kick the can down the road by doing debt
subsidies, that maybe get somebody through to next year, but in
the end, these are big levers that are being pulled.
And so I think the Fed Chairman is not in a position to
really point at Congress and say, ``Please do something about
this,'' or the President, but, indeed, I think that is probably
what he thinks to himself at night.
Mr. Cleaver. Well, some of it ,I am sure we can't control.
The EU is almost fighting for its existence. And what happens
to the European economy ultimately is going to--right now, we
are so inextricably connected that what happens with Brexit
will have an impact on us.
If you look at all of the things going on, this is a
crisis. I don't know how much time I don't have left.
Chairman Green. The gentleman's time has expired.
But the Chair announces that there will be a second round,
and Members will have an opportunity to continue. I would
suggest that, with unanimous consent, we can do so. Without
objection, it is so ordered.
The Chair also asks unanimous consent that Mr. JP Park,
president and chairman, Relationship BancShares, Inc., be
allowed to give his testimony at this time. Without objection,
we will hear from Mr. Park.
Mr. Park, you will have 5 minutes. I will sound this bell
when you have completed 4 of your 5 minutes.
[Timer sounding.]
Thereafter, when you are at the end, I will give you the
gavel.
[Gavel sounding.]
Mr. Park. Yes, sir.
Chairman Green. You may proceed.
STATEMENT OF JEUNGHO ``JP'' PARK, PRESIDENT AND CHAIRMAN,
RELATIONSHIP BANCSHARES, INC.
Mr. Park. One of the potential solutions of the first panel
issues is to increase numbers of minority depository
institutions and the community development financial
institutions.
Recently, the numbers of minority depository institutions
and the community development financial institutions being
disappeared by M&A are much bigger than the ones of minority
depository institutions and the community development financial
institutions newly being acquired.
Under this current situation, new start-up minority
depository institutions or community development financial
institutions critically experience difficulties raising initial
funds covering capital and all other costs, et cetera.
However, in reality, new start-up MDIs and CDFIs are mostly
excluded from investment companies and the banker's bank to get
some financial supports for initial forming stages. This means
that there are many financial difficulties if forming groups do
not have enough funds to cover by themselves.
In addition, some MDIs and CDFIs which are suddenly grown
to a bigger scale by M&A tend to dominate minority banking
markets and to deteriorate its environments.
How to resolve these issues of MDIs and CDFIs? It is to
increase the numbers of MDIs and CDFIs to a certain degree
which can be taken in current markets. To promote more numbers
of MDIs and CDFIs, government should support how new start-up
MDI and CDFI groups can have easier access to knocking on the
doors of investment companies and the banker's bank.
[The prepared statement of Mr. Park can be found on page 72
of the appendix.]
Chairman Green. The gentleman yields back his time.
The Chair will now recognize himself for 5 minutes.
Thereafter, we will have a second round. And each Member will
be given a liberal amount of time, I might add, for the second
round.
Let me start with this premise. We have approximately--and
I have just been given this information--92.5 percent of banks
that are capitalized at less than $1 billion in assets, 92.5
percent.
I believe that this committee--and I speak for a good many
persons, perhaps not all--would like to do something for the
92.5 percent, the 92.5 percent that, as Chairman Meeks has
indicated, did not have any impact on the financial crisis that
we suffered in a negative way. They were not a part of the
problem.
We would like to do something to help the 92.5 percent.
However, whenever we try to extricate the 92.5 percent from the
others, the 7-some percent, we run into a problem, because the
larger institutions seem to be holding the smaller institutions
as captives. And it is difficult to extricate them from the
larger institutions. It is difficult to get them to go on
record and make comments that would be, in their opinions, I am
sure, adverse to their best interest because we have already
promulgated laws, regulations, and rules that allow them to
associate with the larger institutions to grow. So, they are in
a very precarious circumstance. It is enigmatic, to say the
very least.
So the question becomes, how do we deal with the smaller
institutions--the 92.5 percent of all banks under $1 billion,
how do we help them?
I have learned in my brief time in Congress that we can do
almost anything we want if we can get 218 people to agree. When
we had the financial crisis, we went out of our way to save the
big banks. We went out of our way to lend them money. We went
out of our way to almost give them money. We didn't give it to
them because they all repaid the money, and we made a profit.
But we can do almost anything that we want.
So the question is, what do we want to do to help the
smaller institutions that are becoming extinct? What do we do
to help them? Especially the good number that we finally have
left that are minority-owned, how do we help them?
Well, here is a thought. What if we, the Members of
Congress, decided to establish a means by which a credible bank
under $1 billion--a credible bank, with high ratings, no
negatives, great with CRA, to the extent that a small bank can
be great with CRA--what can we do to help them?
What if we decided that the government will lend them money
the same way we bailed out the big banks? If we can bail out
the big banks, why can't we assist and aid the smaller banks
who are suffering as a result of what occurred when we had the
downturn in 2008?
There ought to be a means by which we can do for the small
banks, who are suffering now through no fault of their own,
what we did for the big banks who are part of this--not all of
them. You won't find one that will admit it--but not all of
them who were a part of this downturn.
So, I am going to look into legislation. I can't guarantee
you that it will pass, but it is a part of my responsibility to
be a part of the avant-garde with legislation, cutting-edge
legislation. I am always living on the edge, it seems, and I
don't mind being there.
Let's talk about this. Would it be beneficial, Mr. Park, to
have the opportunity for these stellar banks that are small to
acquire some of their assets by way of some loan or some grant
maybe from the Federal Government? Your thoughts, please?
Mr. Park. Thank you, Chairman Green.
The testimony I just gave is exactly what I am facing, the
situations. I got a new bank approval, and I need to close on
buying the bank by next week. This is a totally minority target
bank--95 percent of our customers will be Asian immigrants,
first generation.
I have been in the banking service, in the Asian banking
area for the last 18 years, and now I am trying to put in a new
bank in Houston. But my difficulty is in capital-raising. Many
people commit, but when they actually put money on the table,
rather than what I expected, 20 percent, 30 percent, almost 40
percent, they cannot commit, they cannot put the money that
they committed to.
And then, we knocked at an investment company. We knocked
at a banker's bank. I never experienced a banker's bank other
than this time, and so as long as our investors put in cash, 50
percent, a banker's bank will help 50 percent. And all of those
investors have good credit and strong financials, but actually,
when we tried to talk with them, the banker's bank said no,
this is your new start-up bank.
And also, investment bank companies said, we do not want to
look at that at this time because you are a startup. So what I
want--and also the situation in the market, we both, U.S.
Committee on Financial Services or Honorable Congressmen and
women and also us, we better know what is going on in the
market situations. As I pointed out in my testimony, recently,
many bigger banks--
Chairman Green. Mr. Park, let me just intercede and say
this, I am really interested in your comment on my comment
about the ability to acquire some degree of assistance from the
Federal Government.
Mr. Park. Yes.
Chairman Green. Would that be beneficial, is the question?
Mr. Park. Very beneficial.
Chairman Green. Okay. Now, let me move quickly to Mr.
Smith.
Mr. Smith, you are the president of a small bank. Would it
be of some benefit to you if the Federal Government provided
some sort of aid and assistance to small banks with stellar
records?
Mr. Smith. Yes, Chairman, it would.
Chairman Green. And explain to me how you think such a
system might work. Quickly, please.
Mr. Smith. Okay. In an investment of $2 million, $5
million, whatever the number is, we could deploy that
investment into growth strategies, into loan program
strategies, into investment in new products and services to
better assist the customer base, and probably give us some
efficiencies of scale. There is just a lot of positives that
could come from it.
Chairman Green. Thank you.
At this time, the Chair will yield back the balance of the
time that I do not have and call upon Ms. Tlaib from Michigan
for an additional round of questioning. And as I indicated, the
Chair will be generous with the time.
Ms. Tlaib, you are now recognized.
Ms. Tlaib. Thank you so much, Mr. Chairman.
I was listening to all of you in regards to the Community
Reinvestment Act, and everything. One of the things that, for
me, is very, very clear, is that there is a huge racial wealth
gap in our country.
And homeownership, as you know, is literally one of the
primary ways that American families can really gain wealth.
Small businesses, of course, are important, but if we can't get
the homeownership rates up, it is just not going to work.
And when Mr. Smith and others are talking about
incentivizing, I almost feel like we are trying to force them
not to discriminate, right?
The Community Reinvestment Act didn't just come down from
the sky. It came because there was redlining. And I feel like
we are back there because we are not able to prove disparate
impact. We are not able to prove that some of the structural
kind of racism that is currently under this Administration is
looking at the CRA examination in a very different light, even
probably before with people there who are, again, looking at it
in a very different light.
But our Financial Services Committee staff does a
tremendous job, and I want to read some of the data where it is
very, very well-documented, the racial bias.
The Center for Investigative Reporting review project
examined 31 million Home Mortgage Disclosure Act (HMDA)
records, and concluded that modern-day redlining persists in 61
areas. It said specifically that the data showed that Black
applicants were turned away at significantly higher rates than
whites in 48 cities, Latinos in 25 cities, Asians in 9 cities,
and Native Americans in 3 cities.
The investigation went on and found modern-day redlining in
at least 71 metro areas across the country, even though 98
percent of the banks nationally still receive passing grades in
their CRA exams.
So I am a little confused, and I think maybe because I am
new, Mr. Chairman, I don't know, But I am looking at this and
saying, well, the Community Reinvestment Act, and I look at the
history. I love understanding the institutional knowledge of
where something came from. Why did we do the FHA? Why do we
have this specific act that came forward?
And I look at it because I want to know what were we trying
to fix? What were you trying to remedy? And it is hard when you
have the big banks, and we are trying to say, well, you want to
go work with some of the MDIs and some of our other local,
minority-owned banks, institutions, and so forth. But how do we
stop, basically, the disparate impact? How do we stop the
practice that, in itself, within these institutions is
discriminatory?
We are never going to find emails that say, ``Don't lend to
Black people.'' But you know what we have found? If somebody
comes in and they have an accent or Spanish is their first
language, the bank will give them a higher rate. That is what
banks are doing, and it is well-documented. We found a number
of cases.
Many of our States are involved in these cases, and they
get these large settlements. But guess what? My colleagues and
know this, and it hasn't remedied the situation because they
continue to act badly, and they continue to intentionally
discriminate through these practices.
Again, we are never going to find direct emails. We have to
rely on the whistleblowers. We have to rely on the people
internally who say, ``I was trained to give a higher rate to
the Black family,'' or, ``I was trained to do this.''
One of the things that I talk to Chairwoman Waters all the
time about is, ``You know, Chairwoman Waters, I really want to
unpackaqe the credit score.'' We have to unpackage that because
they put all of this data in there, because the more data they
have, the more they can sell, because Equifax, TransUnion, and
Experian are all for-profit entities. A lot of my residents
think they are kind of quasi-government. We regulate them, but
they really make money off of selling our data.
But even if I was able to fix that, unpackage it--and we
did introduce a bill, and many of my colleagues supported this
bill that reduced people's debt. If your debt--you know how it
stays for 7 years? Reduce it to 4 years. It passed out of the
House Financial Services Committee. Hopefully, it gets out onto
the Floor of the House and goes on to the Senate. And you know
nothing happens there. But the point is, we are moving towards
that direction.
But even if I fix that for you all--and you know that needs
to be fixed--I still have these kinds of practices happening.
So I am asking, Mr. Poyo, Mr. Smith, all of you, I think we
need to face the fact that you are working with some national
banks. Maybe the CRA forced them to have to work with you. But
in practice, we know that these national banks are not loaning
to our people, and that is the increment problem that I think
we are not addressing.
Mr. Poyo. It didn't sound like the Congresswoman is new.
You brought up the word, ``teeth'', earlier when you talked
about this. And the interaction between fair lending exams and
CRA exams, if you keep them in separate silos, and other sorts
of exams, and you say, well, we have a problem here, but you
are doing great over here, right?
And so, it is very rare. While our regulators do have the
ability and the discretion to take results in one place and
have it affect another, it is rarely used, right, because they
get a lot of blowback on that.
But we have seen instances in which really problematic
impacts on consumers impact something like a CRA rating. And if
that were to happen more often, the CRA rating--whether you get
a satisfactory or--has no consequence. But when you hit,
``needs improvement'', there are some real problems that a bank
has about opening and closing branches, about mergers, the
kinds of things that banks really do care about from a
financial perspective.
And these days, many of our punishments, especially for
large institutions, are fines, and they laugh and the next day
they make the money over. Right?
Ms. Tlaib. Oh, fines are the least of incentives. Like not
the fine, but even--so one of the incentives are if you want to
merge, you have to show you have been meeting CRA, and they
even kind of cheat that little process.
But it is trying to fully understand how these exams happen
internally. And how do we really force them to be able to stop
redlining and be able to force them to work with all of you
more? I almost feel like we need to call it out and say,
``Well, you are not working with us. That is discrimination.
You are not allowed to do that in the United States of America.
It is prohibited.''
And we are kind of allowing it to be dismissed because I
really do think we are in denial that it is actually happening,
when the data continues to show that we are back--I mean, the
numbers--and Chairwoman Waters knows this. We talk about it all
the time. The numbers are as bad as they were before we passed
the Fair Housing Act. That is how bad it has gotten.
Mr. Smith. Congresswoman, you are accurate, in my opinion.
I can tell you from the Unity National Bank perspective, most
of the borrowers that we see loan requests from have been to
three, four, or five banks, and they have all been turned down,
particularly African-American women. They seem to be turned
down six or seven times.
And on a loan here recently that we did for an African-
American woman, I was really scratching my head trying to
figure out how she got the first turndown, much less five
turndowns. And I quizzed her repeatedly, ``Well, what exactly
did the bank tell you that they didn't like about this deal?''
And she just had these very vague answers because there was
no specific reason to turn her down. And of course, we made the
loan, and we are happy to have the loan.
So all I can tell you is sometimes I struggle from my side
of the desk when I look at these loan requests from minorities,
and they have been turned down over and over again, and I am
thinking, I was credit-trained by a billion-dollar bank, I know
a little bit about what they think, and I can't find a reason
that they would turn the loan down, but yet, they are
repeatedly doing so.
Mr. Ardoin. Congresswoman, I think whatever penalties are
being imposed against these banks that are discriminating, it
is not enough. I think the penalties just need to be increased.
Because a slap on the hand for discrimination is not working,
and it is not going to work until they really feel it. And I
don't know what type of penalties that might be, but I think
imposing stricter penalties would probably help solve the
situation.
Mr. Lindner. If I could, everybody that we lend to in
LiftFund has been turned down by a bank. And the unfortunate
thing or the frustration is, while we are trying to help those
who are underserved--and we do that well--we are just a drop in
the bucket compared to the entire national problem, and it is
frustrating. We wish we could do more, and we do everything we
can.
Everybody here at this table that is in a CDFI role, we
embrace the underserved because that is our purpose in life,
socioeconomic justice. But the frustration is we cannot do as
much as we would like to, and as I said, the problem is so
overwhelming. There is a frustration from our standpoint that
we couldn't do more.
Chairman Green. The gentlelady's time has expired.
The Chair now recognizes the gentlelady from Texas, Ms.
Garcia.
Ms. Garcia of Texas. Thank you, Mr. Chairman.
And I must say before I start my questions that when I
heard you speak about the bailout of the big banks and why we
haven't focused on bailing out minority banks or providing some
sort of assistance, I had just said the very same thing to my
colleague from Missouri, because as I have watched things,
especially after the financial crisis, it looks like the big
banks got better, but the smaller banks and minority banks
didn't really do much better.
In fact, I think some of them have not done well at all,
and you can count on me to support your legislation. And if you
need an original cosponsor, I am here to serve, sir. We should
move forward with that.
Chairman Green. Sure. I accept the offer. And I believe
that all of the Members will work together with us to get it
done.
Ms. Garcia of Texas. Thank you.
I wanted to start with Mr. Poyo. To strengthen the minority
depository institutions, the National Bankers Association has
called for enhanced incentives from majority-owned banks to
make CRA-qualified investments in the MDIs.
Has your organization had any discussion or any preliminary
working agreement with the National Bankers Association on what
that might look like, to make sure that whatever they support
is already inclusive and representative of what your membership
may want to see happen?
Mr. Poyo. We have not had any discussion with them about
what that could look like. I think the suggestions about
increasing the specificity in the CRA regulations around MDI
investments is a good step.
But I will say that it is an entirely other level than what
the chairman was talking about. The idea of linking a favorable
credit window to metrics of lending by MDIs, banks that are
delivering to low- and moderate-income communities and to
communities of color, actually linking to a credit window with
a lower cost of capital is, from my perspective, not avant-
garde. It is prudent, and it is effective.
And so, while I think it is important that we look at some
of these regulatory steps, because maybe they are more
achievable, I think that this is the sort of thing that really
changes the game.
Ms. Garcia of Texas. All right. My concern is that when we
look at these things, if we are not at the table from the
beginning, then, once again, we may be left out. And I know
that in another subcommittee that I serve on--actually, it is a
task force--we look at what happens with modern technology, the
algorithms and the matrix that are designed into the computer
systems before we even get started.
Again, if we don't have people who know our communities,
and who are sensitive biculturally or bilingually, they will
design something that is just going to continue to
discriminate. So, I think it is important that we look at that.
Has your group, or anyone else at the table with your
national groups, have you all started really working with the
folks who design this software? Because we are seeing more and
more technology in the banking systems and all financial
services.
Mr. Poyo. I had the privilege of serving on the Community
Advisory Council for the Federal Reserve and advising the Board
of Governors on issues, including fintech, and had advised some
larger banks in their no-longer-early stages of developing
these things.
And one of the fundamental places we had to start with
fintech is discrimination in discrimination out, right?
Ms. Garcia of Texas. Right.
Mr. Poyo. And one of the real concerns that we have is that
in the fintech space, you have an even more fierce protection
of code, of what is proprietary code, so creating a black box,
in essence.
And what is in that black box is deeply meaningful, and the
speed with which machine-learning can now move you to deploying
capital, right? Instead of deploying a product over 6 months,
it is deploying over 2 months. And in that case, you can't
catch a runaway train.
So, we are very worried about the use of fintech to really
put out products before they have been well-tested across
markets because oftentimes, they are using credit scoring data
and other data which is representative perhaps of a portion of
our population, but not our entire population. And so, I think
your concern and oversight in the area of fintech is incredibly
important.
Ms. Garcia of Texas. Thank you.
And Mr. Chairman, if I can have one more, I wanted to ask
Mr. Ardoin from the credit union, do you have any specific
recommendations for us regarding how we treat credit unions as
compared to banks, and anything else that you all may want to
be doing that you are not doing now?
Because it seems to me that what--this is a field hearing
to see what is happening on the ground. And in the banking
industry, in my financial services industry, nobody is more on
the ground than credit unions. So, give us your thoughts on
what we might be looking at?
Mr. Ardoin. Like I said, my credit union is small, $1.2
million in total assets. So, we are very small. I think up to
$50 million is considered small.
But your question, again, had to do with--could you repeat
the question?
Ms. Garcia of Texas. Is there anything that--any Federal
rule or regulation that you think keeps you from doing
something, serves as a barrier for you to be able to serve
those customers because, again, you are the one there on the
ground. That is where people go when they can't get the car
loan somewhere else, when they can't even get help with buying
furniture or just to get past it. Because if we don't make sure
that you are working, then they are going to end up with payday
lenders. And there is nothing I hate more than payday lenders,
quite frankly, because I think payday lenders just make poor
people poorer. So, we need the credit unions out there on the
ground like yours.
Mr. Ardoin. Right.
Ms. Garcia of Texas. And we need to make sure that there is
nothing barring you from serving those customers.
Mr. Ardoin. No. We have all of the abilities of the regular
bank. We have insurance by the National Credit Union
Association (NCUA) of $250,000 per account, the same as the
FDIC does for the banks, the same amount secured by the FDIC.
We have fewer fees, which makes us a little bit more
attractive from time to time, than banks. And I think we are
more accessible and more friendly. So, I don't think that there
is anything that bars us from doing what the banks do.
Ms. Garcia of Texas. Okay. That is fair.
What about Ms. Pena and Mr. Lindner? I know you nodded when
I asked the question. I just wanted to get your opinion on
that, on your ability to serve your customers.
Mr. Lindner. Our constraint is just capital that we can
deploy. And with regard to credit unions, as I said, they come
under, obviously, the NCUA versus the CRA.
Ms. Garcia of Texas. Right.
Mr. Lindner. If I could just mention something?
Ms. Garcia of Texas. Sure.
Mr. Lindner. I think the most egregious lenders of all are
the online lenders, the Kabbages and the OnDecks. Their
interest rates are never disclosed, and it is somewhere up--it
is as much as 50 to 75 to 100 percent. They are payday lenders
but you just don't see the storefront.
And so, I think that is the biggest threat to small
business owners in their ability to sustain themselves. Because
everybody wants money by sundown and they can get it by
sundown, but that is more of a trap than it is a benefit to
them.
So I see that as--you know, we all work together, but the
online lenders are taking advantage of people who need money
and need it fast for their businesses. And the payday lenders
are egregious, 390 percent in some cases.
Ms. Garcia of Texas. Right.
Mr. Lindner. But so are the online lenders. They are
predatory. And they even had in the Wall Street Journal an
article about how they are all going to disclose their interest
rates. Well, that never happened, because they just don't do
that.
Ms. Garcia of Texas. Right.
Mr. Lindner. And they draft out of your account every
single day.
Ms. Garcia of Texas. Right.
Ms. Pena, did you want to add anything?
Ms. Pena. Sure. I would just--to Chairman Green's comment
of finding a place for supporting the 92.5 percent banks that
are $1 billion and less, the answer should be, yes, find a way.
But I also believe, just from the CDFI perspective, Treasury
plays a big role in being able to help us create opportunities
to build equity and assets so that we can serve more folks.
So I believe, to Gary's point and to your question, that
liquidity is our biggest issue. We actually had to reduce our
lending goals this year because our balance sheet was
overleveraged.
So in order for us to be able to maintain, yes, it is a
very fine balance as a community development financial
institution to find the ability to meet the demand, but still
meet protocol of financial soundness.
Ms. Garcia of Texas. Sure.
Ms. Pena. Thinking about things like that is very important
to us. And using Treasury and supporting Treasury's work can
allow us to, again, expand our impact without creating
disruption within our organizations.
The other thing, too, is the comment about CRA. There are
other elements that could be measured. I think Gary brought
this up, and also Noel, is that who financial institutions hire
and who is part of their governance plays a key role in
outcomes. And so, being able to figure out how do we measure
that, Treasury measures and actually asks us to report on our
advisory board and our board representation to ensure that we
are accountable. And so, I think that is important.
As it relates to technology, right now LiftFund is
partnering with a credit union in building a microloan program
that can meet the needs for credit unions and take our
understanding of microlending to the next level. So, I think
there are great partnerships that potentially can happen. And
actually, that partnership came through Treasury as well.
It is not enough, as Gary has mentioned, but I do think
that there are certain things that could be enhanced, including
just helping us with our liquidity to serve more people.
Thank you.
Ms. Garcia of Texas. Thank you.
Mr. Johnson, did you want to say something on the predatory
lending? I saw you nodding, too, so--
Mr. Johnson. Yes. I would just amen everything everyone
else has said.
Ms. Garcia of Texas. All right.
Mr. Johnson. The demand is there. The need is great. And we
are all saying the same thing. We need capitalization. We need
the funds to do a better job, the demand is just tremendous. We
are on the ground in the community, and so many of the large
banks are not. So I think increased funding to these
organizations is the number-one thing that we need to kind of
focus on.
And I love your idea, Mr. Chairman, in reference to, if we
could help the larger banks in their time of distress, we
should be able to help the smaller institutions in their time
of distress, which is now.
Ms. Garcia of Texas. Thank you. And thank you all for what
you are doing.
I yield back, Mr. Chairman.
Chairman Green. The gentlelady yields back.
The Chair now recognizes the Chair of our Consumer
Protection and Financial Institutions Subcommittee, Mr. Meeks
from New York.
Mr. Meeks. Thank you, Mr. Chairman.
I am sitting here somewhat frustrated, to be quite honest
with you, because it seems as though we are not moving in the
directions that we should move to get things done. I am
intrigued by Chairman Green's thoughts and look forward to
working with him on it.
To me--and maybe somebody can tell me where I am wrong--
there should be an opportunity, if given the support, to really
grow businesses in these communities. There is a reason why
payday lenders and pawn shop folks are in our communities. They
are making money.
Then on the flip side of that, I know in New York, as I am
talking to the big banks and trying to hold them to the fire,
what they are saying to me or to my communities is, ``It is not
worth me staying there. I am going to close the branch. I am
going to pack up and go. I don't even need that business. I
don't make any money there'', which then leaves the ground even
more fertile for somebody else who is going to come in because
that person has no other alternative.
What do they do? You can't get a loan from a big bank
because there is none there. Small banks are closing. A
person's car brakes breaks down. They are depending upon that
car to get to work. They have to get it fixed. They go to look
for a bank. There is no one there. They go someplace else, and
get turned down. And, ah, they go to Mr. Payday Lender, and he
says, ``Come right on in. I have some money for you.''
That comes on top of a tradition where African Americans,
because of racism in America, don't trust banks in the first
place.
My grandmother--I know I said I am from New York, but my
grandmother is from South Carolina--would not put her money in
the bank. She put it under the mattress. My mother--this is a
true story. She passed away, and we were in the room, and
underneath the rug, we found all kinds of money, even though I
was trying to tell her how to invest some of it.
So, Mr. Smith, you were telling me yesterday when we had
the opportunity to visit Unity, for example, that something is
wrong when a bank with your model can't get an outstanding
rating in CRA, just satisfactory. That is something we should
be able to work on.
There is something fundamentally wrong with MDIs not being
able to get outstanding ratings when that is who they are
intended to serve. Something just seems wrong when we can't put
these payday lenders and others out of business because we have
reputable small, minority-owned banks that end up getting an
individual into a financial banking habit.
We went to one of the banks over on the Asian strip, and
they were showing us how they had a whole section there just
teaching people financial literacy when they walked into the
bank, what to look for, how to do it. And I know that might be
an additional cost, but some kind of way, we have to figure
this thing out.
Also, Mr. Smith, I lean on you again when you said that you
have to try to figure out how people in the community who do
have some money put the money in your bank, as opposed to going
someplace else.
Okay, so how do you reach out? How do we make that
difference? How do we talk about keeping a dollar in a
community so it can grow and benefit a whole lot of folks
within that community when everybody else seems to be fleeing?
Do you have any--I mean, I am leaning on you. And I know,
Ms. Pena, what you are doing with women and the CDFIs there.
And I might be mistaken, but Mr. Johnson, your business is a
little different because capacity--I don't know whether or not
there needs to be something where we can create better capacity
there so that you can have the big dollars. But what you are
doing, I don't want to inhibit you. But maybe the big banks are
the answer for someone on a large development like that, a
different scale of business. What do you say, Mr. Smith?
Mr. Smith. Chairman Meeks, our ownership, Dr. Lawal, asked
me a few years ago to come up with a bank model of
profitability and get as small as I could, because we were
interested in doing branches around Houston and other low- to
moderate-income areas. And we were developing a program when
Mayor-Elect Keisha Bottoms contacted us in Atlanta and said,
``Would you come to Atlanta?''
So we got on a plane and we went out there. Commissioner
Rodney Ellis was with us at the time, Dr. Lawal and myself. We
went to Atlanta, and we looked at a small, empty building in
downtown Atlanta in the low- to moderate-income area, and we
developed a plan of basically $10 million in deposits, and $10
million in loans. We could have that branch profitable. And it
was our prototype that we did in Atlanta. Why Atlanta, they
asked? That is why. The Atlanta branch was open one year, and
it was profitable on a monthly basis for us.
With that success, we are looking at other areas,
particularly where banks have abandoned the community. We were
looking to put a Unity Bank in that area, and we were looking
anywhere from Harlem in New York all the way to Acres Homes in
Houston. We were looking anywhere that we can put up a branch
that will help the low- to moderate-income communities have
access to the banking and products and services that they
deserve.
Mr. Meeks. Would anybody else care to comment?
Mr. Park. I totally understand, Mr. Meeks, your comment.
But banking business is, in another sense, a risk-taking
business. So we should have responsibility per CRA, et cetera,
from regulators always say.
And also, the bank is private company-owned, so we should
pursue profit, too. On the other hand, we should do profit-
pursuing. Also in the other hand, we should follow the rules on
the regulators' exams.
So, for example, SBA loans, they ask us to do a lot of SBA,
especially small express loans of less than $350,000 for lower-
income people. But lower-income people have very bad credit,
and our guidelines do not meet what they have. So actually
government people, regulators urge us to do more for the
minority people, lower-income people, but actually examiners
come. They just try to apply the same rules and regulations for
some other very--the normal guidelines. This way, the bank
really has a problem to follow, to stretch. The bank does not
want to take that much risk.
So, regulators should have some kind of a different
guideline. For example, a bank should have strong minority
target loan programs or some special products, and then they
might have some more default loans. So when the examiner comes,
they should understand.
But mostly what regulators--what they say, to urge some
more for minority lower incomes. But examiners, totally
different people come. We don't care for that. So please
understand that the banking business is a risk-taking business.
So some kind of a risk, when we take for lower income, should
be considered in exams.
Chairman Green. The gentleman yields back.
The Chair now recognizes the gentleman from Missouri, Mr.
Cleaver, who is also the Chair of our Subcommittee on National
Security, International Development, and Monetary Policy.
Mr. Cleaver. Thank you, Mr. Chairman.
I disagree with my colleague, Congresswoman Garcia, when
she said she couldn't think of anything she hated more than the
payday lenders. I hate the Oakland Raiders--
[laughter]
Mr. Cleaver. --but other than them, I am with her. And I
struggle with this issue. Let me just tell you what happened,
one of the most painful days I have had since we came in
together. We have sat by each other for 15 years.
We are trying to deal with payday lenders. The other side
brought in--we have been beating up on the payday lenders. The
other side brought in as their witness a school teacher--I
don't know if you remember--from California, and she sat down
right in front of us and said, ``I am a school teacher. I am
college-educated. I need payday lenders.'' She said, ``If I
need $300 or $400 to make it, I can't get it from a bank. I
have to get it from a payday lender.''
When she spoke--they called on us to speak--nobody would
ask her a single question. Everybody was hesitant because, what
are you going to do? You can't say that she is a stupid person,
and she is being taken advantage of. This is a very complicated
issue.
And we are losing the banks. In 1985, in the United States,
we had 18,000 banks, 18,000. Today, we have 5,500, give or take
a couple hundred. So, we have consolidations and purchases as
primarily the reason.
But I think we need to rethink the whole issue. Because
last summer, I spent a day at a fintech company in Fort Worth,
frankly, in Fort Worth, where the CEO, I think, was 13-years-
old, and a COO was 12-years-old. Most of the other employees
were either 8-, 9-, or 10-years-old. All of them are
billionaires, and their parents have to deposit the money for
them because they are too young to have bank accounts. But they
don't have the same regulations that you guys are facing.
And we have a number of other problems. They will say we
can be much more racially sensitive because we don't know the
skin color of people who are getting the loans. We know
nothing, except their qualifications, because they use
algorithms. Of course, there is an algorithm mind somewhere who
designed it. But they are able to get the loans out--I don't
think they can get it out the same day. I think they get it--
for many of the people who come to them, they get it out the
next day. So, it is not like the same day. But it is a problem.
And I don't know whether--Mr. Smith, the Fed discount rate
doesn't apply to community banks, does it? The Federal discount
rate, it is just--it does apply?
[Nonverbal response.]
Mr. Cleaver. Okay. What I am wondering is, could things be
made lighter if the Federal discount rate is lower for smaller
banks based on deposits? I don't know what kind of positive
impact that would have. But as I am listening, I am thinking
the Federal discount rate maybe ought to be at this level for
giants and at another level for community banks. That could be
a solution.
The other thing I am trying to figure out we can do,
because we don't want to keep having a war between the banks
and the credit unions, as if it doesn't exist today already--
Voice. We don't want to go there.
[laughter]
Mr. Cleaver. Yes, I shouldn't have even mentioned that.
Forgive me, Lord.
But I do know that people prefer a relationship bank where,
when you go in, they know your name, they know your children,
where they are in college. So, people prefer that.
But I don't know. We struggle to try to figure out how to
resolve this issue. I don't know if we have the same options to
do what I think could be of help, and I think most of us are
interested in doing what would be helpful.
I am thinking that lowering the discount rate is
something--because the Fed has to do it, rather than the
Members of Congress. I don't know what impact we would have
recommending it to the Fed, anyway.
But if you have any other ideas on what you think we might
be able to do that would help community banks and credit
unions, I think we have a very, very open group of people who
are doing it.
And I have to tell you, I am going to become an enemy.
FinCEN is under my subcommittee's jurisdiction, as are fintech
companies, and the problem is, we are going to have to start
seriously considering government involvement. I know they don't
want it, and nobody else does. But if we don't, I don't know
what is going to happen. Yes?
Mr. Lindner. I would just ask you all to step up because
fintech payday lending, you can see them. You can't see the
fintech companies, and they are an enormity. Billions and
billions of dollars are loaned to people who cannot repay, and
it doesn't bother them one bit. There is no conscience
whatsoever.
We have watched them, and we see what they are doing, and
it is just egregious. So, anything you can do to put your arms
around the fintech companies--payday lenders, you can actually
see them, but you can't see the fintech companies, and they are
pumping out billions of dollars every month.
Mr. Cleaver. Yes, I have seen it.
Mr. Lindner. So the net needs to capture some of that,
because that is what is costing a lot of small businesses their
livelihood.
Mr. Cleaver. The problem is that the people running those
banks are juveniles, so you can't put them in jail. I have
never seen one yet over 15-years-old.
And just so the people out there know, I am kind of adding
a little to it, that I am just saying that they are usually
very young people, and they come up with this new technology,
and they are getting richer by the second.
Chairman Green. The gentleman yields back.
I would like to recognize the presence of Mr. Marlon D.
Mitchell. He is the president and CEO of Houston Business
Development, Inc., that deals with financing the growth of
small businesses. Thank you for being in attendance today, sir.
Yesterday, we visited what is known as the ``International
District,'' and we went there because within about a 1-mile
radius, we have about 10 small banks, and some large banks,
too. But we have these banks that have all found reasons to be
located within a stone's throw of each other.
And in visiting with the various CEOs and presidents, we
discovered something that I found quite intriguing. A business
model has developed such that the bank will purchase land and
build a facility. The first floor belongs to the bank. The
floors above the first floor are sold to business people with a
fee simple, such that these other, let's say, nine floors, nine
stories above, they tend to cover a lot of the cost that the
bank has in initiating its entree into banking.
We talked to a REALTOR who has purchased with fee simple on
one of the floors, and these bankers are acquiring funds from
the sale of these upper floors before they build the building,
because they get commitments for the purchase with a fee
simple, meaning they literally own that space that they are in.
Tell me about this model in terms of how it can work in
other communities? I need to add one additional thing. They
have funded the businesses around the bank, and they pointed
out specific businesses that they have funded that you can see
from the bank.
They chose an area. They are lending to small businesses.
The small businesses are creating the jobs that Mr. Meeks talks
about, this circle of inclusivity. That model seems to work
quite well for the International District.
So, let's start with whomever would like to be first. We
have bankers here. We have others who can help us. Who would
like to respond and give a comment on the model?
Mr. Lindner, do you want to start with this? Are you
familiar with the model?
Mr. Lindner. Yes, I am. What I would tell you--and we have
done this before--is partner with banks that want to do that
and help the small businesses with financing as well. So there
are some partnership opportunities with organizations like us
and banks that are motivated to help small businesses, where
they lend to them, if they can, or if they cannot, then we can
probably lend to them. So, I think it is a great opportunity,
quite frankly.
Chairman Green. Mr. Park, you are about to open a bank, if
it is God's will, and I pray that you will. Forgive me for
using a word that I am very comfortable with that some are not,
but let me ask you, does your business model include something
similar to what I have just explained?
Mr. Park. Yes.
Chairman Green. Tell us how that business model will help
you to get your bank off the ground?
Mr. Park. At this moment, I cannot follow the model
exactly, Mr. Chairman, as you pointed out, but as soon as we
settle down, I have an idea and a strategic plan to follow that
model. And also, I know--
Chairman Green. Let me do this. To prevent you from saying
something that you shouldn't say, rather than comment on your
specific entity, just tell us how that model has worked. You
have some knowledge of how it can work. So, just tell us about
the model in general, if you would.
Mr. Park. Okay. At this time, the model--I am trying to
raise funds and make a new bank. It is very difficult to raise
capital, but I don't have a choice with my investors who will
make it. Because even though we tried to get some support,
financial support from other institutions or fund companies, or
whomever, it does not work out. So this time, we will make it.
However, when we get some significant asset, $300 million,
$400 million within the next 3, 4 years, and then that, Mr.
Chairman, you brought up, the model is very attractive. And
some minority groups, some banks, as you pointed out, are very,
very successful.
In the beginning, many community people did not really
agree to that kind of model, but a local CEO initiated it, and
it was very successful. So at this time, people know in the
community that the model is very good.
So when banks initiate that, a lot of people will join, and
I think the bank and when, actually, a bank could get into a
building, many other businesses are automatically in.
Chairman Green. Let me intercede and ask this question, if
I may, Mr. Park.
Mr. Park. Yes.
Chairman Green. Is it true that when you use this paradigm,
this model, that the bank will finance the loan that is made to
the business that desires to purchase the fee-simple property
within the bank's structure, that building that we are talking
about? Has that been your experience? Have you seen this occur
where the bank finances a loan so that the business that is
buying the property has a loan with the bank that happens to be
on the first floor of the facility?
Mr. Park. In my banking experience, I haven't done exactly
that. But I saw a couple of very successful examples recently.
So in the near future, I want to follow that model exactly.
Chairman Green. Thank you very much.
Mr. Smith, can you comment on the model, please?
Mr. Smith. Yes, sir, Mr. Chairman.
I have been financing fee-simple condo projects since the
1980s. Whether the model is successful or not really depends on
the cost and what the long-term costs are of the project. But
we have had very successful ones in banking, and we have had
some not-so-successful ones that I have seen.
As far as the bank owning the property initially and then
selling off floors or space above it, I think that could be
done, but I think you have a lot of disclosure issues that you
are going to have to go through to do that.
One of the things I would worry about as a CEO of a bank
would be, am I selling the second floor to one of my better
customers who already has loans with me, and did I make it
conditional that they buy this second floor so that they could
continue that relationship? There are issues here that you
would have to really cover.
Chairman Green. It seems to me that good lawyers can be of
benefit.
Mr. Smith. That is right.
Chairman Green. Apparently, there are good lawyers out
there because we visited banks yesterday that have been
successful with the model.
Mr. Smith. We are going to look into it.
Chairman Green. I can point you in the direction of a bank
that exists that has used the model successfully. And according
to what we were told, they don't have problems with the OCC.
They are complying with CRA.
This model seems to be one that was imported from Taiwan,
maybe China, but it is something that originated elsewhere,
such that you literally sell what is the equivalent of a
condominium to a business in the same building the bank is in,
and you have an HOA. It seems to work.
Mr. Johnson, please?
Mr. Johnson. Mr. Chairman, it is an excellent model. I
think it works extremely well. You see it a lot in the medical
area. You see quite a few office condos that a medical
organization will design a building and then be the principal
owner of that building and then sell condos. They create an
organization to actually manage it. They generally are the
general partner in that type of a deal, but it is an excellent
model. And I agree with you. I think it could work with banks.
And Mr. Smith, I would love to show you a potential project in
the Missouri City area that could work for Unity Bank.
Chairman Green. All right, Mr. Johnson, one more question.
And then, Ms. Pena, I have one for you as well.
Mr. Johnson, when we had an opportunity to visit Corinthian
Pointe, we saw some 300-plus homes that were constructed. What
was that number again, please?
Mr. Johnson. It was 434.
Chairman Green. 434. And you explained that the actual cost
of the homes now, they are valued at what amount, would you
estimate, please?
Mr. Johnson. In the initial development, the homes were--
the starting sales prices were in the $80,000 to $120,000 to
$130,00 price range. This was approximately 15 years ago.
Now, those homes are in the estimated value of $150,000 to
$190,000, so they have appreciated in value over the last few
years.
Chairman Green. And I am going to have to apologize. I do
have some Members who will have to depart.
Ms. Pena, I humbly apologize to you. I wanted to get more
information.
But suffice it to say, you started this with a not-for-
profit of some sort, did you not, Mr. Johnson?
Mr. Johnson. Yes. The owners created what was called the
Pyramid Residential CDC, and that was the developer for the
project. The project, we created a tax increment reinvestment
zone for that section of the development, and that provided the
funding for the infrastructure for the development of the
homes. The homes sold. It was the fastest-selling subdivision
in the City of Houston in the year 2004-2005. So, it was a
very, very big success.
Chairman Green. And what is the worth of that project
currently, in rough numbers?
Mr. Johnson. The entire project as of last year has a worth
of $178 million.
Chairman Green. $178 million?
Mr. Johnson. Approximately.
Chairman Green. Okay. Thank you very much.
I wanted to get that on the record of what a community
development corporation, some sort of not-for-profit can do to
enhance the value of the community, improve the lives of the
people, and create jobs. The spinoff from what you have done is
remarkable, and I want to compliment you.
At this time, friends, I have to thank the witnesses for
their testimony and for devoting the time and resources to
travel here and share their experiences with us. Your testimony
today has helped to advance the important work of the
Subcommittee on Oversight and Investigations.
The Chair notes that some Members may have additional
questions for today's panels, 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.
Without objection, the hearing is now adjourned.
[Whereupon, at 2:01 p.m., the hearing was adjourned.]
A P P E N D I X
September 4, 2019
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