[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE COMMUNITY REINVESTMENT ACT:
REVIEWING WHO WINS AND WHO LOSES
WITH COMPTROLLER OTTING'S PROPOSAL
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION
AND FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 14, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-75
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42745 PDF WASHINGTON : 2021
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 ANN WAGNER, Missouri
GREGORY W. MEEKS, New York PETER T. KING, New York
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DAVID SCOTT, Georgia BILL POSEY, Florida
AL GREEN, Texas BLAINE LUETKEMEYER, Missouri
EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois SCOTT TIPTON, Colorado
JOYCE BEATTY, Ohio ROGER WILLIAMS, Texas
DENNY HECK, Washington FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
RASHIDA TLAIB, Michigan TED BUDD, North Carolina
KATIE PORTER, California DAVID KUSTOFF, Tennessee
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
BEN McADAMS, Utah BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York LANCE GOODEN, Texas
JENNIFER WEXTON, Virginia DENVER RIGGLEMAN, Virginia
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Consumer Protection and Financial Institutions
GREGORY W. MEEKS, New York, Chairman
NYDIA M. VELAZQUEZ, New York BLAINE LUETKEMEYER, Missouri,
DAVID SCOTT, Georgia Ranking Member
WM. LACY CLAY, Missouri FRANK D. LUCAS, Oklahoma
DENNY HECK, Washington BILL POSEY, Florida
BILL FOSTER, Illinois ANDY BARR, Kentucky
AL LAWSON, Florida SCOTT TIPTON, Colorado, Vice
RASHIDA TLAIB, Michigan Ranking Member
KATIE PORTER, California ROGER WILLIAMS, Texas
AYANNA PRESSLEY, Massachusetts BARRY LOUDERMILK, Georgia
BEN McADAMS, Utah TED BUDD, North Carolina
ALEXANDRIA OCASIO-CORTEZ, New York DAVID KUSTOFF, Tennessee
JENNIFER WEXTON, Virginia
DENVER RIGGLEMAN, Virginia
C O N T E N T S
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Page
Hearing held on:
January 14, 2020............................................. 1
Appendix:
January 14, 2020............................................. 45
WITNESSES
Tuesday, January 14, 2020
Bautista, Faith, President and CEO, National Diversity Coalition
(NDC).......................................................... 13
Gonzalez-Brito, Paulina, Executive Director, California
Reinvestment Coalition (CRC)................................... 8
Knight, Hope, President and CEO, Greater Jamaica Development
Corporation (GJDC)............................................. 12
Levi, Gerron S., Director, Policy and Government Affairs,
National Community Reinvestment Coalition (NCRC)............... 6
Rodriguez, Eric, Senior Vice President, Policy and Advocacy,
UnidosUS....................................................... 10
APPENDIX
Prepared statements:
Bautista, Faith.............................................. 45
Gonzalez-Brito, Paulina...................................... 52
Knight, Hope................................................. 179
Levi, Gerron S............................................... 183
Rodriguez, Eric.............................................. 215
THE COMMUNITY REINVESTMENT ACT:
REVIEWING WHO WINS AND WHO LOSES
WITH COMPTROLLER OTTING'S PROPOSAL
----------
Tuesday, January 14, 2020
U.S. House of Representatives,
Subcommittee on Consumer Protection
and Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:39 p.m., in
room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks
[chairman of the subcommittee] presiding.
Members present: Representatives Meeks, Velazquez, Scott,
Heck, Foster, Lawson, Tlaib, Porter, Pressley, Ocasio-Cortez,
Wexton; Luetkemeyer, Lucas, Posey, Barr, Tipton, Williams,
Loudermilk, Budd, and Riggleman.
Ex officio present: Representative McHenry.
Also present: Representative Garcia of Illinois.
Chairman Meeks. The Subcommittee on Consumer Protection and
Financial Institutions will come to order. Without objection,
the Chair is authorized to declare a recess of the subcommittee
at any time. Also, without objection, members of the full
Financial Services Committee who are not members of the
subcommittee are authorized to participate in today's hearing.
Today's hearing is entitled, ``The Community Reinvestment
Act: Reviewing Who Wins and Who Loses with Comptroller Otting's
Proposal.''
I am now going to recognize myself for 4 minutes to give an
opening statement.
To my colleague, Ranking Member Luetkemeyer, and the
members of the subcommittee, welcome to this hearing on
modernizing the Community Reinvestment Act (CRA). This hearing
is our second on the subject during this Congress, following
one we held on April 9, 2019.
The Community Reinvestment Act was enacted into law in 1977
as a direct response to the long, painful legacy of structural
discrimination, financial exclusion, redlining, and economic
suppression of racial minorities in America. At its core, the
CRA is a civil rights bill. It was the fourth of a series of
banking bills passed to address systemic discrimination in
banking, including the Fair Housing Act of 1968, the Equal
Credit Opportunity Act of 1974, and the Home Mortgage
Disclosure Act of 1975. These bills built on the findings of
the 1961 report from the U.S. Commission on Civil Rights, and
community-led civil action in Chicago to hold banks accountable
for rampant discrimination in lending.
Any reforms or modernization must remain true to this
legacy. Broadly speaking, there is an agreement that CRA needs
to be modernized, that it needs updating in the age of online
banking and fintech, that all stakeholders can benefit from
greater transparency and predictability in CRA oversight
examination, and that there are important opportunities to
build on the experience from the past 25 years since CRA was
updated.
I was greatly disappointed to learn that Comptroller Otting
from the Office of the Comptroller of the Currency (OCC) pulled
the plug on the interagency working group to modernize CRA and
insisted on plowing ahead with an approach that was widely
panned in comments to the Advance Notice of Proposed Rulemaking
(ANPR). Indeed, the core framework put forward by the OCC using
a simple ratio has been thoroughly picked apart as inconsistent
with the original civil rights intent of the CRA, breaking the
link between CRA activity and the low- and moderate-income
communities and, in particular, communities of color for whom
the law was meant to bring redress for decades of systemic
discrimination.
A real head scratcher here is the fact that the banks
themselves--the banks themselves--are deeply concerned about
this proposal and believe that it leads to a worse outcome for
everyone than the current CRA framework. The fact that OCC is
taking a shotgun approach to the rulemaking, and they issued a
request for data to support this new rulemaking after
publishing the rule is further evidence of a process that is
being railroaded.
Finally, by abandoning the interagency process, Mr. Otting
is making it more likely that Congress will have to legislate
on CRA and that banks may face a fragmented national CRA
landscape going forward with four more of the vastly different
CRA regimes, including: one, the current CRA framework for
banks with assets under $500 million, which were exempted by
the OCC-FDIC proposal; two, the new OCC-FDIC framework for the
banks to which it applies; and three, the Fed's framework which
may be put forward as a rule. Some States have indicated that
they may add CRA-like rules for banks in the event that the
OCC's framework is adopted. This is regulatory chaos and should
have been entirely avoidable.
I applaud the Federal Reserve (Fed) for putting forward a
methodical, data-driven approach to CRA modernization, and
strongly encourage them to publish their proposal as a rule to
allow comments and to contrast with the OCC's proposal.
And finally, I would strongly encourage the OCC and the
FDIC to allow as much time as necessary, including a 120-day
comment period, to fully consider comments and data analysis of
their respective proposals and to explore options to eventually
merge their process with the Fed's to allow a continued
national harmonization of CRA rules.
With that, I recognize the ranking member of the
subcommittee, the gentleman from Missouri, Mr. Luetkemeyer, for
his opening statement.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
I would like to start out with a few facts about 1977. In
1977, the Dow Jones closed the year in the 3,000s. Currently,
it is almost 29,000. In 1977, a gallon of gas cost 65 cents.
Currently, it is $2.59. In 1977, the first Star Wars movie was
released, and we still are getting more Star Wars movies today.
And last, but not least, in 1977, Jimmy Carter signed into law
the Community Reinvestment Act (CRA).
The CRA was originally enacted to ensure that banks were
appropriately servicing their communities. However, more than
40 years after its enactment, and 30 years since it was
significantly amended, the CRA has become an outdated, onerous
regulation that does not reflect today's banking sector.
In a world where handheld computers, internet access, and
mobile banking have become norms, establishing CRA assessment
areas solely based on geographic location, in my judgment, is
an outdated notion. The OCC and FDIC's proposed rule to amend
and modernize the CRA would provide clarity and transparency by
requiring regulators to develop and publish a list of
preapproved CRA activities, allowing banks to accurately assess
and meet the needs of the communities instead of waiting for an
examiner to make a determination after the fact.
In addition to examining the geographic location of a bank,
the proposal would include additional assessment areas based on
deposits of a bank, taking into account the technological
advances in banking and online banks. By considering deposits,
the rule would expand CRA assessment areas of banks, limiting
CRA deserts and decreasing CRA saturation in many urban areas.
The proposal contains many provisions aimed at helping
banks serve their communities. However, I would like to point
out the process this Administration has taken in developing
this proposal. The notion of updating the Community
Reinvestment Act is not new. Regulators in this Administration
and the previous Administration have a long history of
collecting information regarding CRA modernization. In fact,
the Federal Financial Institutions Examination Council (FFIEC)
began conducting field hearings in 2010 on CRA. And in 2018,
the Treasury issued recommendations to update the law as well.
Continuing the transparency of this rulemaking process, the
OCC issued an advance notice in August of 2018 and received
over 1,500 comments before issuing a proposed rule. The OCC has
also met with more than 1,100 individuals from consumer and
community groups, academia, trade associations, and the banking
industry to receive information on specific areas of the CRA
that need to be addressed in this rule. And in accordance with
the Administrative Procedure Act, the OCC and the FDIC have
announced a 60-day comment period for this proposal to solicit
even more information and feedback from stakeholders.
I would encourage all parties involved to submit comments
on this proposal to ensure it increases transparency for
institutions and consumers while improving the ability of banks
to serve their community.
While the process throughout this proposal has been
transparent, the Federal Reserve ultimately did not join the
FDIC and the OCC in this rulemaking. Instead of the prudential
regulators joining together to issue one consistent update to
the law, an apparent bureaucratic turf war could leave bankers
with the uncertainty of a bifurcated rule. Hopefully, by the
time this rule is finalized, the Administration will achieve a
uniform rule to modernize CRA. And hopefully, today we can
learn more about efforts to achieve that goal.
And with that, Mr. Chairman, I look forward to the
testimony of the witnesses before us, and I yield back.
Chairman Meeks. The gentleman yields back.
I now recognize the gentleman from Georgia, Mr. Scott, for
1 minute.
Mr. Scott. Thank you, Mr. Chairman.
As we know, last month, the OCC and the FDIC put forward a
notice of proposed rulemaking that would make changes to the
Community Reinvestment Act. But, Mr. Chairman, our committee
has to make sure that any changes that they may offer do not
weaken the law's work to undo harmful, racially discriminatory
practices in banking. That is what the law was put in place to
do, so that we will be able to make sure that we end any
discrimination against customers based upon where they live or
racial indicators, as opposed to their creditworthiness.
And also, Mr. Chairman, we are moving rapidly into a highly
technological age. That makes it even more important that we
understand and we make sure that, as we move in this advanced
technological age with online lending and mobile banking, that
we be extra careful, because we don't have enough of the
profound financial literacy out there for people to be able to
handle this advanced technology. Our work is before us.
Thank you.
Chairman Meeks. The gentleman's time has expired.
I now recognize the ranking member of the full Financial
Services Committee, the gentleman from North Carolina, Mr.
McHenry, for 1 minute.
Mr. McHenry. Thank you, Chairman Meeks, and thank you for
your thoughtful leadership, and I thank you, as well, Ranking
Member Luetkemeyer.
I applaud the OCC and the FDIC for proposing a CRA reform
package. I am dismayed that the Federal Reserve has been
dragging their feet and won't participate in this process. I
think it is important that we update CRA. The last time it was
updated, it was before most Americans even had dial-up
internet, and a smartphone was any phone that wasn't connected
by a long wire into a wall. So, needless to say, it was before
mobile banking. It was before online banking helped to serve so
many in our community. And before the branching strategy of
banks changed, and it has changed severely and dramatically in
the last 5 to 10 years.
This proposal takes into account all of those changes. I
think that is positive. So, I look forward to hearing from the
witnesses and stakeholders about how we communicate additions
and changes and we get this thing done in a timely fashion.
Chairman Meeks. The gentleman's time has expired.
Today, we welcome the testimony of, first, Ms. Gerron Levi,
director of policy and government affairs at the National
Community Reinvestment Coalition. Ms. Levi is an attorney with
nearly 20 years of Federal and State Government affairs
experience. Her background includes serving in the Maryland
General Assembly, where she authored laws on education, crime,
and ex-offender reentry, and she was a member of the National
Conference of State Legislators, the National Black Caucus of
State Legislators, the National Foundation of Women
Legislators, and the American Council of Young Political
Leaders.
During her tenure, the Maryland State's Attorneys'
Association named her as the Legislator of the Year in 2010.
She also served as an assistant director of the Legislation
Department of the AFL-CIO, and as a legislative representative
for the Laborers' International Union.
Second, Ms. Paulina Gonzalez-Brito is the executive
director of the California Reinvestment Coalition (CRC). Ms.
Gonzalez has worked for over 20 years leading economic justice
and organizing campaigns to expand workers' rights, immigrant
rights, and the rights of low-income people, and people in
underrepresented communities of color. Under her leadership,
CRC has grown to 300-plus members, gained high visibility,
expanded its focus areas to include immigrant financial
protection and fines and fees work, and negotiated community
reinvestment agreements with 5 banks worth more than $25
billion.
She currently serves on the Community Advisory Council of
the Federal Reserve Bank of San Francisco, the San Francisco
Municipal Bank Feasibility Task Force, and the Board of
Directors for the National Association for Latino Community
Asset Builders, and she was formerly a member of the CFPB's
Consumer Advisory Board.
Third, Mr. Eric Rodriguez is the senior vice president for
policy and advocacy at UnidosUS. Mr. Rodriguez oversees the
Office of Policy and Advocacy, which is charged with directing
the organization's legislative affairs, public policy research,
policy analysis, and field advocacy work. He is responsible for
UnidosUS's Federal and State legislative priorities and agenda.
Mr. Rodriguez has extensive experience overseeing the UnidosUS
public policy and advocacy activities on a wide range of
issues.
From 2007 to 2008, he served as deputy vice president of
the public policy department, and previously directed the
Policy Analysis Center. His background also includes work on
such issues as tax policy, Social Security reform, welfare
reform, workforce development, retirement security, and housing
and financial market regulations.
Mr. Rodriguez also serves on the boards of the Food
Research and Action Center, the Fair Election Center, and the
UnidosUS Action Fund, and he is a member of the National
Academy of Social Insurance.
Prior to UnidosUS, Mr. Rodriguez was a Congressional
Hispanic Caucus Institute fellow, and served in U.S.
Representative Nydia Velazquez's New York office.
Fourth, Ms. Hope Knight is the president and CEO of Greater
Jamaica Development Corporation. Ms. Knight has served as
president and CEO of Greater Jamaica Development Corporation
since 2015--I should say, the Greater Jamaica Development
Corporation in New York. In that capacity, she has advanced the
economic growth, community bank building, and sustainable real
estate development, and has immensely revitalized and
strengthened the Greater Jamaica/Queens region.
Appointed by Mayor Bill de Blasio, Ms. Knight also serves
on the New York City Planning Commission, a role which supports
planning for equitable economic expansion, strengthening of
housing affordability, and increasing job growth in New York
City.
Prior to leading the Greater Jamaica Development
Corporation, she was chief operating officer for the Upper
Manhattan Empowerment Zone, overseeing over $150 million in
direct capital, leveraging over $1 billion in private capital,
and working on projects such as the East River Plaza, the
Harlem Stage, and the Victoria Theater. She has also served as
vice president at Morgan Stanley in the Institutional Equities
Division U.S., and as vice president of strategic planning and
e-commerce at Morgan Stanley Japan.
And finally, Ms. Faith Bautista is the president and CEO of
the National Diversity Coalition. She is also the president and
CEO of the National Asian American Coalition, a HUD-approved
home counseling agency, and the nation's leading Asian American
nonprofit advocating against foreclosures, advocating for
greater economic and small business development, and advancing
the growing economic and social power of Asian Americans.
Appointed by President Trump's Administration in 2017, Ms.
Bautista is currently serving a 4-year term as one of the 5
members in the U.S. Treasury Department's Community Development
Financial Institutions (CDFI) Fund, and the Fund Community
Advisory Board, and a member of the advisory board for the
Federal Communications Commission on broadband adoption and
diversity, and for the California Utility Diversity Council.
She serves on the corporate advisory board for First Republic
Bank, Royal Business Bank, Citizens Business Bank, and Charter
Communications, and she was a former advisor and board member
for CTI OneWest Bank.
You will each be recognized for 5 minutes to provide an
oral presentation of your testimony. And without objection,
each of your written statements will be made a part of the
record.
I now recognize Ms. Levi for 5 minutes to give your oral
presentation of your testimony.
STATEMENT OF GERRON S. LEVI, DIRECTOR, POLICY AND GOVERNMENT
AFFAIRS, NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC)
Ms. Levi. Good afternoon, Chairman Meeks, Ranking Member
Luetkemeyer, and members of the subcommittee. Thank you for the
opportunity to testify for this important hearing on the
winners and losers in the OCC's proposed rule.
I can say without equivocation that the winners would be
the nation's largest banks, who would promote glowing CRA
ratings to the public because they will have easier ways to
meet their CRA obligations. The losers would be low- and
moderate-income home buyers, renters, small businesses, small
farms in their community, and the CRA ecosystem built to
support better economic opportunities for them.
We concur completely with the FDIC's Mr. Gruenberg, for
this is a deeply misconceived proposal. The purpose of CRA is
unmistakable: Congress aimed to reverse disinvestment
associated with years of government policies that deprived low-
to moderate-income (LMI) areas and communities of color of
credit by the practice of redlining. That was and is the reason
for the law, and the legacy is still with us today, and lending
discrimination is ongoing.
The statutory design of the CRA and its regulatory
framework to date has been about curing for market failures
that keep some neighborhoods thinly traded, even when there are
profitable lending and investing opportunities available for
the financial institutions chartered to serve them in unmet
credit needs that are safe and sound to meet.
NCRC's CEO, Jesse Van Tol, has called this a stealth
gutting of CRA because it is a fundamental rewrite that
significantly changes incentives under the law, but only the
agencies fully understand its impacts, the new benchmarks and
thresholds, but they fail to share what they know and estimate
with the public. Our forthcoming Freedom of Information Act
(FOIA) request will ask them to share more.
At the outset, we have a must-do list for the agencies
about the process in the name of fairness and transparency.
First, extend the public comment period. The proposal is
complex and has many interconnected elements. The impact on
bank incentives to participate in a range of financing
activities cannot be understood and analyzed in 60 days, plain
and simple. We thank the members of this committee who have
urged the regulators to give the public more time.
Second, release the missing data and analyses. The agencies
have estimated the impact of their proposed numeric benchmarks
and thresholds using a variety of bank samples and other
information. All of the underlying data, analyses, and modeling
of the impact on bank ratings and performance should be
released. Federal Reserve Governor Brainard laid out some
illustrative data and charts last week about their approach,
and that is a good start.
Third, complete and finalize the agency request for
information (RFI) on data released on Friday, that in cruel
irony closes for comment the day after the overall rulemaking.
The data RFI will inform critical pieces here of the CRA
evaluation measure or dominant single metric and presumptive
ratings, including how to measure bank capacity. We really need
to know this so that we can meaningfully comment on how severe
the rationing of CRA credit will be.
On to the substance. The CRA evaluation measure is an
overly determinative single metric that ensures rationing of
CRA credit. The public comments on all sides were clear: no
single metric. The agency has added a supplement, but we have a
single dollar volumetric triggering presumptive CRA ratings,
and more inflation is built into it. The presumptive CRA
ratings are arbitrary benchmarks that undermine the economic
rationales for CRA, and the agency should really show their
work on them. The expansion of CRA qualifying activities
extends credit to bank activities done in the ordinary course
of business and upends exam incentives that keep LMI
considerations at the heart of the law.
The new deposit-based assessment areas again have a lot of
the arbitrary triggers in them and their data limitations. For
example, how many credit deserts would be picked up, if any, by
that proposal?
The retail lending distribution test, pass-fail, has
arbitrary triggers as well on demographics and peer competitors
and is overall a weaker incentive for banks to facilitate home
ownership, small business, and small farm lending. The service
test is virtually eliminated, and the 1 percent credit for bank
branches in LMI areas is inadequate, and exams for affordable
financial services and products is wiped out.
I look forward to discussing more about this proposal, but
the largest U.S. banks made more than $120 billion in 2018, an
all-time high. CRA standards for local LMI reinvestment should
be strengthened and not weakened, plain and simple.
Thank you.
[The prepared statement of Ms. Levi can be found on page
183 of the appendix.]
Chairman Meeks. Thank you for your testimony.
Ms. Gonzalez-Brito, you are now recognized for 5 minutes.
STATEMENT OF PAULINA GONZALEZ-BRITO, EXECUTIVE DIRECTOR,
CALIFORNIA REINVESTMENT COALITION (CRC)
Ms. Gonzalez-Brito. Thank you, Chairman Meeks, Ranking
Member Luetkemeyer, and members of the subcommittee, for
holding this important hearing and inviting CRC to testify.
Good afternoon. My name is Paulina Gonzalez-Brito. I am
Chicana, the daughter of immigrants from my ancestral land of
the Purepecha people in Mexico.
CRC is the largest statewide reinvestment coalition in the
country, with a membership of over 300 organizations that serve
low-income communities and communities of color. I am also a
proud member of the National Association for Latino Community
Asset Builders (NALCAB), and CRC is a proud member of the
National Community Reinvestment Coalition.
You should know that CRC works. While the CRA can be
improved, Comptroller Joseph Otting's proposal is a
deregulatory scheme designed to help the largest and most
powerful banks. It will weaken CRA rules, undermine the purpose
of the statute, and will ultimately harm low-income communities
and communities of color.
When Comptroller Otting was CEO, OneWest had one of the
worst reinvestment records in the State. CRC tracks
reinvestment data in California, and in 2013, out of 12 banks
analyzed, OneWest ranked 10th or 11th from the bottom. As one
example of OneWest's lack of reinvestment activity under Mr.
Otting's leadership, the bank made very few small business
loans. In the final quarter of June 2015, under Mr. Otting's
leadership, OneWest did one-tenth of the amount of small
business lending in comparison to banks of the same size.
As another example, during Mr. Otting's leadership, OneWest
had 15 percent of its branches in low- to moderate-income (LMI)
communities compared to 30 percent for the rest of the
industry.
Mr. Otting has written this CRA rule so that banks like the
one he led that do little reinvestment can ace their CRA tests.
For example, the Comptroller's proposed CRA rule benefits banks
by loosening the rules around small business lending and by
devaluing the importance of branches in LMI census tracts.
On redlining, Comptroller Otting certainly does have
experience. While Mr. Otting was CEO of the bank, OneWest had
70 branches, but only one branch was located in a Native
American majority census tract, and there were no branches,
none, in African American majority census tracts.
During his tenure, over a 2-year period, the bank
originated only two mortgage loans, that is two, to African
Americans in the greater Los Angeles area. That is hard to
believe, given the size of L.A.'s African-American population.
It would be bad enough if OneWest merely did a poor job
meeting community credit needs as required by the CRA. But, in
fact, the bank that Joseph Otting ran also substantially
damaged community credit needs through mass foreclosures. Most
of this harm was inflicted on communities of color. Between
2011 and 2015, when Mr. Otting was CEO of OneWest, the bank
foreclosed in neighborhoods of color 3 times as often as it
made mortgages in neighborhoods of color.
We are concerned that the Comptroller's proposal will lead
to a return to redlining and more harm to communities, given
its focus on the one ratio that prioritizes quantity over
quality and overall numbers over serving local community needs.
CRC and over 100 organizational opponents of the OneWest-
CIT merger raised many of these concerns during the public
comment process for the CIT-OneWest merger. As part of the
merger, Mr. Otting solicited letters of support from his Wall
Street contacts via a form letter on the bank's website. Our
analysis of those letters observed a number of anomalies. Our
suspicions were confirmed when CRC received a call from a
supposed supporter of the merger who was upset his email
address had been used to support a bank merger he knew nothing
about. He said, ``My identity has been stolen.''
Our subsequent FOIA request to the OCC uncovered documents
reflecting email exchanges with the OCC from individuals upset
that they had been listed as supporters for a merger they had
never heard about. The letters at issue, supposedly submitted
by these supporters, appear to be the same form letter that Mr.
Otting had urged his Wall Street contacts to submit via the
bank's website.
What does this mean for the integrity of the CRA public
comment period overseen by Mr. Otting himself?
We also have concerns, based on Mr. Otting's public
statements, regarding his ability to fairly receive and
incorporate public input. Comptroller Otting was quoted as
saying, ``Certain community groups know how to hold you hostage
during that process, and they use your lack of compliance in
between the reviews to be able to do that.''
Perhaps, most alarmingly, Comptroller Otting was quoted as
saying, ``We won't tolerate groups that do not provide services
to these communities to disrupt the process and affect our
decisions.'' Perhaps, he doesn't believe in democracy.
These comments suggest that the Comptroller cannot be
trusted to objectively consider public comments from community
groups, just as he is soliciting public comments on plans to
weaken the nation's primary anti-redlining law. The proposed
rule led by Comptroller Otting will do great harm to
communities of color and low-income communities while advancing
the interests of big banks who have little interest in
reinvestment.
I thank you for the opportunity to discuss our concerns
today.
[The prepared statement of Ms. Gonzalez-Brito can be found
on page 52 of the appendix.]
Chairman Meeks. Thank you for your testimony.
Mr. Rodriguez, you are now recognized for 5 minutes.
STATEMENT OF ERIC RODRIGUEZ, SENIOR VICE PRESIDENT, POLICY AND
ADVOCACY, UNIDOSUS
Mr. Rodriguez. Good afternoon. Thanks to the chairman and
ranking member, as well as the members of the subcommittee, for
the opportunity to testify today. Our remarks will echo many of
the concerns already raised.
My name is Eric Rodriguez. I am a senior vice president of
Policy and Advocacy for UnidosUS, formerly the National Council
of La Raza. UnidosUS is the largest Hispanic civil rights and
advocacy organization in the United States. For over 25 years,
I have worked on issues such as the Community Reinvestment Act
that lie at the intersection of economic inequality and civil
rights.
UnidosUS is a unique civil rights organization in three
critical ways. One, we combine advocacy with research and
analysis of the Latino community. Two, we leverage our policy
expertise with on-the-ground experience, administering
culturally competent housing and financial capability programs
that are proven to reduce wealth and income disparities in
communities. And three, we partner with both government and
industry to change practice in ways that advance economic
interest of the Latino community.
First, I want to touch on very quickly the important
history of CRA, then we'll highlight just a few of our concerns
with the plan by the OCC and the FDIC that we also believe
would really weaken the intent of the CRA. And last, we will
recommend an alternative approach.
The first thing is, discrimination and disparate impact in
banking has been persistent throughout our history and often
exacerbated by our public policy. For example, in the 1930s,
the Home Owners' Loan Corporation created a universal risk
appraisal method that classified neighborhoods based on
occupation, income, race, and ethnicity of residents, literally
drawing red lines where people of color constituted the
majority. Limiting access to credit has consistently undermined
the vitality and the mobility of people, of color and the
neighborhoods where they live.
In many ways, Chicago served as the birthplace for the
resistance movement against redlining decades ago. In 1969, the
Westside Coalition of Community Organization, in a Polish
neighborhood with a growing Puerto Rican population, identified
the problem well. Members of the community had been denied
loans despite good credit histories. They protested until the
group secured a meeting with the bank's president and the
chairperson of the board or directors, and this began and
sparked a nationwide campaign to place equitable community
reinvestment on the national agenda.
Subsequent research documented nationwide redlining and
bolstered the case for action, and Congress then acted with the
passage of two important and critical bills: the Home Mortgage
Disclosure Act of 1975 and the Community Reinvestment Act of
1977.
Over 40 years, CRA has encouraged regulated banks to lend
to LMI communities of color. CRA helped to revitalize
neighborhoods by increasing mortgage and small business
lending. In our research, based on a national survey of
mortgage origination data from 2014 to 2018, we found that the
CRA had bolstered home lending for Latinos, and facilitated
between 15 percent and 35 percent of home loans to Latinos in
LMI census tracts. This was about 2 to 3 times the share of
loans to their white peers in the same census tracts.
The OCC and FDIC's recent proposal seeks to update the CRA.
We certainly agree CRA should be modernized. But we have grave
concerns with their approach, and I will just highlight a few.
First, in order to enforce the CRA, regulators currently look
at banks' assessment areas defined in the regulations regarding
where bank branches are or some physical presence located to
gauge whether a bank is, in fact, meeting the credit needs of
its community.
With the growth of banking on the internet and smart
devices, the current approach for delineating assessment areas
should certainly be expanded but not at the expense of physical
branch locations.
As discussed in our own research, the future of banking
report, coauthored with policy, linked physical presence still
has an impact on whether residents of LMI communities have
access to mainstream banking. Research also shows a direct
correlation between the number of bank branches located in the
neighborhood and the availability of credit.
Second, the plan would allow for community development
activities that are outside of the original intent of the CRA.
These activities do not serve the credit needs of their
communities. We are troubled by the laundry list of qualifying
regulatory criteria proposed. The new approach would weaken the
impact of CRA on LMI communities.
Third, the proposal does not articulate how regulatory
agencies would solicit, review, and weigh public comments of
community organizations. In essence, the plan would strip
``Community'' out of the Community Reinvestment Act.
In the 4 decades since CRA was proposed, the law has
increased bank lending in LMI communities. For Latinos, it is
still important and relevant. In 2017, an FDIC national survey
of unbanked and underbanked households found that while 6.5
percent of households overall were unbanked, 14 percent of
Latino households, and 16.9 percent of Black households were
underbanked.
A better approach to modernizing the CRA would be for
regulators to negotiate with the civil rights community and
lawmakers and work with the Federal Reserve to ensure one
uniform set of rules for financial institutions to follow.
Rules of the road that are flexible enough to meet the
challenges of a changing marketplace while continuing to
effectively address disparities is the goal we all share.
Thank you.
[The prepared statement of Mr. Rodriguez can be found on
page 215 of the appendix.]
Chairman Meeks. Thank you for your testimony.
I now recognize Ms. Knight for 5 minutes.
STATEMENT OF HOPE KNIGHT, PRESIDENT AND CEO, GREATER JAMAICA
DEVELOPMENT CORPORATION (GJDC)
Ms. Knight. Good afternoon, Chairman Meeks, Ranking Member
Luetkemeyer, and members of the subcommittee. Thank you for the
opportunity to testify today.
My name is Hope Knight, and I am president and CEO of the
Greater Jamaica Development Corporation (GJDC). GJDC is a not-
for-profit that works to promote responsible development in
Jamaica, New York, and southeast Queens.
As a leader of an economic development organization in a
formerly redline community, the CRA is foundational to my work.
I have studied the Notice of Proposed Rulemaking (NPRM) and had
the honor of helping to lead a tour of Jamaica for Comptroller
Otting and the OCC. I am here today to discuss significant
concerns I have about the ideas presented in the NPRM and that
I believe would significantly weaken the CRA and hurt the
community that I serve.
That community, Jamaica, Queens, shares a history with many
urban communities of color across the United States. Redlined
in the 1930s, Jamaica struggled to attract private investment.
In the 1960s and 1970s, Jamaica's economic base further eroded
as white flight drained the downtown of residents and
businesses. The culminating disinvestment left Jamaica in a
vicious economic cycle.
Targeted Federal programs like the CRA helped start a
reversal of this cycle. Recently, and owing in part to their
interest in securing CRA credit, banks financed transformative
development projects in Jamaica, including ones that bring more
affordable housing and good jobs to southeast Queens. As a
community development financial institution (CDFI), GJDC has
been able to lend to small businesses with the help of banks'
contributions often given to meet CRA obligations.
However, Jamaica still bears the legacy of redlining,
suburban flight, and disinvestment. As evidenced in our tour
with Comptroller Otting, many areas of Jamaica remain banking
deserts. Potentially catalytic projects struggle to secure
financing and low-income residents have trouble accessing
loans. If changes are made to the CRA that dilute its impact,
Jamaica will struggle against such economic headwinds, and the
recent progress growing Jamaica's economy will be put at risk.
With regard to the NPRM, I am particularly concerned by
several proposals. From my work in economic development, it has
become clear that to be effective in spurring equitable
economic development, regulations must have clear and well-
defined geographic targets. Instead of focusing on a clear
geography, the proposed regulation greatly expands where banks
can get CRA credit, allowing for investment in areas outside of
local assessment areas, making it less likely that financial
assistance will flow to communities and projects that need it
most.
As one example, under the rules of the NPRM, any investment
in a low-income Opportunity Zone would be an eligible activity
without any consideration of economic development benefits or
community needs. Retail banking is of paramount importance to
neighborhoods like Jamaica. As Comptroller Otting mentioned
after his tour of Jamaica, there are areas in Jamaica that are
served by few or no bank branches.
Compounding this, the nation's persistent digital divide
creates a barrier to accessing financial e-services for those
in low-income census tracts. Without branches, many residents
depend on high-cost alternatives, like corner store ATMs and
check-cashing services. As such, I am very concerned by the
proposed regulatory changes that eliminate the current large
bank service test and examination of basic banking accounts for
LMI customers.
By moving forward on proposed regulatory changes without
the Federal Reserve, the OCC and the FDIC would create a two-
tier regulatory system that adds complexity and confusion to an
already complicated sector. While larger money center banks may
be able to navigate this added burden of complexity without too
much difficulty, smaller institutions may be hit hard,
especially minority depository institutions (MDIs).
The CRA is complex. Changes to the regulation will have
far-reaching impacts. The short comment period does not allow
enough time for adequate comment. The comment period should be
extended to a total of 120 days. The changes to the CRA
regulations currently proposed by the OCC and the FDIC will
hurt economic progress in LMI areas and undermine the anti-
redlining intent of CRA. As such, I oppose the changes
described in the NPRM, and I look forward to answering any
questions related to my testimony.
Thank you.
[The prepared statement of Ms. Knight can be found on page
179 of the appendix.]
Chairman Meeks. Thank you for your testimony.
And, Ms. Bautista, you are now recognized for 5 minutes.
STATEMENT OF FAITH BAUTISTA, PRESIDENT AND CEO, NATIONAL
DIVERSITY COALITION (NDC)
Ms. Bautista. Thank you so much.
Before I read my testimony, I just want to tell you, don't
believe everything that Ms. Paulina is saying because we are
seeing--we had a group counseling agency, and we have helped so
many homeowners in California save their home, and OneWest
saved a lot of the people who were facing foreclosure. Thank
you.
We must do better. NDC and the National Asian American
Coalition (NAAC), which I also lead, represent underserved and
minority people and small businesses who are left behind by our
current system. I work directly in our communities to provide
lending, counseling, and training solutions to our most
vulnerable.
For NDC, reducing the number of underbanked is our North
Star. We believe CRA has failed for one primary reason: CRA
qualifying lending and investments are not measured. Whether
this is by design or by neglect, it is harmful to the
communities I have spent my life serving.
It is remarkable and offensive that the current CRA
regulations do not track CRA activity on an industrywide level.
Frankly, it might be the only data that regulators do not think
worth collecting and evaluating systematically.
I have had the honor to meet with the Federal Reserve
Chairs and Governors over my decades of advocacy. At each
meeting, I ask them the same simple question of whether CRA
lending and investments have been increasing or decreasing over
the prior 5 years. The answer each time is that they simply do
not know. Conveniently, the current approach to CRA provides no
way of measuring the number of loans or the volume of dollars
being invested in underserved minority neighborhoods. That
needs to change.
This information is necessary to any serious data-driven
analysis seeking to understand the real impact of CRA. With no
data and no measurement comes no accountability.
The current approach turns a blind eye to low-income and
minority communities. For example, instead of using metrics to
gain merger approvals, banks simply make unregulated promises
to increase CRA investments in a future that never comes.
Today's hearing is to determine who the winners and the losers
would be from CRA reform, but the current regulations do not
collect the data necessary to measure who is currently winning
or losing.
Working every day in communities of color, I can tell you
today that the CRA losers are America's low-income communities
and minorities. They are the people served by NDC, NAAC, and
our members. The stories of abuse and neglect faced by
America's immigrants, minorities, and others we serve would
break your heart.
NDC believes that underserved communities will only win
when there is a real transparency that measures each bank's CRA
activity objectively, discloses it timely and publicly, and
allows comparison against peers and regulatory targets. Data
and accountability must replace excuses and stories.
Today, the question should not be if the CRA proposal is
perfect. It is not. Instead, we must ask if it improves upon
the current approach to CRA and provides a new paradigm able to
break the cycle of poverty and neglect faced by America's most
vulnerable communities. The definitive answer is yes.
The OCC and FDIC proposal would improve the current system
in three primary ways. First, it will clarify what qualifies
for CRA credit. No more guessing. That helps community planners
and advocates makes the most of our resources.
Second, it updates where a bank receives credit for CRA. It
recognizes the advent of the internet, ending loopholes for
internet banks and wholesale banks. This will enable banks who
help underserved communities where they have depositors, but no
banks, receive CRA credit.
Third, it will provide timely and transparent reporting
that measures CRA-related activities using standard metrics. We
will all finally be able to confirm that banks are increasing
their CRA activity in underserved and minority neighborhoods.
NDC believes the proposal set out by the OCC and the FDIC
will increase CRA activity by over $100 billion. Should that
not occur, the OCC and the FDIC must commit that they will
raise the requirements for ``satisfactory'' and ``outstanding''
CRA ratings to ensure that CRA investments increase as
promised.
The proposal also closes loopholes that currently allow
bankers to trade loans back and forth between banks to claim
multiple CRA credits for the same loan. It will also end the
CRA credit for gentrification and displacement, when banks
finance wealthy people purchasing homes in poor neighborhoods.
It is true that the proposal can benefit from further
modifications during the public comment period. For instance,
loans guaranteed by the Federal Government should not receive
CRA credit. Double dipping on Federal subsidies does not
increase the amount of capital reaching underbanked
communities.
We pray that the Federal Reserve awakens to the urgent need
for change. Today's status quo continues to fail over 30
million disproportionately minority American households. Fear
of unintended consequences is not a good reason to stick with a
failed system that for 4 decades has resulted in generational
poverty and disparate impact in our communities of color.
We are confident that this proposal will at long last begin
the process of reducing the unacceptable number of underbanked
in America. Thank you so much.
[The prepared statement of Ms. Bautista can be found on
page 45 of the appendix.]
Chairman Meeks. Thank you.
I thank all of the panelists for their testimony today.
And before I recognize myself, I ask for unanimous consent
to enter four documents into the record. The first is a
statement for the record from Mr. Richard Hunt, the president
and CEO of the Consumer Bankers Association, and the statement
speaks to the importance of getting CRA modernization right and
ensuring that concerns raised are adequately addressed. It is
noteworthy that in this document, the CBA raises concerns with
the OCC's requests for data, which came after the publication
of the rulemaking.
The second statement for the record is from Mr. Noel Poyo,
executive director of the National Association for Latino
Community Asset Builders. In this statement, Mr. Poyo outlines
key concerns with the OCC and FDIC's rulemaking, including
ignoring comments from the ANPR and diluting the focus on LMI
communities, likely reducing investments in rural and other
hard-to-serve communities and other issues.
The third statement for the record is from Mr. Aaron
Glantz, senior reporter at Reveal from The Center for
Investigative Reporting. And as a reminder, Mr. Glantz
testified at our hearing on CRA modernization in April 2019 on
his groundbreaking report on modern-day redlining. And this
statement for the record provides a detailed, troubling account
of Mr. Otting's time at OneWest Bank.
And the fourth statement for the record is from Mr. David
Dworkin, president and CEO of the National Housing Conference.
In this statement, he reminds us of the history of
discrimination and redlining that led to the passage of CRA and
the broad agreement on key colors for CRA reforms that outline
specific areas where the OCC's proposal will make it fall short
of the commitment to holding true to CRA's original intent.
Without objection, it is so ordered.
And I now recognize myself for 5 minutes for questions.
My first question will go to Ms. Levi. As I stated in my
opening remarks, I have had private conversations with banks
and banking groups, and they are quick to state that they
didn't ask for the OCC's framework, and expressed a list of
concerns if this approach were to be implemented, posing
operating complexity, reputational risks, and significant
uncertainty. And in the letter I just entered into the record
from the Consumer Bankers Association (CBA), they state that
more analysis must be undertaken by stakeholders to better
understand the impact of the new metrics that will be used to
measure CRA activity for individual institutions in the
communities that they serve. And the CBA appreciates the OCC's
recent effort to consider the impact of a more quantitative
approach through additional data collection, but feels the true
cost of reforms must be understood before dramatic changes are
made. Can you speak on this?
Ms. Levi. I can, and we have heard a lot of the same
concerns. I was at a housing tax credit conference last week,
and for a lot of the folks who participate in that market, they
are concerned about more financing gaps, not less, because the
incentives under this proposal are off.
It also points to the process concerns I outlined. We don't
have enough time. It is complex. It is interconnected. And the
agency has not made it easy because they have not shared a lot
of their data analyses and modeling.
Chairman Meeks. Now, is there--or how does the OCC's
proposed rulemaking impact the link between a bank's CRA
activity and direct lending, especially mortgage lending to
low-income communities of color?
Ms. Levi. The bottom line is that the retail lending
distribution test in this proposal is weaker, and is going to
make addressing problems this committee is focused on, for
example, the racial wealth gap, a lot harder to get banks to
participate in. Also, you can fail in half of your local
assessment areas and still pass at the bank level.
There are a number of problems with it, and some arbitrary
thresholds in it. And there is no review of mortgage lending in
LMI neighborhoods at all.
Chairman Meeks. Thank you.
And, Ms. Knight, I know in your testimony you talked about
doing a tour of Jamaica, Queens, with Mr. Otting. And during
that tour, he saw the extent of banking deserts and the
important needs for loans and financial services, and the great
disparities in access to credit and housing in the community.
Can you speak--and I know there were several other people from
the community who were there--to the feedback that Mr. Otting
received from the community, specifically as it relates to the
OCC's CRA proposal?
Ms. Knight. Thank you. We were able to show Comptroller
Otting how few bank branches there were in southeast Queens,
and as a result, small businesses in the community don't have
the opportunity to develop relationships with traditional
financial institutions. And that is something that many people
on the tour, advocates, community leaders, spoke to the
Comptroller about. We also were able to show him where many of
the alternative financial activity happens in corner stores and
check-cashing establishments.
Chairman Meeks. Thank you.
Mr. Rodriguez, do you consider the CRA to be a civil rights
bill?
Mr. Rodriguez. Absolutely. Yes.
Chairman Meeks. Elaborate, please.
Mr. Rodriguez. Yes. If you think about the origin of CRA
and part of the testimony but also what we know of how
organizers in Chicago, where they identified the problem of
disparities where you had banks that were investing even abroad
and not investing very much, if at all, in their own local
communities, that is what sparked it as a major movement and
ultimately shined a light on inequalities that needed to be
remedied through changes through Congress. Absolutely, it is a
civil rights law.
Chairman Meeks. Thank you.
My time has just about expired, so I now will recognize the
ranking member, Mr. Luetkemeyer, for 5 minutes for questions.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Ms. Bautista, you were pretty adamant in the discussion of
the lack of data that the Comptroller now collects under the
CRA law. That is concerning to me from the standpoint of, how
can they make good decisions on whether it is working or not?
Ms. Bautista. Congressman, I think the CRA reform--we know
that it needs to be reformed. It has been 25 years. The OCC has
been working with this for the last 10 years and extensively in
the last 2 years. We believe they have data, and the data that
the OCC and the FDIC has is the same data with the Federal
Reserve.
Mr. Luetkemeyer. You are about the only one who, as you
went through the process here, pointed out the problems, had
some solutions, and also indicated the good points about what
the law does or what points it actually fixes or things that
you support. And it was interesting to me because I think that
is where we can point out the problems. If we have no solution
to the problems, we are not getting anywhere. And I think you
and Mr. Rodriguez made the point that this has to be updated.
The law doesn't have anything in there with regards to
internet activity, mobile phone activity, online lending
activity, which is a modern day, everyday practice now.
Ms. Bautista. Correct.
Mr. Luetkemeyer. If I was one of you, I think I would be
concerned about some online lending that doesn't qualify for
CRA. Some of these folks can make online loans and don't have
to comply. That is what I would be arguing about if I were in
your seat. I didn't hear anything like that today, which is
surprising to me.
But I think, Ms. Bautista, you indicated that one of the
good points that this new rule, the proposed rule is talking
about here is clarifying what actually qualifies for CRA. And
to me, having been in the business for a long time and I had to
work with this rule, this is always a problem that I had with
it, because there are a lot of good things that an institution
can do to invest back in its community and in any of these
particular communities of lower- to moderate-income folks, that
we are not getting credit for even though they do it, and they
do it because they want to do it. They do it because they want
the community to grow. They want to be successful, but yet they
are not getting credit for it. And then when the examiners come
in, they pound them over the head, because you are not doing
anything, and it is kind of like putting a square peg in a
round hole sometimes. It is hard to get that done.
Do you have any other additions to the list that was
presented that you thought would be helpful?
Ms. Bautista. Yes, and this is what I would love about the
CRA reform is because when I was reading it, there is like 200
clarifying CRA. I just want to give you some example, that we
are doing something in San Diego, and there are three banks
that are participating. One bank did not participate because
they were not sure if it is CRA-related, even though it is the
right thing to do. Now, I can tell the banks, and I can justify
that this is CRA-related because it is now identified in the
200s. As a community organizer and very much CRA-involved, it
is so refreshing that there are finally guidelines.
And for the internet banking, it has changed, right, from
25 years ago? Then, nobody deposited through their mobile. Now,
I don't even go to the bank. Even the immigrants that I serve,
they hardly go to the banks anymore because everything can be
done through their iPhone. So things have changed, and we have
to adjust to the needs, especially for low- and moderate-income
people and people of color.
Mr. Luetkemeyer. One of the things that concerns me is in
the past, it was always about location, but yet whenever you
take deposits from an area, to me, there needs to be some money
going back in investment into those areas. You shouldn't just
be taking deposits out. You should be investing back into those
areas. And, to me, this new rule does that, does it not?
Ms. Bautista. Yes.
Mr. Luetkemeyer. To me, this is a really big deal because--
Ms. Bautista. It is.
Mr. Luetkemeyer. --it goes into your online lending folks.
Wherever you get that money from, you would be putting some of
that money back. And as far as investments, not taking
everything from over here and investing it over there, which is
what is being done right now to a certain extent.
So I appreciate your comments today, and I will yield back
the balance of my time. Thank you.
Chairman Meeks. The gentleman yields back.
I now recognize the gentleman from Georgia, Mr. Scott, for
5 minutes.
Mr. Scott. Thank you, Mr. Chairman.
Ms. Bautista, during your testimony, you said, ``Don't pay
any attention to what Ms. Gonzalez was saying.'' And I wanted
to get some clarity on that because that really got my
attention, because that was a very profound statement, and I
want you to explain that statement. Why shouldn't we pay
attention to what she was saying?
Ms. Bautista. Thank you.
Mr. Scott. What was so profound about it?
Ms. Bautista. Thank you for asking me that. You know, my
daughter always tells me if you don't have anything good to
say, don't say anything. And the reason I can say that is
because I was there when people were losing homes. I lost my
home in 2009, and nobody was helping me because there was no
process. So I was very adamant in helping people who were
losing homes. And during the financial crisis, a lot of the
borrowers who came to the National Asian American Coalition or
any HUD-approved counseling agency, we had to have a good
relationship with the banks.
At the end of the day, the lender still makes the decision,
but Comptroller Otting, Mr. Otting then, makes sure that his
people--I still remember Tony Edwards bringing people to all
the outreach we have done from San Diego, Central Valley, Bay
area, and--
Mr. Scott. My time is slipping away. But the reason I raise
that is because we are faced with some very biting concerns
about this rule. And you also said that the Fed had the same
data--data is very important here--as the OCC and the FDIC. But
why is the Fed staying away from what you are pushing?
Ms. Bautista. Good question, because, to me, the Federal
Reserve--I love them, I love all three regulators. They are
data-driven, they are research-driven. But, sir, at the end of
the day, the people I am serving don't care about data; they
need help now.
Mr. Scott. Okay. Let me turn to you, Ms. Levi, and to Ms.
Gonzalez-Brito. First you, Ms. Gonzalez-Brito. I want to ask
you that because our primary concern here is that we have
problems and evidence, it seems, that what Mr. Otting is
offering not only does not enhance the purpose of the Community
Reinvestment Act to do away with discrimination, but that it
might increase racial discrimination. And so, we have to get to
the clarity of this.
So do you agree with the--do you and Ms. Levi agree with
what Governor Lael Brainard said? She said that any proposed
changes to the CRA regulation must be grounded in analysis and
data to avoid unintended consequences. And do you believe this
data is here? Go ahead?
Ms. Gonzalez-Brito. Absolutely. And I would say that data
does not lie. To Ms. Bautista's point, there were 36,000
foreclosures in California alone under OneWest, Inc., and a
third of those were when Mr. Otting was CEO. And so, data is
absolutely important. The Federal Reserve, with Governor
Brainard, has made their data public. They looked at 3,700
banks, 6,000 performance evaluations, and made that data
available to the public as they released their metrics and
looked at, how would banks perform under those metrics that
they are proposing? The OCC has not released that type of data,
and it is clear now, by having an RFI process after releasing
their proposal and then having that data not due until after
the comment period, it means that the public is not going to be
able--
Mr. Scott. I know. I want to get Ms. Levi in here. Go
ahead, Ms. Levi.
Ms. Levi. Federal Reserve Governor Brainard really nailed
this. And why don't we have that kind of data about this
proposal? Implementing a big dominant, single metric framework
that incentivizes banks to run up the numerator with a lot of
activities that aren't focused on LMI communities and people
who need the benefit of CRA credit is not the way to serve the
communities that Ms. Bautista purports to represent.
Mr. Scott. Thank you.
Chairman Meeks. The gentleman's time--
Mr. Scott. Mr. Chairman, maybe we can get the Federal
Reserve in before we move forward? This is serious.
Thank you.
Chairman Meeks. The gentleman from Oklahoma, Mr. Lucas, is
now recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman.
While the banking industry has changed substantially in the
past decade with the Community Reinvestment Act, it has not
been meaningfully revised since 1995. And I think we all know
that we live in a different world now than we were in 20, 25
years ago. I am sure we all can agree that CRA can be updated
to better serve low- and moderate-income areas.
The OCC and FDIC's proposal, I think, is a welcome change
to the out-of-date regulations. So, first, let me turn to Ms.
Bautista. You outlined in your testimony how the CRA has failed
to accomplish its mission. Can you expand on how the OCC and
FDIC's proposal recognizes that the CRA should not follow a
one-size-fits-all approach?
Ms. Bautista. Oh, yes. This is why, during the foreclosure
crisis, it took so long to help people, because the banks
always have one-size-fits-all regulations. Even for the Asian
community, the sub-ethnic group, it is not all the same.
What I like about this is that there are benefits to
citizens and community members, there is local emphasis. We are
now going to make sure that if you have a branch there over 5
percent deposit, that they will contribute on CRA. There are
also benefits for the development of practitioners, advocates,
small farms, and small businesses. And like the Indian Country
that has never been served before, I am really excited about
that, because we have so many constituents, over 1 million,
from whom you hear every day what they need. The Indian
Country, the payday lending there is so much, and now with this
increase of CRA dollars, I think the payday lending, hopefully,
we can just bury them.
Mr. Lucas. Ms. Bautista, you have just explained and have
explained several times in your testimony that the new proposal
would increase CRA activity. How can the regulators and
Congress sustain this increase in the long term with this
proposal?
Ms. Bautista. We need to calibrate. Banks have a hard time
getting outstanding CRAs. Most of them, they are okay with
satisfactory. We need to ensure that--this is why I also like
this, is because quarterly, they are now going to be reporting.
Right now, they report like every 3 years or--yes, their
examination is 3 years. I am not so technical, but now I can
see that every 3 months or quarterly, they can do the
reporting. So, we know that they are going to increase their
CRA investments.
Mr. Lucas. We have heard mentioned in the hearing about the
comment period.
Ms. Levi. And can I--
Mr. Lucas. Just one second.
Ms. Bautista, could you expand on the aspects you see of
the OCC and the FDIC's proposal that could be improved in the
comment period, perhaps even through a separate proposal maybe
from the Fed? What could be made better in this comment period?
What should people be talking about?
Ms. Bautista. This is why we need to do a lot of outreach.
This is about low- to moderate-income, right? This is about
people of color, people with English as a second language. I
think since they have been doing this for so long and extending
it until March 9th, we have to get people involved. The people
of color, what do you need? What should the banks be doing that
they are not doing? What should the regulators' examination be?
And for the Congress--and I am so glad you are doing this
hearing, because this is like the voice of the voiceless as now
we are telling you what is needed. So, we have a comment
period. Let's get to work. If you don't make a comment, then
forever hold your peace. Don't ever complain. Say everything
that you need to say, pluses or minuses. Nothing is cast in
stone until it becomes a law. And to me, even if it is a law
and if it is bad, you should still change it.
Mr. Lucas. Thank you. I yield back, Mr. Chairman.
Chairman Meeks. The gentleman yields back his time.
I now recognize the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
I think we really all agree that our goal is modernization
and alignment with actual need on these, but we have to do that
without formulas that will be gamed by the players in this so
that you don't actually get the results you want.
One of the things that concerns me is that many of the CRA-
qualifying activities are now going to be dollar-based. It
seems to me this is going to encourage banks to make a small
number of mega deals in things in areas that technically
qualify. Whereas, if they got some credit for the number of
activities as well as simply the dollar value, they would help
a lot more smaller businesses, help a lot more individuals by
providing them banking services. And I was wondering, Ms. Levi,
Mr. Rodriguez, or anyone else, if you could comment on that?
Ms. Levi. That is absolutely right. And banks will get a
lot more partial credit for activities that are not targeted to
LMI people and areas. So, the standard has shifted as well.
Mr. Foster. I know. I was sort of surprised to learn that
apparently, maybe even today, loans for stadiums and sports
arenas' jumbotrons qualify for CRA credit. And this seems like
the kind of mega deal, large thing that is not going to help a
large number of people. And so some change in the formula that
gives you credit for helping large numbers of businesses, not a
large dollar volume.
Ms. Levi. Yes. The formula and the primary purpose test has
been jettisoned here, so it is both, but it absolutely quantity
over quality, large over small, all the wrong incentives for
CRA purposes.
Mr. Foster. Mr. Rodriguez?
Mr. Rodriguez. Yes. I would just add there is no test
around the quality of the investments anymore. So it is
watering down the investments and decreasing the potency. So,
maybe we could have more CRA investments, but more of them will
be worthless with respect to community reinvestment in the ways
that the law intended and that we hoped to get to. These are
the critical concerns with the proposal and the plan so far.
Mr. Foster. So now we are left with just a geographical
definition, rather than the purpose of the loan?
Ms. Levi. Yes. We are left with a lot more activities that
are not guided by the primary purpose of LMI and a lot more
partial credit. So that does allow banks to run up the numbers.
And the exam is designed under this proposal to make banks look
as if they are doing more. But as Mr. Rodriguez said, it will
have less impact on the communities and people the statute was
enacted to serve.
Mr. Foster. This clarity argument that Ms. Bautista has
been making, do you see merit in having more clarity instead of
having some human regulator saying, well, I think that
qualifies or partially qualifies? Is it actually going to be
more productive to have a very long list that is very specific
versus a more general language that is just in the intent of
what you are trying--
Ms. Bautista. For the banks, you have to be specific,
otherwise they will find excuses. And we need--
Mr. Foster. So the banks make their own call under the
current system as to what qualifies?
Ms. Gonzalez-Brito. I think we want clarity and we do, like
they did having more data, but we are not going to trade
clarity and data for impact. And I think that is what this
proposal does, it makes a trade for the core purpose of CRA,
which is serving LMI communities to make it easier for banks to
be able to get that outstanding rating. And so, it trades
communities for Wall Street, basically.
Ms. Levi. And Federal Reserve Governor Lael Brainard laid
out some of their approach last week in its multiple metrics.
So it is possible to achieve clarity for banks and communities
without this dominant single metric that really incentivizes
dollar volume.
And if I can correct one assertion by the Congressman very
quickly, this is a one-size-fits-all proposal, regardless of
bank model, regardless of community needs. This is the
definition of a one-size-fits-all proposal, and we are not the
only ones that--
Mr. Foster. Along those lines, just in the few moments I
have here, I was sort of surprised that small businesses up to
$2 million in revenue will qualify, but for some reason, if the
business is a farm, it is $10 million. What is the reason for
that? Why treat one business differently than another?
Ms. Levi. Your guess it as good as ours, but I will tell
you, on the farms, only 1 percent of farms had sales over $5
million or more. About 76 percent of farms had sales of $50,000
or less. So small farms are not the focus with that change
there.
Mr. Foster. Thank you. And I yield back.
Chairman Meeks. I now recognize the gentleman from Florida,
Mr. Posey, for 5 minutes.
Mr. Posey. Thank you, Chairman Meeks and Ranking Member
Luetkemeyer, for this hearing.
The Community Reinvestment Act is heralded as one of the
foundational civil rights acts of the last century. We all have
an interest in a financial system that serves the needs of all,
a system without bias. I strongly identify with that goal and
believe that our goals of equality in the financial services as
well as other objectives are best pursued by ensuring that our
free market systems are efficient.
Where financial institutions focus on their shareholders'
bottom line, banks and other institutions can be expected to
see the profit motive as inconsistent with an arbitrary
exclusion of customers based on race or any other irrational
criteria.
Ms. Bautista, I would like to believe that fair-minded
financial institutions would want to show off their activities
that demonstrate their contributions to serving the needs of
their depositors and assessment areas. Can you share your
experience related to the attitudes of those who are evaluated
under the CRA?
Ms. Bautista. I was told not to say any specific bank, so
bank A, bank B, bank C. You know, bank A, they make
commitments, right? We are involved with so many settlements
with all the banks. There is a lot of settlements. But after 5
years, do we really see, did that move the needle? Did they
increase homeownership in the African American, Latino, and
Asian communities?
The new CRA reform is so refreshing because there is
accountability, there is transparency, and there is also now a
pressure for banks to do the right thing and to increase their
CRA. The CRA should not remain ``satisfactory.'' To me, they
should all be ``outstanding.'' But a lot of them cannot be
outstanding because they are missing just half a point or one
point. And I ask them, why is that that you are not
``outstanding?'' And it is hard for them to say why, because
there are really no guidelines.
Now, with this reform, they will now know, okay, my CEO, we
are going to be ``outstanding'' and we are going to do a lot of
planning. We are going to do investing. And what they are
saying about the stadiums, I agree with that. We should have
really thought it out. And now this project can be really be
examined. Is this something that--it is easy to give loans to
big hospitals, to stadiums, because they can do those loans all
day long, because they have the right financial. But for us,
like the CDFI, there are so many good CDFIs in there that are
not getting investment because we are not savvy enough, because
we are nonprofit. Even with Ms. Hope here in New York--and I
sit on the advisory board--there are 1,100 CDFIs and they can
do so much.
Now, CDFI is another way to do more micro lending, to do
more small businesses, to do more home loans to those who don't
fit the box with the lenders.
Mr. Posey. Okay. Does any substantial part of the community
see CRA ratings as an opportunity to showcase how well they
serve the needs of low- to moderate-income people?
Ms. Bautista. Yes. CRA is a godsend. CRA is like God
warning them do the right thing, so we have to make it right.
Mr. Posey. Okay. Do many just see it merely as a regulatory
burden?
Ms. Bautista. Yes.
Mr. Posey. Would you say 50/50, or what do you think?
Ms. Bautista. It is too expensive for the small banks to
comply with their CRA regulations. That is why I think all of
the regulations are not good. And the unintended consequence of
that is they will not do funding anymore to nonprofits. That is
the job that we should all be doing, because they spent more on
the regulations. That is why the big banks should not be
treated the same way as the smaller banks. And community banks
understand who they are serving. They know their borrowers.
Mr. Posey. How do you think we can design a process that
overcomes that?
Ms. Bautista. You have to leave it to the OCC, the Federal
Reserve, and the FDIC. They are the regulators. And I think
with input from us, this is why this is great, the pluses and
the minuses, and more information, we have until March 9th, and
we are going to do a lot of town halls and we are going to be
asking the REALTORS. We are going to be asking the loan
officers. We are going to be asking the borrowers, the
borrowers who are being denied, and they should not be denied
from owning a small business or owning a home.
Do you know that there is $100 billion of mortgage loans
that are denied because they don't fit the box? I am a good
borrower, but because of the foreclosure, my credit score did
not go up for 5 years and I have been borrowing. I put 20
percent down, I don't owe anybody, but my credit score is so
artificial, it will not go up--it goes up and down; it depends
on the time of the day.
Mr. Posey. Thank you.
Chairman Meeks. The gentleman's time has expired.
The gentleman from Florida, Mr. Lawson, is now recognized
for 5 minutes.
Mr. Lawson. Thank you, Mr. Chairman. And witnesses, welcome
to the committee.
Today, we see that homeownership among African Americans
and other minorities continues to fall behind. How do you see
that the Comptroller of the Currency's, OCC's proposed changes
in the Community Reinvestment Act (CRA) affects the
homeownership of minority groups who suffer from these
financial crisis? And I will just start with you, Ms. Levi.
Ms. Levi. Let me contradict something that Ms. Bautista
said here about CRA and the homeownership gaps and things like
that. First of all, let's keep it in perspective, CRA covers
about a third of the mortgage market. So, we do have to keep it
in perspective. Second, 98 percent of banks are passing CRA
exams today. It is really not a big problem for them.
I will say this: The retail lending distribution test is
pass-fail. There are some low bars but arbitrary thresholds
around local demographics or peer comparators included in it.
And overall, the CRA retail test used to be half of the exam.
It is now, again, pass-fail, and you can fail in about half of
your local assessment areas, your local communities, and still
pass at the bank levels. And I think a lot of underserved
communities, rural communities should be concerned about that
in particular. As I said, I think it makes addressing the
racial wealth gap that much harder.
Mr. Lawson. Go ahead.
Ms. Gonzalez-Brito. I also wanted to correct Ms. Bautista.
When we do analysis of CRA data in California, the community
banks and the smaller banks do better than the big banks in
their CRA investments in lending in California.
Mr. Lawson. Anyone else want to comment?
Mr. Rodriguez. Can I add something?
Mr. Lawson. Yes, go ahead.
Mr. Rodriguez. Okay. I was going to add it is an excellent
point. And just one fine point is that the homeownership rate
of the Latino community nationwide is 4 percentage points lower
today than it was a decade ago. If we put 4 million Latinos
into homes today, we would just be catching up with where we
were over a decade ago, and the reason is access to credit and
affordability that is crucial to our communities to get back to
where we were let alone. And CRA can be an important part of
the solution if it is done right.
Ms. Bautista. If I can just make a comment on the African-
American homeownership, I am so glad you mentioned that,
because it is at an all-time low. We work a lot with Black
pastors and we do a lot of workshops in the African-American
community. We need to do a proper education, because for the
African Americans, they don't even know sometimes if they can
own a home. It is a different culture, so the financial
literacy should be different in different cultures. And the
African Americans need a lot of financial literacy, need a lot
of down payment assistance, need a lot of extra help.
Ms. Gonzalez-Brito. If I could just say, I think the
problem is--
Ms. Bautista. I am not finished yet.
Ms. Gonzalez-Brito. --racism and systemic racism and not
what Ms. Bautista is talking about right now.
Mr. Lawson. I am trying to get some clarity. Ms. Bautista,
can you finish?
Ms. Bautista. Yes. Thank you so much. CRA is about the
people. It is about the low- to moderate-income people. Let's
focus on that. Let's do the right thing for all of us.
And, let's not interrupt. At least, be decent.
Thank you.
Mr. Lawson. Ms. Levi?
Ms. Levi. I just wanted to say on the financial literacy
piece, there is also a shift under this proposal. This or CRA
credit for financial literacy for everyone. Again, not targeted
on low- and moderate-income home buyers and small businesses
and others for whom the statute was designed. It just opens it
up for everybody. And I think low- to moderate-income minority
borrowers should be the focus of even that piece which Ms.
Bautista mentioned.
Mr. Lawson. Ms. Gonzalez, I have about 20 seconds, did you
want to say something?
Ms. Gonzalez-Brito. I just wanted to say that one of the
things that this proposal does is that it makes it easier for
banks to reach those ``satisfactory'' and ``outstanding''
ratings. It gives double credit for community development
lending. And if I told my son that he could get double credit
for doing half his homework, I will tell you right now he would
do half his homework, and that is what we can expect from this
proposal.
Mr. Lawson. Okay, thank you. Mr. Chairman, I yield back.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentleman from Kentucky, Mr. Barr, for
5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
I just have to take exception to that last comment. The
community bankers that I know in central Kentucky, that is not
their attitude. They want to help their communities. They don't
want to do it halfheartedly. Every day, they go to work and
they try to help the low- and moderate-income people of their
communities, especially in rural areas. That is a
mischaracterization of community bankers, in Kentucky at least,
in my experience.
Ms. Gonzalez-Brito. Congressman, it is community banking
that we are--
Mr. Barr. It is my time.
Chairman Meeks. The time belongs to the gentleman.
Mr. Barr. My time.
I just wanted to make the comment that that is not the way
the community bankers of my district behave. And I just wanted
to say that.
Ms. Gonzalez-Brito. And our data--
Mr. Barr. It is my time. And I want to also correct another
thing that was incorrectly stated. Ms. Levi made the statement
that this is the Fed's position. I do recognize that Lael
Brainard has a position on community--specifically for the
community. But as I understand it, Ms. Brainard was speaking in
her own capacity, not on behalf of the Fed. And the OCC has
been working on this for about a decade, by the way. This is
not fly by night.
Let me ask one question to Ms. Knight. You were critical of
the proposal to allow CRA credit for investment beyond a
defined geographic assessment area. But you also stated that
lack of physical branches--this is a very reasonable point that
you made--obviously decreases access to banking services. This
appears to be a bit of a contradiction. I will give you an
opportunity to try to reconcile those statements. My question
is, wouldn't allowing for investment beyond a defined
geographic area into areas where there is no bank headquarters,
where there are no branches, physical branches, but where the
customers actually reside, wouldn't that actually have the
effect of enlarging and enhancing the goals of CRA and helping
the unbanked or underbanked have better access?
Ms. Knight. Yes, I think both things can be true at the
same time, because if you have banks that are not a physical
location but have customers and they have to make a choice as
to where to locate their branches, if they are able to make the
choice, they may not make it in low- to moderate-income areas
because those areas are not the most profitable to the banks.
Mr. Barr. My point is the OCC proposal contemplates going
beyond an arbitrary geographic area to actually where the
customers are. And I think that actually is an enhancement.
Let me ask a question about rural communities to Ms. Levi,
and I will let you answer this question. A recent Federal
Reserve study shows that--because you talked a lot about farms
and you talked a lot about rural communities, underserved
communities, which is very much my district. A recent Fed study
showed that 51 percent of the 3,114 counties in the U.S. saw
net declines in the number of bank branches between 2012 and
2017. These declining bank branches disproportionately hit
rural communities. A total of 794 rural counties lost a
combined 1,553 bank branches over a 5-year period. That is a 14
percent decline.
The negative financial impacts on rural counties of branch
closures are perpetuated by the continuing difficulties due to
burdensome regulations and other roadblocks of de novo
community bank formation. While these trends leave residents of
rural counties without access to much-needed financial
services, they also have a negative downstream impact on
communities because of the absence of incentives under the CRA
for banks to invest.
The CRA obviously needs to reach more rural communities,
commonly referred to as CRA deserts. Do you believe that the
CRA framework that we have today properly accounts for these
rural communities?
Ms. Levi. No, it doesn't. And the NCRC is--first of all,
let me say this: Community banks are absolutely vital to their
communities. We work with a lot of them. Okay? We are not here
to impugn community banks. But let me--
Mr. Barr. I'm sorry. I was just speaking of Ms. Gonzalez'
statement, that is all I was doing.
Ms. Levi. This is why NCRC spends so much time organizing
around bank mergers and acquisitions, because they lead to a
lot of bank branch losses and the loss of small business
lending. All of that is very well-documented in the research.
CRA is focused on--
Mr. Barr. I understand. And we have some common ground
here, and I acknowledge that, I and appreciate that statement.
My only point is that the OCC proposal appears to do better in
terms of accessing rural communities. And I think we ought to
look at the good here as well and keep the good in this OCC
proposal to the extent that it gets banks access into some of
these rural communities that are currently underserved. I only
have--
Ms. Gonzalez-Brito. I can answer that question around--
Mr. Barr. I don't have a lot of time left. Unfortunately,
my time has expired.
Ms. Gonzalez-Brito. I can answer the question around rural
communities.
Chairman Meeks. The gentleman's time has expired.
Mr. Barr. Okay. I'm sorry we don't have more time. Maybe we
can talk offline. But I appreciate your time today and your
testimony, and I yield back.
Chairman Meeks. The gentlewoman from Massachusetts, Ms.
Pressley, is now recognized for 5 minutes.
Ms. Pressley. Thank you, Chairman Meeks, for your continued
leadership on this issue.
It is odd but consistent that this Administration's
modernization efforts betray the fundamental mission of what
they hope to modernize. The Community Reinvestment Act is no
exception.
Over the weekend, The New York Times published an editorial
highlighting the many problematic elements of the FDIC and
OCC's December proposal. Under this proposal, loans for
improvements to stadiums that, ``happen to sit in poor
neighborhoods'' could earn banks CRA credit. Compare that to
the values and data-driven approach outlined by Governor
Brainard. The Federal Reserve has notably withheld its support.
Now, although this was a consistent through-line in all of
your testimonies, I do believe it bears underscoring. So for
the record, and this is to everyone on the panel, by a show of
hands, how many of today's witnesses support the FDIC-OCC
proposed rule?
How many support the Federal Reserve's approach
prioritizing keeping branches open, small-dollar loans, and
impactful community investment? Again, by a show of hands.
Ms. Levi. It is a better start.
Ms. Pressley. This past weekend, I was fortunate enough to
host the very first historic Congressional Black Caucus fly-in
in my district, the Massachusetts Seventh. Now, during the
economic justice panel, including community leaders,
entrepreneurs, and industry representatives, we discussed the
many challenges our communities face when it comes to access to
capital. One of the more compelling stories was that of a
company founded and owned by a Black woman. The company is
called TRILLFIT. Her name is Heather White. And she was unable
to access capital; instead, she liquidated her entire 401(k) in
order to open a business.
Women, Black women particularly, struggle to secure
financing for everything from a business to a home. Earlier
this year, when the big bank CEOs testified in front of this
committee, I questioned the witnesses about this disparity in
lending, which one report smartly labeled as, ``pink lining.''
The report found that women were 30 to 46 percent more likely
to receive subprime mortgage loans during the financial crisis
than men. Black women were 256 percent more likely to receive
subprime loans than white men.
How does this proposal ensure that Black and Brown women
will not continue to be targeted, if not be more likely to be
targeted with these predatory financial products?
Ms. Levi. First of all, quality, a lot of the qualitative
factors that are currently a part of the exam are out of this
proposal. This is a dollar volume-driven approach that
contravenes quality.
And furthermore, I would say to the gentleman about rural
areas, you can't allow banks to fail in over half of their
local communities and still pass an exam at the bank level.
Ms. Gonzalez-Brito. I would also say that the OCC's
discrimination guidelines in terms of the way that they
evaluate discrimination as part of their CRA exams are weaker
than the Federal Reserve and the FDIC. They had an opportunity
to strengthen that as part of this proposal and downgrade for
harm that is caused by discrimination, and they did not do that
as part of this proposal.
Ms. Pressley. Thank you.
Now, Mr. Rodriguez, how is the CRA building upon that
influence of development and delivery of financial products for
communities of color more broadly?
Mr. Rodriguez. That is an excellent question. I would just
add to the previous answer, it is a great point and it is a
factor in how the markets are changing and the needs of the
community are changing. Someone earlier, a Congressman,
mentioned meritocracy. The very reason why we have CRAs is
because credit wasn't divvied out based on merit; it was based
on race and ethnicity, and the country has changed now. And we
want this to adapt and modernize to the changing country.
The Latino community in rural communities has doubled in
years and is a fast-growing population. When we are talking
about rural communities, are we thinking about Latinos in rural
communities? Are we thinking about women? I think those are
important points to raise and add to this conversation.
Ms. Pressley. And, Mr. Rodriguez, with the remaining
balance of my time, what happens when CRA-covered banks exit
neighborhoods or close branches?
Mr. Rodriguez. Another excellent question. Look, I grew up
in Red Hook, Brooklyn. When I grew up, I had no banks in my
community. There was one on the outskirts of my neighborhood
because the Battery Tunnel was there, so when people needed to
get some money for tolls, there was a bank there for them.
There were not people who looked like me and you in those
communities who had access to banking. And we paid a price for
that over time, and it is a legacy that we are paying for even
now as we look at disparities in wealth and disparities in
access to credit and equality.
Thank you.
Chairman Meeks. The gentlelady's time has expired.
I now recognize the gentleman from Colorado, Mr. Tipton,
for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. I appreciate you
holding this hearing.
A lot of continuity of thought in terms of CRA needs to be
addressed. I happen to come from rural America, and when we are
talking about community banks, my community banks in my
district actually care about the people they live with, because
they live there. They are trying to be able to actually see job
improvement, to be able to help support that local community.
And so when it comes to our rural community banks, I think for
the most part, they are doing a good job reinvesting back into
those communities.
That being said, we need to be able to re-update the CRA.
The last time this was looked at was under President Clinton.
And think about that. We have had a variety of changes. No one
has actually brought up the idea of, we have lending now going
on in communities from somebody that doesn't have any physical
presence. They can be out of Brooklyn and make a loan into
southwest Colorado. No CRA involvement whatsoever investing
back into that community. So is it going to be appropriate for
us to take the time to be able to actually address it? I think
it is.
I do think it is worthy of note that the OCC and the FDIC
actually were dealing with the Fed data in terms of coming up
with this. And we ought to all be mindful that this is a
proposal, a rulemaking proposal. So, the feedback is obviously
important for us to be able to address.
Ms. Bautista, you have stated a number of times that you
regularly worked in terms of some of the ideas that are coming
up, and you had cited that we have 200 clarifying proposals
that will qualify as CRA. It is my understanding, and can you
maybe speak to this as well--one of the frustrations I had
heard from community bankers is they are doing what they view
as CRA equivalents but never getting credit for it. Do they
have an opportunity under the proposal from the OCC and the
FDIC to be able to submit that for consideration as a CRA
activity?
Ms. Bautista. Yes, absolutely. This is why I said there is
going to be over $100 billion of increase on CRA because there
is now clarity. And as a community organizer, I have been dong
this since 2002, I have been fighting--not fighting, trying to
work with the banks to ensure investment in the low- to
moderate-income, to the CDFI, to the CDEs, to the faith-based
organizations.
For example, faith-based organizations--during the
foreclosure crisis, the people go to their pastors. Even though
pastors don't know much about banking foreclosure, they went
out of their way. First, AME Church in Orange County, we worked
with that pastor, Mark Whitlock. And faith-based, the Hispanic
evangelical church, the same thing. We are doing a lot of
workshops now. So now, that is not CRA-related because it is
faith-based.
Arts and culture. One of our members is doing 100 percent
service to the low-income Latinos. And every time she goes to
the banks, they always say, oh, this is not CRA-related. But if
you don't educate the people at a young age, it is not just
owning a home, it is not just owning a business, it is also job
creation.
Like I said, I have seen borrowers denied over and over
again, home buyers denied, even though I know they can afford
to buy a home, with different cultures. Now with our family,
the Filipino family, there are so many of us living in one
house. And all of the loans put together can now be qualified.
There is another example. A client of ours is trying to
refinance, because the interest is so high, but because his
wife had cancer, he had to take care of his wife. So he was out
of a job for 2 years, and he cannot get a loan approval because
of loss of that employment. So I told the lender, I said, it is
not right, he only did it for the right thing, and he never--he
always had a job, and the mother is putting in now to help.
So now there is a lot more clarity that knowing your
borrower and the CRA officer now--and CRA officers, most of
them are good, because they understand the borrower. And the
community banks, I so agree with you; in California, they are
good.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentlewoman from Michigan, Ms. Tlaib,
for 5 minutes.
Ms. Tlaib. Thank you all so much for being here. I think
the Community Reinvestment Act--for so many folks in the 13th
Congressional District that I represent in the City of Detroit,
one of the most beautiful, Blackest cities in the country,
where I think we were the forefront and kind of the birthplace
of this incredible civil rights movement that I think continues
on through this generation.
I do want to back up, and I think, Ms. Levi, maybe you can
help me. I really want to back up and talk about the
foundation, the reason that CRA even existed or was created.
Ms. Levi. It was created to really correct for a lot of
disinvestment that resulted from government policies, racial
discrimination and all of that. Evidence of those redlining
policies is still on the ground today. And discrimination is
ongoing. We have plenty of evidence for that. But it was also
designed to correct for market failures.
Ms. Tlaib. That is right. Ms. Levi, talk about that,
because it is recorded in history that these banks redlined.
Ms. Levi. They redlined. And after redlining perhaps was
prohibited, these markets still suffer from a lot of market
failures, egative and informational externalities that make
them difficult to serve, how to value the property. There are a
lot of credit--profitable institutions there, but if they are
thinly traded and they don't have the information, then it
makes banks misperceive the risk that they will face by lending
and investing there.
Ms. Tlaib. I think you are much, much kinder. I just know
at home and on the ground it is very intentional, because you
see now the CRA changes being done by the same people who
probably didn't want CRA created in the first place.
Ms. Levi. Absolutely.
Ms. Tlaib. We can call it market failure, which is I think
is a fancy way to say, no, this is intentionally trying to go
toward communities and populations that, in some ways, are much
wealthier and look different than the communities that I
represent.
Ms. Levi. Flat out discrimination is very much with us.
Ms. Tlaib. Oh, it is very core. And sometimes, I feel like
we should just go ahead and look at all the lawsuits that have
settled, where actual whistleblowers within these banks, many
of whom in California, for instance, were told, if somebody
comes in with an accent, then make sure you give an interest
rate that is higher. This is actually documented. That is
happening right now in this century.
So one of the things I think is also critically important
is, say I am a bank now--because one of the things that is
happening in Detroit, specifically, is we have had Comerica
Bank and Huntington Bank in Detroit close several branches
already throughout 2016 and only--like in 2016 by Comerica
Bank. One of the things I want to know is, if I am a bank now
and I need to need to meet CRA, what are some of the just basic
minimums under this new rule do I have to meet?
Ms. Levi. First of all, I would say this: In Detroit, and
in a lot of rural communities, for example, there is a lot of
demand for small mortgages, small dollars, small business
loans, small stuff. And this proposal would incent the big
stuff. And so, those qualitative factors around small things
aren't strengthened here; they are weakened. Again, the retail
lending test is going from half to far less. So, the incentives
in the proposal are off.
Ms. Tlaib. Okay. One of the things I wanted to ask Ms.
Gonzalez-Brito is, what impact, I think not only in
homeownership but other kind of economic opportunity impacts
for communities of color, and one of the things I do want to
get to is, is it true that the number of homeowners among
communities of color is actually less than before the CRA at
this point, that the numbers--again, I--we used to have the
largest statistic for homeownership, I think it was up to 70
percent in Detroit. It is where we built up the middle class.
It was incredible. And now, it has just dropped significantly.
Can you talk about that, the systematic change? Because I
think it is all interconnected with everything else that we try
to fund. From transportation, from other kinds of school
programs, all these things are so interconnected with
homeownership.
Ms. Gonzalez-Brito. I think that has a lot to do with what
you were talking about in term of systemic racism. We saw in
the subprime mortgage crisis that banks were targeting African
Americans and immigrants for these loans that were targeted to
us because of systemic racism. I think CRA plays an important
role in homeownership for low-income people. And,
unfortunately, the way that this proposal is written, it will
lessen the amount of homeownership in our communities instead
of helping.
Ms. Tlaib. Thank you, Mr. Chairman.
Chairman Meeks. The gentlelady's time has expired.
I now recognize the gentleman from Texas, Mr. Williams, for
5 minutes.
Mr. Williams. Thank you, Mr. Chairman.
I am a small business owner from Texas. I have been in
business for 50 years. I can't help but think as we have this
conversation, I remember, in 1976, I was actually on a board. I
was actually on a community bank board, and we were having all
the dialogue of, how are we going to make this work, and here
we are still having the dialogue, and I think that is probably
healthy.
I asked a community bank in my district--a pillar of the
community, who does everything they can to make the community
better--what is the biggest issue with the current CRA regime,
and they said the lack of transparency within the system. For
example, their bank will engage in a transaction of a local
group thinking it will meet the investment test, only to be
told it does not qualify. Additionally, regulators will not
give banks preclearance for new activities, which prevents them
from innovating and experimenting with new activities that are
better suited to meeting the standards of low- and moderate-
income people. Let their mind wander. Let them have a chance to
invent things.
So, Ms. Bautista, can you discuss how this new proposal,
and we have touched on this a little bit, will add additional
activities that banks can experiment with in order to help
communities in innovative ways?
Ms. Bautista. Like I said, CRA officers want to do the
right thing because that is what they are hired for. Sometimes,
the CEO or the executive does not have the passion in helping
the community. So, that is where I see the difference from the
top to bottom. But if the CEOs recognize, and now that they
have to be examined, they are now going to be--make sure that
they are accountable for this, there is going to be more
pressure for them to do the right thing.
And I agree with a lot of things for the African Americans,
for the women, that is more lack of access to capital. So with
this CRA reform, with so much clarity, when in the last 25
years, and I cannot imagine there was no clarity. And I really
have to thank Comptroller Auten and Yolanda McWilliams, the
people who are doing this, because they are finally sticking
their necks out. So, we have to give credit when it is due.
Mr. Williams. There are a lot of good ideas out there. We
need to let them grow.
Ms. Levi. Can I add something?
Mr. Williams. No, I have limited time here.
I have heard from the bankers in my district that CRA
deserts and rural communities present unique challenges for
their branches. Ms. Bautista, on page 3 of your testimony, you
talk about the disparity in banking options between Compton and
Santa Monica in California. And even though Compton,
California, and Lampasas, Texas--that is in my district--are
polar opposites, I am curious if the problems that both
localities face regarding CRA are similar?
Do you believe that this new CRA proposal is flexible
enough to serve the unique challenges in both rural and urban
areas?
Ms. Bautista. Absolutely. This is why I also have to thank
the tours that the Comptroller has done, because he went to
Compton, and a lot of the NDC members were there, a lot of the
pastors, and the CDFI. And he recognized that there has to be a
lot of help in Compton. It is even hard to buy a home in
Compton. And it is the same population between Compton and
Santa Monica, and yet there are more branches in Santa Monica.
So with the CRA reform, I am so happy that our members in
Compton, and I talk to them a lot, that there is now going to
be at least hope for them to own a home, a small business, and
then have a job.
Mr. Williams. Come to Lampasas, Texas, one day. You are
invited, okay?
Ms. Bautista. Okay.
Mr. Williams. The business of banking has changed
drastically since the last time the CRA was updated, and it
seems like these regulations are long overdue for
modernization. In reviewing this proposal, it seems like it
would provide more support to America's small business, of
which I am one, and small farms, which are the primary source
of jobs in America and create economic opportunity in
underserved areas.
So my question to you, Ms. Knight is, can you tell me
specifically what you think is wrong with allowing more support
for these types of activities?
Ms. Knight. We will talk specifically about some of the
activity that would be counted for credit for CRA in this
proposal. Any activity in a low- to moderate-income Opportunity
Zone would count, so that would be luxury housing, self-storage
facilities, and stadiums, as was mentioned earlier. Those
activities don't necessarily provide the kinds of support and
services that low-income communities are looking for.
Mr. Williams. Okay. With the advent of online and mobile
banking, I tend to agree the current assessment area criteria
is outdated. As the business of banking becomes more mobile, we
should update our regulation to better reflect the reality.
Ms. Bautista, in light--
Chairman Meeks. The gentleman's time has expired.
Mr. Williams. My time is up. I yield back.
Chairman Meeks. The gentlewoman from Virginia, Ms. Wexton,
is recognized for 5 minutes.
Ms. Wexton. Thank you, Mr. Chairman. And thank you to the
witnesses for coming to testify before us today.
As has been noted, the OCC's proposed rule focuses more on
the dollar amount and the quantity of transactions and loans
than on the quality of those loans. And in an op-ed that ran
over the weekend, The New York Times editorial board used the
example of a bank financing a new sound system at M&T Stadium
in Baltimore, and then claiming CRA credit for investing in the
community. And they could do that under this new proposal.
Is this type of lending consistent with the original
purpose of the CRA, which was to ensure that people in LMI
communities have equal and affordable access to banking
systems? So how does this kind of lending, this particular
instance of lending, how would that benefit people in LMI
communities, particularly those in the area around the stadium
in Baltimore? Ms. Bautista?
Ms. Bautista. Thank you for asking that. People are
reacting to the fact that now there is a proposed list that we
can--
Ms. Wexton. I'm sorry. I asked a very specific question.
How would that particular project benefit or how would it help
the people in the area of Baltimore around that stadium access
more credit and fair and equal access to credit?
Ms. Bautista. We need to make sure that the projects don't
take advantage of the most vulnerable. So, it has to be really
thought out.
Ms. Wexton. So would the financing of a new sound system at
a stadium help people in the community--
Ms. Bautista. So it always--
Ms. Wexton. --get more access to credit?
Ms. Bautista. It always depends, right? I am always about
job creation. I want to make sure that when--because if there
is a job, there will be homeownership. And if you create more
businesses--
Ms. Wexton. So you can't draw a straight line from that. It
would be through--if the people in that community got a job
putting that new sound system in the stadium, then they might
be able to afford to borrow money. Is that what you are saying?
Ms. Bautista. You really have to think it through. Like I
said, it is not one-size-fits-all. If--
Ms. Wexton. Thank you very much.
Ms. Levi, can you explain to me how such a project would
benefit the people in the community?
Ms. Levi. If you want a short answer and a straight line,
it wouldn't. It is not the type of lending or investing that
CRA was designed to do. You don't need CRA to get that done.
Okay? So it just wasn't what CRA was designed to do.
Ms. Wexton. Last week, we heard some testimony that the OCC
and the FDIC and the Fed are not all on the same page about
this proposed rule. And last week, Governor Lael Brainard from
the Federal Reserve unveiled an alternative approach that would
be kind of more focused on a results-oriented sort of an
assessment. And the Fed oversees about 15 percent of CRA
activities.
If these three regulators do not end up on the same page,
what are some problems that lenders could face with this
uncertainty?
Ms. Levi. Forum shopping in their charters, but also, just
on the data, the analyses and the modeling. It is a preferable
start. But in its 40-year history, the regulators have
implemented this law really in coordination, and this proposal
right here has fractured the consensus. But I think forum
shopping is one in terms of charters and things like that could
be a downside, among other things.
Ms. Wexton. Can you opine as to the advisability of the OCC
and the FDIC moving forward on this new proposal without the
Fed being on board?
Ms. Levi. I would say both on the advocacy side for
communities, and I have heard lots of bankers say the same
thing. They really want the regulators to be on the same page.
But, and this is key, not behind this proposal. A better
approach is where consensus should be built.
Ms. Wexton. Very good. Thank you very much. And I will
yield back the remainder of my time.
Chairman Meeks. The gentlelady yields back the balance of
her time.
The gentleman from Georgia, Mr. Loudermilk, is now
recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman. And I thank you
all for being here.
I just want to make sure we do clarify something, before I
get into my questions, that Ms. Brainard was speaking on her
own behalf, not on behalf of the Fed. So, let's make sure that
is clear.
It is important that we have this hearing because, as has
been stated several times, it has been a long, long time since
the CRA has been updated. Much has changed in that time period,
from technology, to our culture, to the diversity. And it is
extremely important that, as we continue on, we make sure that
CRA is being invested in areas that really matter.
I represent rural communities as well as metropolitan
areas. And as has been spoken to earlier, the small banks are
the ones who really are in the position to have and the desire
to have the greatest impact and invest in these communities.
This is a very complex issue. And what I am afraid of is, since
I have been here in the City, there is a lot of resistance to
change, especially before we even give it an opportunity to
move forward, and this is something that is extremely complex.
And I think if you hold it in the light of yesterday versus
into today, and I think that is what we are doing, is we are
comparing an old regulatory scheme in the light of today and it
causes problems, so we are looking at ways to update it.
As I talk to the banks back home, those that are in our
communities, one of the biggest flaws that is expressed to me
is, under the current CRA regime, it takes regulators years
sometimes to deliver CRA exam results to a bank. That deprives
low- and moderate-income communities of a lot of CRA activity.
So, Ms. Bautista, will the proposed rule make CRA exam
results more timely by making the CRA more objective?
Ms. Bautista. Yes. The answer is yes. And going back to
minority banks, if the minority banks are really helping the
borrowers on the ground, we should also encourage the big banks
to invest in minority banks so they can do more work. So with
the clarity now, the minority banks--even the commercial banks
can do a lot more. They can plan exactly what they will be
planning in the next year or 2 years.
And then my encouragement is keep opening this discussion.
Find out from different people what they really need. And we
should really ask the low- to moderate-income people, the
people of color, English as a second language, do they even
know about CRA? Most of them do not know about CRA. They don't
even know what the Community Reinvestment Act. So, I have to go
out there and explain it to them. When I went to Southeast
Asian business organizations, I asked them, can you raise your
hand if you know about CRA? They don't know. So, I was able to
explain it to them.
So the more community organizers doing this, the more we
can deliver results. And the more we work together and we are
encouraging the Federal Reserve--and I know this is not just
Lael Brainard. There are a lot of Governors there who also have
to weigh in, not just one person. And a lot of the people who
are working for the Governors, the Eric Belskys of the world,
the gravitas, they all care so much about this. So let's give
them a chance to iron out what is good. But somehow, you have
to do it. Like Nike's slogan, just do it.
Mr. Loudermilk. And what I get back from a lot of these
banks is, under the current CRA, it is almost like filling a
box to get a credit versus the transparency and the clarity of
knowing where you can invest. And I think that is extremely
important.
Another aspect of this that needs to be modernized is, we
live in an area of technology, working with different banks,
smaller banks especially. There are more and more people,
including those in low-income areas, who are relying more on
technology for banking, especially the underbanked and unbanked
who are using these devices. Is there anything in this
rulemaking that will allow banks to expand their CRA activities
into areas where they can use the fintech platforms to collect
deposits?
Ms. Bautista. Yes. This is another thing that I like, if it
is a bank that does not have a branch presence, but they have 5
percent deposit, they have now to do some CRA. Right now, they
are excused. They are exempted from CRA. Not anymore. If you
take deposits from my world, my local community, you better
invest in my community.
Mr. Loudermilk. Thank you. I am out of time.
Chairman Meeks. The gentleman's time has expired.
I now recognize the gentlewoman from New York, Ms.
Velazquez, for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Rodriguez, it's wonderful to see you again.
Mr. Rodriguez. Likewise. Thank you.
Ms. Velazquez. As you know, the CRA was passed by Congress
in 1977 in response to redlining and to ensure banks meet the
credit and capital needs of all the communities they serve. Can
you describe the impact the CRA has had on Latino communities?
Mr. Rodriguez. Yes. Thank you for the question. There is a
lot of really good information and data that is coming out that
shows significant increases in CRA investments in Latino,
African American, and other communities that have been
historically discriminated against that we have for ourselves.
Ms. Velazquez. And do you believe this community will still
benefit from the CRA's principles and its core mission?
Mr. Rodriguez. Absolutely. The one thing that hasn't
changed in all these years is that we still have significant
disparities in financial and economic indicators by race and
ethnicity for communities that need to be addressed, and CRA
can be an important part or continue to be an important part of
that solution.
Ms. Velazquez. Ms. Levi, I believe that you will agree with
the assessment.
Ms. Levi. Absolutely, and so would the Federal Reserve of
Philadelphia, Richmond, and many other public and private
researchers that have documented it.
Ms. Velazquez. Thank you.
Mr. Rodriguez, in 2018, the Association for Neighborhood &
Housing Development found that in low-income census tracts in
New York City, the number of bank branches was down 7 percent
since 2017. I am concerned about how these trends will impact
my constituents' access to affordable credit and financial
services. How important are bank branches to LMI communities,
especially Latinos?
Mr. Rodriguez. We continue to believe that it is enormously
important. Our research shows 7 in 10 Latinos still use bank
branches. It is an important source of wraparound credit. And I
would just add for those Members of Congress who have rural
communities, rural America has lost half of its bank branches
in the last 2 decades. If they want rural communities to look
like Red Hook, Brooklyn, 30 years ago, they will allow this
rule to continue without the Fed's involvement.
Ms. Gonzalez-Brito. Congresswoman, can I add something to
that?
Ms. Velazquez. Yes.
Ms. Gonzalez-Brito. This proposal actually eliminates the
service test and would make it so that banks receive almost no
credit for branches in LMI communities. So, it would really do
a lot of damage for what Mr. Rodriguez is talking about, the
need for branches in communities that are LMI, Latino
communities as well, and African-American communities and other
communities of color.
Ms. Velazquez. Thank you.
And as banks place greater emphasis on their online
platforms and apps or choose to become branchless altogether,
how should we think about the importance of branch banking in
terms of CRA? Ms. Levi?
Ms. Levi. It continues to be critical, and the elements of
this proposal that attempt to reach that, the new deposit-based
assessment areas, again, it is not clear in the proposal how
many credit deserts they are going to cover. It simply is not
there.
And Ms. Bautista is missing one key. You actually have to
collect more than 50 percent of your deposits outside of your
branch network before any new assessment areas have to meet the
5 percent market threshold that she mentioned. So, that is a
very high hurdle. And again, how many credit deserts, how many
credit hot spots are we going to see new assessment areas in?
Ms. Velazquez. Thank you.
In her remarks regarding CRA reform at the Urban Institute
last week, Governor Brainard stated it is much more important
to get the reform right than to do it quickly. So by a show of
hands, how many of you agree with this statement?
And by a show of hands, how many of you are concerned that
the OCC and the FDIC may be trying to rush the rule towards
finalization and are not providing sufficient time for public
comment?
So, Ms. Bautista, you think that we don't need more time
for people to provide input?
Ms. Bautista. Congresswoman, like I said, it is 25-years-
old. They have 10 years of that data. The last 2 years, they
were diligently working on this. And you can relate to this
because being women, being minority, our people need help now.
They need jobs. They need to have capital for their small
businesses. They need affordable housing. They need all of
that. If I'm going to wait, I am not giving justice to the
people I serve. They are smart enough, right. This is why input
from all of us here is fantastic.
Ms. Velazquez. Thank you.
Ms. Bautista. Put everything together.
Ms. Velazquez. Thank you.
Mr. Rodriguez--
Chairman Meeks. The gentlewoman's woman time has expired.
Ms. Velazquez. Thank you. I yield back.
Chairman Meeks. I now recognize the gentleman from
Virginia, Mr. Riggleman, for 5 minutes.
Mr. Riggleman. Thank you, Mr. Chairman.
I want to start by saying I support the mission of the CRA
to encourage depository institutions to help meet the credit
needs of the communities in which they operate, including low-
and moderate-income neighborhoods, and I applaud the OCC and
FDIC's effort to bring the CRA into the 21st Century. And I
also believe we need to make the CRA work better for everyone
and encourage more lending, investment, and services in the
areas that need it most.
And for Ms. Bautista, one more time just to clarify, why
would this actual proposal help with any type of transparence
and timely reporting?
Ms. Bautista. Looking at all the 200 pages or so, I found
10 benefits to citizens and community members, which we wrote
down: 10 benefits to community development practitioners,
advocates, small farms, and small businesses. We have spoken to
community leaders, to the pastors, to the borrowers, to the
homeowners. We all know the problems. We are not going to hide
that we don't know the problems. We all agree, whatever side of
the aisle you are on, that we are all the same. CRA is
nonpartisan. CRA is about helping people. And if we truly need
to help people, we have to do it now.
Mr. Riggleman. The reason I am asking that question is, you
talked about small farms and small businesses, and for the
whole panel, 65 percent of the population of my district
resides in rural areas. It is over 10,000 square miles. And for
the East Coast, that is a pretty big district. That is bigger
than New Jersey. So, I go all the way from the suburbs of D.C.
here all the way to the North Carolina border.
As far as I am concerned, any modernization to the CRA has
to address the unique challenges that I have, especially in
underserved rural communities, especially with accessing
credit.
So one more, Ms. Bautista. How do you think the CRA
proposal to increase the size of loans that qualify as small
farm loans in LMI areas will impact lending in rural areas?
Ms. Bautista. We have one member, Martha Montoya, all of
her life is serving the farms, and, oh, she is so excited now.
In this proposal, when she saw the words, ``small farms, family
farms,'' she was so excited. So I told her, come to the
workshops, come to the town halls so they can be heard, and she
said, ``Faith, as much as they want to, they are so busy and
they cannot go to San Francisco, they cannot go to L.A., they
cannot go to D.C..'' So my message to her is, tell them help is
coming.
Mr. Riggleman. Thank you.
Ms. Levi. Can I add something?
Mr. Riggleman. Yes, ma'am. Please.
Ms. Levi. Okay.
Mr. Riggleman. Actually, you were next on the questions, so
this is perfect. Thank you.
Ms. Levi. I think you are raising some very important
concerns, and there has been a lot of talk in the committee
room about all these new areas where you can get CRA credit.
But I want you to understand that it is the CRA obligation, not
just where you can get the credit, that drives a lot of bank
behavior, that banks will actually be examined in an area to
look at the kind of lending to small businesses and things like
that that they are doing.
So the obligation drives a lot of bank behavior, not--so a
proposal that lets them sort of hopscotch around the nation and
cherry pick the most profitable lending and investment
opportunities, again, it is not going to incent what we need to
incent in terms of lending and investing in the most difficult
areas.
Mr. Riggleman. So in that sense, because if I--just to
let--and everybody on the panel probably knows this. If I am
going down to--if I say CRA to any one of the small farmers or
businesses in my district, even those who are underserved, they
don't even know what I am talking about, right? And I almost
believe there needs to be some kind of marketing program, but
that is probably another hearing, as we go through with what
CRA can actually do, as we go forward.
Ms. Levi, you were there. That is great, because I had
another question for you. But I do think everyone on the panel
would agree that a regulatory structure that is clear,
consistent, and works for all impacted parties, including the
lenders, is a good thing. And if you want to incentivize
financial institutions of all sizes to comply with laws and
regulations, I think it is incumbent on the government to
ensure equal and tailored treatment. I would say this, and I
wrote something else down, but isn't fair treatment the
rationale for the Community Reinvestment Act? And for people
like me who, brand new to the Financial Services Committee
after a year, who ran multiple small companies, that is
something that I want to make sure that we push towards.
So, here is the thing. And, Ms. Levi, you can expand on
this. Thank you for chiming in. What do you think the best way
is to hold banks with vastly different sizes and business
models to the same community development standards? When you
are talking about incenting these banks, how do you hold them
to the same standards based on their different sizes and also
the business models?
Ms. Levi. Again, I think this proposal does have a one-
size-fits-all. It isn't tailored to banks with different
business models, the ebbs and flows of the economic cycle and
things like that. It is just really one standard for everybody.
Chairman Meeks. The gentleman's time has expired.
Mr. Riggleman. Thank you.
Chairman Meeks. I now recognize the gentleman from
Illinois, Mr. Garcia, for 5 minutes.
Mr. Garcia of Illinois. Thank you, Mr. Chairman. And thanks
to all of the panelists who have shared their expertise and
wisdom with us today.
I must confess, I am moved by four-fifths of the panel with
many of the concerns that you have clearly articulated and
warned us about if this proposed CRA rule is approved.
In 2018, in a post outlining principles for CRA reform,
NCRC wrote, ``Currently, the only penalty for failed CRA
ratings is the possibility of denial of merger or branch
applications. This is one of the few sticks things that
motivates banks to pass their CRA exams.''
That is the leverage, right? Still, we have seen many
examples of mergers getting waved through between banks with
poor records of lending in low-income communities.
Ms. Gonzalez-Brito, you have some experience advocating
that a bank with a problematic CRA record not be allowed to
merge. In your testimony, you describe Mr. Otting's bank,
OneWest, as, ``among the worst banks at reinvesting in low- to
moderate-income communities.'' You outlined OneWest's
discriminatory lending record, the high number of complaints
filed against it with the CFPB, and its abysmal record of
supporting affordable rental housing development and lending to
small businesses.
In your view, why was a bank with such a poor CRA record
allowed to merge with CIT? And why did the OCC require such a
weak CRA plan?
Ms. Gonzalez-Brito. That is a great question, Congressman,
and one that we haven't had an answer to. I think the OCC did
negotiate a CRA plan with CIT-OneWest, and in that plan,
OneWest included mortgages to upper-income borrowers and luxury
condos. And now, we are seeing some of those kinds of
activities in the proposal that you are seeing the OCC put
forth now.
I think the OCC, unfortunately, has a record of waving
mergers through, and what we should be seeing is more stringent
CRA plans being required by banking regulators. And
unfortunately, we are seeing relaxation of the types of
requirements that banks are required to do.
Mr. Garcia of Illinois. Thank you for pointing that out. I
would like to note that my bill, the Bank Merger Review
Modernization Act, requires merging banks to have outstanding
CRA performance records and a strong community benefits plan.
Let's turn now to the OCC's proposal. As Mr. Rodriguez has
highlighted, Chicago played an important role in the history
and the creation of the CRA. I have to give a shout-out to the
late Gale Cincotta, who was a heroine in Chicago, a champion
for the people all over the country, and someone who inspired
me in the field of community development. I am a former housing
counselor with Neighborhood Housing Services and rose to become
a director of one of the branches.
A law that was written in response to redlining in
communities like mine should have its exams informed by the
richest possible data, but the current CRA doesn't work this
way. Advocates have repeatedly pointed out that the CRA does
not explicitly examine whether lending is occurring in
communities of color. Advocates have also recommended that
provisions of the Dodd-Frank Act be fully implemented so that
CRA exams can more accurately scrutinize small business
lending. As one advocate put it, ``Small business lending
should really be just that, loans to small businesses rather
than loans under $1 million.''
Ms. Levi, by changing the definition of small business to
those with revenues of up to $2 million, doesn't the OCC
proposal move things in the complete opposite direction?
Ms. Levi. Yes, it does. The CFPB estimated that 95 percent
of small businesses had revenues of $1 million or less, so I
think that stat speaks for itself. And most small businesses
need small dollar credit.
Mr. Garcia of Illinois. That is where the business is and
the action, and that is where we should be targeting.
Ms. Levi. Right. And it is not targeted.
Mr. Garcia of Illinois. Finally--and thank you.
I would like to ask each of the witnesses to briefly, if
they can, provide some examples of smaller, more complex
projects that might actually be more beneficial to the
community than a flashy, high-dollar project like the stadium
renovation.
Chairman Meeks. Pick one.
Mr. Rodriguez. Quickly, the housing counseling program that
you had an opportunity to work with was created many, many
years ago out of a CRA-credited investment between banks and
industry and GSCs and community organizations. It is now highly
successful. Thousands and thousands of families go through the
home buying process today and get into homes with the support
of local counselors.
Chairman Meeks. The gentleman's time has expired.
Mr. Garcia of Illinois. Thank you, Mr. Chairman.
Chairman Meeks. All time has expired.
I now recognize the ranking member, Mr. Luetkemeyer, for 1
minute for the purpose of a closing statement.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And I thank all
of the panelists for being here today. It was a lively
discussion. You have added a lot of good information and
thoughts to the discussion here.
What we are talking about today is the Community
Reinvestment Act, key word ``community.'' A lot of the
attention today was focused on housing, which is fine, but I
think what we were trying to do here with the readjustment of
the Community Reinvestment Act is to look at a more holistic
approach, a wider approach and say, wait a minute. What makes
up a community? Not just homes, but also businesses, also
services, places for jobs. So if the bank is not incentivized
to do that, to invest in those food pantries and churches and
community centers and small businesses, we don't have a
community.
So, this is the problem that we have. And I will tell you,
I am probably the only one in this room today who has actually
filled out one of these CRA exam reports, because I have done
that in one of my former lives. So I can tell you the
difficulty in filling it out. The difficulty in getting
excellent credit from the CRA folks, that is very, very
difficult to do. It is not just a rubber stamp. Trust me, it is
not.
So, I want to do one thing first. Thank you for your
comments. I want to ask you, though, to please comment during
the comment period with your suggestions, but come up with a
solution. Don't just comment, ``I don't like this, I don't like
that.'' Give us solutions on how you can make it better, okay?
One solution I am going to give you right now with regards
to homes versus all of these other things is, why don't you
weigh it? Homes account for this much, and all of these other
things that you invest in account for this much. If it doesn't
weigh 1 to 1 or 2 to 1, whatever, weigh it. That is an example
of a way I think we can solve a problem.
The other thing I want to point out, and I am going to take
the gavel away from the chairman for just a second here, is one
of the problems that we have with CRA, as a former bank
examiner and a former banker myself, was the abuse by the
regulators of CRA over the last several years. This was a huge
problem. I know a number of banks in my district that were not
allowed to expand. They were forced to do things because--and
they kept the CRA exam open for as long as 3 years in one
situation because the regulators forced them to try and do
something they didn't want to do. They wouldn't allow them to
go out and buy another bank or consolidate or anything like
that, and they kept the exam open for 3 years.
It is that kind of abuse that was there from the former
regulators that we are also fighting with this new regulation
today. And don't forget that when you look at this new
proposal. There is a lot in here that we need to put in place
so you can keep that abuse from happening again.
Mr. Chairman, with that, you are a fantastic chairman. I
will give you back your gavel. I thank you for allowing me the
time.
Chairman Meeks. I would like to thank our witnesses for
their testimony today. And as we close, it is important to
remember that we are here to debate the implications of
critical rulemaking on the lives of millions of low- and
moderate-income American families.
Regrettably, the United States has a long, ugly history of
federally sanctioned and enabled cultural and corporate
discrimination. The legacy of this discrimination echoes today.
We collectively have an obligation as legislators, regulators,
corporate executives, and community advocates to act in an
intellectually honest manner and tackle these issues which have
real impact on real people in disenfranchised communities.
The people who will be impacted by the changes of these
rules and regulations are the least fortunate among us and live
in all of our districts. This isn't picking sides or saying
that you are a Democrat or a Republican. This is about ensuring
that communities that continue to bear the burden of
discrimination and exclusion are not abandoned by our banking
system and left in a perpetual cycle of disinvestment and
exclusion. This is about getting it right.
No expediency. It took 25 years to get to where we now have
to remodernize it. If we don't get it right, we are going to
hurt these people, not help them. We need to take our time and
make sure we get it as right as we possibly can, because if we
don't, we can destroy a community and people who need the most
help. Let us take the time to get the comments from everyone so
we can get it right.
And I think that we can tell by the participation of the
Members at this hearing on both sides of the aisle that this is
really important. It is why this is the second time we have had
a hearing on CRA. It is why we are going to have Mr. Otting in
here. It is why we will have the Fed back in here. This is too
important for us to just wipe and move along without making
sure we get it right.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 5:03 p.m., the hearing was adjourned.]
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