[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE COMMUNITY REINVESTMENT ACT:
IS THE OCC UNDERMINING THE
LAW'S PURPOSE AND INTENT?
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 29, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-78
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
42-793 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 FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
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Page
Hearing held on:
January 29, 2020............................................. 1
Appendix:
January 29, 2020............................................. 69
WITNESSES
Wednesday, January 29, 2020
Otting, Hon. Joseph M., Comptroller of the Currency, Office of
the Comptroller of the Currency (OCC).......................... 5
APPENDIX
Prepared statements:
Otting, Hon. Joseph M........................................ 70
Additional Material Submitted for the Record
Otting, Hon. Joseph M.:
Written responses to questions for the record from Chairwoman
Waters..................................................... 103
Written responses to questions for the record from
Representative Cleaver..................................... 146
Written responses to questions for the record from
Representative Huizenga.................................... 151
Written responses to questions for the record from
Representative Luetkemeyer................................. 154
Written responses to questions for the record from
Representative McAdams..................................... 156
THE COMMUNITY REINVESTMENT ACT:
IS THE OCC UNDERMINING THE
LAW'S PURPOSE AND INTENT?
----------
Wednesday, January 29, 2020
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Velazquez,
Sherman, Meeks, Clay, Scott, Green, Cleaver, Perlmutter, Himes,
Foster, Beatty, Vargas, Gottheimer, Lawson, Tlaib, Porter,
Axne, Casten, Pressley, McAdams, Ocasio-Cortez, Wexton, Lynch,
Adams, Dean, Garcia of Illinois, Phillips; McHenry, Wagner,
Lucas, Posey, Luetkemeyer, Huizenga, Barr, Tipton, Williams,
Hill, Zeldin, Loudermilk, Budd, Kustoff, Hollingsworth,
Gonzalez of Ohio, Rose, Steil, Gooden, Riggleman, Timmons, and
Taylor.
Chairwoman Waters. The Committee on Financial Services will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``The Community Reinvestment
Act: Is the OCC Undermining the Law's Purpose and Intent?''
I now recognize myself for 4 minutes to give an opening
statement.
Today, this committee convenes for a hearing to conduct
oversight of the Office of the Comptroller of the Currency
(OCC), including a review of its approach to overhauling the
Community Reinvestment Act (CRA).
Comptroller Otting, welcome back. I am pleased that this
committee will finally be able to hear from you after you
missed our last hearing in December.
The Community Reinvestment Act is an important law that was
enacted to combat redlining and to ensure that banks make
responsible investments in the communities where they are
chartered. Unfortunately, the OCC has put forth a rule that
runs contrary to the purpose of the CRA and would lead to
widespread bank disinvestment from low- and moderate-income
communities throughout the country.
Comptroller Otting's proposal, which closely follows the
recommendations made by his former bank colleague and now
Secretary of the Treasury, Steven Mnuchin, would allow banks to
skate by and do the bare minimum for a passing grade. Banks
would claim CRA credit for investing in sports stadiums and
bridges to nowhere. It would also allow banks to earn failing
grades in nearly half of their CRA assessment races and still
pass their overall CRA exam.
Any serious update to the CRA regulations would set out to
strengthen the law. Comptroller Otting's proposal instead does
the opposite. Under Comptroller Otting, the Community
Reinvestment Act would become the ``Community Disinvestment
Act.'' Such a radical change to the CRA demands a heightened
level of public scrutiny. Comptroller Otting appears determined
to push this through as quickly as possible. The Comptroller is
only allowing for a 60-day comment period, which will expire in
early March. This is simply unacceptable.
Before the proposal was released, all 34 Democrats on this
committee wrote to Comptroller Otting and other bank
regulators, calling on them to, at a minimum, provide a public
comment period of at least 120 days for any proposal reforming
the CRA. Since that time, community banks and others have also
asked for a 120-day comment period. In the past, the OCC has
provided 120 days, if not longer, for the public to comment on
bank capital rules, and there is no reason why this important
CRA rule should be treated any differently.
Of course, no one should be surprised. Prior to assuming
their respective government roles, Comptroller Otting and
Secretary Mnuchin served as CEO, and chairman of the board,
respectively, at OneWest Bank, which the Federal Government
alleges was engaged in redlining. It has also been widely
reported that when Mr. Otting was at the helm, OneWest
attempted to game the public comment process when the bank was
applying to merge with CIT bank. A 2018 media investigation
uncovered hundreds of fake comment letters on the merger with
texts originating from OneWest.
There are other issues I am also concerned about, including
the OCC's efforts to deregulate megabanks, and its actions to
greenlight rent-a-bank schemes that allow lenders to skirt
State usury laws.
I look forward to hearing from Comptroller Otting today.
The Chair now recognizes the ranking member of the
committee, the gentleman from North Carolina, Mr. McHenry, for
4 minutes for an opening statement.
Mr. McHenry. Thank you, Chairwoman Waters. And thank you,
Comptroller Otting, for being here.
I would like to take a moment to first recognize the newest
member of our committee, Congressman Van Taylor, of Plano,
Texas. Van, we welcome you to the committee, and I will also
counsel you that not all hearings are quite as interesting as
this one.
Isn't that right, Chairwoman Waters?
But, we thank you. I know that we have quite a Texas
contingent here on the committee, so I won't make any Texas
jokes.
With that, Comptroller Otting, I applaud you and FDIC Chair
McWilliams for your efforts to reform and modernize the
Community Reinvestment Act. This has been a long time coming.
It has been 40 years since the CRA was enacted, and a lot has
changed in the banking industry, much of it driven by
technology. The rise of mobile and online banking helps more
consumers in communities that the CRA was intended to serve,
and this proposal takes those developments into account in the
changing nature of banking.
The current CRA regulations are outdated and
technologically ineffective. It is an analog approach to a
digital world. That needs to change. Your proposal moves this
in the right direction. The FDIC and OCC's proposal seeks to
modernize the CRA and ensure that it meets the current needs of
communities and financial institutions alike. The proposal
update will increase the transparency and objectivity that is
currently lacking in CRA examinations today and will increase
the effectiveness of the statute generally.
We can no longer measure a bank's commitment to its
community based off the number of physical branches it has.
While branch banking remains important and remains an important
part of serving customers, there has been a significant growth
in the demand for digital banking services, especially in the
post-crisis era. As demographics shift, and millennial
customers become more essential to a financial institution's
long-term viability, the demand for financial technology
increases.
Today, there is a growing focus on a refined online and
mobile banking model that incorporates sophisticated data
collection capability to deliver more personalized and engaging
experiences. As banks' lending presence expands beyond their
physical locations because of technology, we need to ensure
that our regulation also involves and evolves that changing
nature.
These reforms, addressed in the CRA review, will address
CRA hotspots by encouraging internet-only banks, such as those
headquartered in Salt Lake City, Utah; Wilmington, Delaware; or
Sioux City, South Dakota; to push portions of their CRA
activities to where they take deposits, including communities
that need them the most.
In fact, in 2019, according to a survey conducted by the
American Bankers Association entitled, ``How Americans Bank,''
online mobile banking methods are used most often.
Approximately 73 percent of consumers prefer financial services
provided to them digitally, compared to 17 percent who prefer
going to a branch, or 6 percent who use ATMs, or 3 percent who
bank over the phone, or 1 percent who bank through the mail. I
would like to know who those 1 percent are.
Digital transformation is one of the top trends in the
retail banking industry. Retail banks understand the power of
fintech and how essential it is to their success. They realize
that going digital is more than a marketing strategy. It is a
fundamental shift.
So, I am encouraged by the CRA proposal and what it will do
to more effectively help low- and moderate-income consumers and
communities. I look forward to the hearing today. I thank you
for your testimony, and I look forward to the questions.
Chairwoman Waters. The Chair now recognizes the Chair of
our Subcommittee on Consumer Protection and Financial
Institutions, Mr. Meeks, for 1 minute.
Mr. Meeks. Thank you, Chairwoman Waters.
Comptroller Otting, the CRA was a civil rights bill meant
to address the legacy of redlining and discrimination in
banking, and today there is still ample evidence of continued
redlining, banking deserts, and asymmetrical access to
mortgages and loans for low- and moderate-income communities
and communities of color.
But your proposal decouples CRA from outcomes for intended
communities, discounts the value of direct lending and
mortgages to low- and moderate-income communities and
communities of color, cuts out community organizations that
work directly with these targeted communities, and is just not
supported by data. In fact, your proposal is so flawed that
covered banks are telling us that they see it as a very bad
rulemaking that may be unworkable, and that undermines their
CRA work. Fintech banks are telling us it is completely flawed
and demonstrates a failed understanding of how their business
models work, and community groups say it is a betrayal of the
original intent of CRA.
So, I say congratulations on one thing: you have unified
them all.
I yield back.
Chairwoman Waters. The Chair now recognizes the ranking
member of the subcommittee, Mr. Luetkemeyer, for 1 minute.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Today, we are here to discuss the Community Reinvestment
Act, and I stress the word ``Community,'' because not only do
we look at investing in homes and that sort of thing, we also
look at investing in communities. I think this is where we need
to look at the changes that are being made here and how
important they are to the financial services industry from the
standpoint that getting credit for a bank, and helping churches
and hospitals and schools and small businesses that provide
jobs for these communities, is vitally important to be able to
have a community that has the services where people want to
live and jobs where they want to live. So, I thank the
Comptroller for his hard work, and the FDIC for working with
him to modernize and clarify the CRA.
Also, in the past, this law has been used to beat banks
over the head and has been used inappropriately, and I think he
addresses some of these things. The proposal is not perfect,
and I think anybody who wants to make some suggestions should
quit throwing rocks and start doing things in a productive way
by suggesting positive solutions.
With that, Mr. Otting, thank you for being here today. I
look forward to the questions.
Chairwoman Waters. I want to welcome today's witness, Mr.
Joseph M. Otting, the Comptroller of the Currency. Mr. Otting
has served in his current position since 2017. Prior to his
appointment, Mr. Otting served as CEO of OneWest before its
acquisition by CIT and served briefly as its leader. Mr. Otting
has testified before the committee previously, and I believe he
needs no further introduction.
Comptroller Otting, without objection, your written
statement will be made a part of the record. You will have 5
minutes to summarize your testimony. When you have 1 minute
remaining, a yellow light will appear. At that time, I would
ask you to wrap up your testimony so we can be respectful of
the committee members' time.
Comptroller Otting, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE JOSEPH M. OTTING, COMPTROLLER OF THE
CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)
Mr. Otting. Thank you.
And good morning, Chairwoman Waters, Ranking Member
McHenry, and members of the committee.
Allow me to reintroduce myself to the committee. I was born
in Maquoketa, Iowa, a city of 6,000. As of 2017, Maquoketa had
a 19-percent poverty rate and a median household income of
$46,000. In Maquoketa, Clinton Machine Company manufactured
small engines and, by 1956, became the 10th largest employer in
Iowa. By 1999, there were only 35 employees left, and my
hometown's largest employer closed its doors. The farm crisis
of the 1980s further devastated the community and forced the
closing of downtown businesses, which was further influenced by
a recession.
I have seen firsthand what happens to farming communities
when large businesses shut down and small and family farms do
not have access to credit. My first banking job took me to
California in 1981. I was fortunate to meet my wife, Bonnie, at
another bank. She is a second-generation Hispanic-American of
Mexican descent, born and raised in east Los Angeles. My
father-in-law labored at a factory and worked hard to support
his family.
When I talk about low- and moderate-income communities, I
am not talking about some esoteric concept. On the contrary, I
am talking about an area where I grew up, America's rural
farmland, and an area where my wife grew up, east Los Angeles.
Because I know and care about these communities, it is my
intent to strengthen CRA, not weaken it.
During my banking career, I saw firsthand how CRA can be
improved. The goal for improving CRA rules is very clear: to
encourage banks to do more. I am confident that this proposal
can achieve that goal by making four basic improvements:
clarify what counts; clarify where it counts; measure CRA
performance objectively; and make reporting transparent and
timely.
I would like to walk you through the process that led to
this proposal.
This proposal was informed by agencies' Economic Growth and
Regulatory Paperwork Reduction Act (EGRPRA) reports to Congress
in 2007 and 2017, public hearings 10 years ago, recommendations
published by the Treasury Department in 2018, extensive
feedback gathered through meetings and tours involving
thousands, and more than 1,500 comments in response to our
Advance Notice of Proposed Rulemaking (ANPR) in August of 2018.
I have personally read each of the 1,500 comments received in
the ANPR. This has been a lengthy and transparent process and
has been consistent with the letter and the spirit of the
Administrative Procedure Act (APA).
All of this work resulted in feedback supporting CRA
modernization, with 94 percent of ANPR respondents saying that
CRA lacks objectivity, transparency, and fairness; 98 percent
think the rules are implied inconsistency; and 88 percent say
the framework is hard to understand.
Let me describe what the proposal does not do, because
there is a lot of misunderstanding about its intent. One of the
key claims against the proposal is that it would permit
redlining. This is blatantly false. Nothing in this proposal
changes the agency's authority to enforce fair lending laws to
prevent discrimination and redlining. The regulations
implementing the Fair Housing Act and the Equal Credit
Opportunity Act (ECOA) prohibit discrimination and redlining.
These regulations are not changed in any way by this proposal.
The next erroneous assertion is that the proposal contains
a single metric to create a bank's CRA rating. That, too, is
incorrect. The proposal would require examiners to use a retail
lending test for each major type of product, identical to that
described in Governor Brainard's speech.
In addition, examiners would evaluate the impact of a
bank's CRA activity by measuring the dollar value of that
activity in each assessment area and at the overall bank. Then,
examiners would apply discretion in considering performance
context to assign a final rating. For regional banks, that
would involve hundreds of measures, and for larger banks, it
would involve thousands, with no single metric.
Another assertion is that the proposal does not faithfully
implement the statute. On the contrary, each of the activities
listed in the proposal would directly satisfy the statute's
purpose. More of the proposal closes loopholes that exist today
by granting CRA credit to loans for wealthy people who buy
homes in low- to moderate-income (LMI) areas.
Another erroneous assertion is that the proposal would take
away the incentive banks have to maintain branches. In fact,
this will be the first time in the regulation where a bank will
be rewarded for maintaining LMI branches.
Another misinterpretation is that a bank could receive a
CRA rating even if it fails to have a satisfactory rating in
half of its assessment areas. The proposal specifically asks
what thresholds should be used, including whether that
threshold should be as high as 80 percent.
And, lastly, let me address the issue of sports stadiums
qualifying for CRA, which has been very topical. Under the
current law, banks have received credit for financing sports
stadiums since 1993, and other renewal projects in LMI
communities. This is not new. That is a false statement. The
proposal would not change that, but we are open to comments.
What this proposal does is to clarify the approach by
providing, for the first time since 1977, a list for
communities and banks to understand what qualifies for CRA.
My only ask of those interested in commenting on the merits
of the proposal is to actually read the proposal and not rely
on sound bites. These issues are too important to be debated
based on sound bites.
Thank you for this opportunity.
[The prepared statement of Comptroller Otting can be found
on page 70 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions.
Let me just get right to the first point. Your proposal
only provides a 60-day comment period for stakeholders to
review the proposal of the CRA, and we have all asked you if
you would extend that for 120 days for review. What have you
decided?
Mr. Otting. We have decided that we will not extend that
date.
And as a point of clarification for you, we published that
document on December 9th, and by the conclusion, on March 9th,
that will be 88 days.
Chairwoman Waters. Is it true that in the past, the OCC has
provided a 120-day comment period on important bank capital
rules?
Mr. Otting. I don't know the answer to that, but the vast
majority of comments--
Chairwoman Waters. Do you consider this to be a very
important proposal--very, very important, given that you are
making significant changes to CRA? Do you consider it very
important?
Mr. Otting. I do consider it very important.
Chairwoman Waters. But you don't consider it important
enough to have a 120-day comment period?
Mr. Otting. Sixty days and the regtech should be able to be
understood by people.
Chairwoman Waters. Okay. So, you have decided that you are
not going to do that.
Mr. Otting. That is correct.
Chairwoman Waters. I am concerned that under your plan,
banks that get a failing grade in up to 50 percent of their
assessment areas would still pass their overall CRA
examination. Is that right?
Mr. Otting. That is not correct.
Chairwoman Waters. Okay. And you plan to stick with that?
Mr. Otting. That is not correct, as I said.
Chairwoman Waters. It is not correct?
Mr. Otting. That is correct, ma'am.
Chairwoman Waters. Fifty percent.
Mr. Otting. It is not correct.
Chairwoman Waters. Then, correct me.
Mr. Otting. Today, as an example, a regional bank that has
276 assessment areas, the banks currently evaluate only--we, as
regulators, evaluate 40. That is about 15 percent. We are
proposing that we evaluate all 276 going forward. We asked the
question: Should we allow 50 percent of the assessment areas to
pass or 80 percent? We are looking for feedback and comment
from the communities and the banks on that issue.
Chairwoman Waters. Thank you very much.
Have you been able to reconcile the differences with the
Federal Reserve (Fed)?
Mr. Otting. With whom?
Chairwoman Waters. With the Fed.
Mr. Otting. We haven't been able to reconcile the
differences with the Fed--
Chairwoman Waters. So, they are still opposed to your
proposal?
Mr. Otting. I don't know if they are opposed. Governor Lael
Brainard--
Chairwoman Waters. Do they support your proposal?
Mr. Otting. Governor Lael Brainard--
Chairwoman Waters. Do you know that they do not support
your proposal?
Mr. Otting. Governor Lael Brainard did not sign onto the
proposal.
Chairwoman Waters. Okay. I am worried that your proposal
dilutes the focus of the CRA on meaningful investments in low-
and-moderate-income communities. For example, under the new
proposal--and you alluded to this--athletic stadiums located in
low-income community tracts in Opportunity Zones would
explicitly be CRA-eligible with little regard for how LMI
communities would be helped. Is that correct?
Mr. Otting. Since 1993, CRA has allowed sports facilities
to be included in CRA. We have put it out for comment to get
feedback, and the most important thing is--
Chairwoman Waters. So you don't think that should be
changed at all?
Mr. Otting. The most important thing is we produced a list
of 200 items, and the whole point of producing that list was to
gain feedback through this process about what people thought
was effective and not--
Chairwoman Waters. Okay.
Your plan is also bad for rural areas, as a loan to a
family farm with gross annual revenues of $10 million would
qualify as a CRA. According to the USDA, only about 1 percent
of farms had sales of $5 million or more, let alone the $10
million you proposed. Therefore, it seems like this approach
would divert lending away from small family farms. Are you
aware of that?
Mr. Otting. I am aware. I don't think the $10 million is a
correct number. What we have done is we have raised it from
$500,000 to $2 million for family farm owners.
Chairwoman Waters. Okay. So, Mr. Otting, basically, you
have decided that you know best about everything that has to do
with CRA reform. You do not wish to work with us. We came to
the board meeting over at the FDIC, and we let our position be
known, in addition to all of the letters and the work that the
advocates have been doing, but you have decided you will work
with no one, that this is your proposal, this is what you want,
and this is what we get. Forget about the Congress of the
United States or anybody else; you know better than anybody
else.
We told you about what it takes in minority communities and
why CRA is so important. We told you about discrimination. You
said you had personally never observed it. Do you still
maintain that you don't know about discrimination?
Mr. Otting. I didn't say I don't know about it.
Chairwoman Waters. You said you had never observed it. Is
that right?
Mr. Otting. I said I had personally never observed it--
Chairwoman Waters. Okay. Do you still--
Mr. Otting. But in conjunction with that quote--
Chairwoman Waters. Do you stick with that, that--
Mr. Otting. --advised me that--
Chairwoman Waters. --you have never observed
discrimination?
Mr. Otting. Please let me respond to your question.
Chairwoman Waters. Is that correct?
Mr. Otting. Let me respond to your question.
Chairwoman Waters. You have never observed it?
Mr. Otting. I have not personally observed it, but my
family has.
Chairwoman Waters. In all of the work that you did with
OneWest Bank--
Mr. Otting. Can I personally answer? Can I answer your
question?
Chairwoman Waters. --you have never, ever, observed
discrimination, is that right?
Mr. Otting. I have personally never observed it, but I
would say that I know it happens in America. My family has told
me it happens. My friends have told me it happens. In my
professional capacity as Comptroller, I have observed it
occurring--
Chairwoman Waters. Thank you very much, but my time is up,
and I am so pleased that your family told you about it, and
today, I am telling you about it.
Thank you very much.
Mr. Otting. Thank you.
Chairwoman Waters. I will now recognize the ranking member,
the gentleman from North Carolina, Mr. McHenry.
Mr. McHenry. Comptroller Otting, thank you for being here
today. The Community Reinvestment Act was passed in 1977. When
was the last time it was updated, that we had a major
regulatory update to the CRA?
Mr. Otting. It was created in 1977, and last updated in
1995.
Mr. McHenry. In 1995.
Mr. Otting. Yes.
Mr. McHenry. Has much changed in banking since 1995?
Mr. Otting. Significantly. Originally, when the statute was
passed, we didn't have interstate banking. No one could even
conceptualize of internet banking or mail banking where people
are more and more not going into a branch now and are seeking
financial services via the internet.
Mr. McHenry. Half the number of community banks, less than
half the number of banks in America than we did in 1995. That
is number one.
Mr. Otting. That is correct.
Mr. McHenry. Do we have more branches or fewer branches
over the last 25 years?
Mr. Otting. Substantially fewer.
Mr. McHenry. Okay. But CRA is designed around physical
infrastructure, according to the 1995 regulation. Is that
right?
Mr. Otting. That is correct.
Mr. McHenry. So what does that mean? What does that
actually mean? Say, you have a bank that is mainly an internet
bank, headquartered in Salt Lake City, and they do 10 percent
of their business in a State like New York or California. Where
do they spend their CRA credits?
Mr. Otting. They spend their money in Salt Lake City.
Mr. McHenry. Why?
Mr. Otting. Because that is where their assessment area is
domiciled because it is considered to be their headquarters.
Mr. McHenry. That is not where their business is, though.
Mr. Otting. That is not.
Mr. McHenry. Okay. So how have they changed these
regulations?
Mr. Otting. We are changing the regulation so that if an
institute gathers more than 50 percent of their deposits
outside their assessment area, those that have 5 percent or
more would be deemed assessment areas. With one particular
entity in Salt Lack City, 8 percent of deposits are in Los
Angeles, 5 percent are in Dallas, and 12 percent are in New
York. Those will be deemed assessment areas, and dollars will
flow into those communities that aren't flowing there today.
Mr. McHenry. So this is mainly a rewrite about technology
and a dramatically changed footprint for banking?
Mr. Otting. One component of it, yes.
Mr. McHenry. What are the other components?
Mr. Otting. We are giving people identification of what
actually qualifies for CRA. There has never been a list
produced. We are actually focusing banks to do a hundred
percent of their assessment areas today, and so, instead of
doing a portion of it, we will look at a hundred percent of
their assessment areas. And we are giving them an objective way
not only for community groups, civil rights groups, and banks
to be able to measure those institutions on their performance
in the markets to which they--
Mr. McHenry. How long have you been the Comptroller?
Mr. Otting. I have been the Comptroller for about 2\1/2\
years.
Mr. McHenry. Okay. And has the OCC, the FDIC, and the Fed
had a conversation just because of the last 2\1/2\ years? How
long is this--
Mr. Otting. It has been going on for 10 years. The
statistics, as we quoted--over 90 percent of the people feel it
is outdated, it doesn't give clarity, and it doesn't give
measurement techniques. It has been screaming out to fix this
for 10 years, and people haven't taken action.
Mr. McHenry. The joint rulemaking is between the OCC and
the FDIC, is that correct?
Mr. Otting. On this particular rule, correct.
Mr. McHenry. Okay. On this particular rule.
And in terms of regulation, what part of the Federal
banking footprint does that cover for CRA?
Mr. Otting. For CRA, it covers 85 percent.
Mr. McHenry. Eighty-five percent.
Mr. Otting. Eighty-five percent of all assets covered under
CRA are covered by the OCC and the FDIC.
Mr. McHenry. Okay. But the FDIC has that remaining less
than 15 percent?
Mr. Otting. The Federal Reserve has the remaining 15
percent.
Mr. McHenry. I'm sorry, the Federal Reserve. I misspoke.
So, along this process over the last 2\1/2\ years of your
undertaking, have you engaged with the Federal Reserve?
Mr. Otting. Thousands of times.
Mr. McHenry. Okay. Have you and your team incorporated the
Federal Reserve's feedback and perspective in this proposed
rule?
Mr. Otting. Not only did we incorporate it, we actually
made a big component of it, of the framework that the Federal
Reserve actually came up with. We thought it was good. In the
individual assessment areas that will look at a bank's
performance in low- to moderate-income by numbers, we will
compare that to the low- to moderate-income population and then
the overall low- to moderate-income lending in that market, and
a bank would have to meet certain standards. That was strictly
the Fed. We had a different way at the OCC of how to approach
that and, because of their thought process, we integrated that
into the Notice of Proposed Rulemaking (NPR).
Mr. McHenry. Right. So you are covering 85 percent. You
have given a great deal of clarity in this rulemaking on what
qualifies for CRA credit. So not only would you do what you
must do in terms of regulation, but also the measurement by
which you will be held to account. So this is a great deal
about regulatory certainty, is it not?
Mr. Otting. It is.
Mr. McHenry. Okay. Thank you for your testimony. Thank you
for your openness in this process. Thank you for hearing this
feedback. And I thank you and the career staff, especially, for
being measured about this proposal.
Mr. Otting. Thank you.
Chairwoman Waters. The gentlewoman from New York, Ms.
Velazquez, is recognized for 5 minutes.
Ms. Velazquez. Good morning, sir. Thank you for being here.
I would like to follow the line of questioning of the
Chair, and I would like to ask you: Do you commit to delaying
your proposal until CRA advocates and consumer groups feel
their voices have been sufficiently heard and the Fed has also
agreed to sign on?
Mr. Otting. I do not.
Ms. Velazquez. Comptroller Otting, CRA stakeholders have
stated that commenting on the OCC and the FDIC's proposal is
difficult due to the lack of data and analysis found in the
proposal, particularly as it relates to the threshold for
measuring CRA performance.
What do you say to that?
Mr. Otting. Do you know how the data is currently compiled
in CRA?
Ms. Velazquez. No, I do not.
So that we can have a better understanding, not only the
members of this committee but the communities that we
represent, particularly my communities, would you share the
underlying data that was used and what analysis was conducted
in developing this performance threshold?
Mr. Otting. It is important to note--I asked you the
question--
Ms. Velazquez. I am asking a yes-or-no question. Would you
share with this committee?
Mr. Otting. You have to understand that there is no data
today. You have to go individual PE by PE. There are 6,000 of
them. The Fed went through those. We went through those and
pulled that data together. The information you are asking--
Ms. Velazquez. I am asking specifically for the data on the
rule.
Mr. Otting. Some of the information comes from the Federal
Financial Institutions Examination Council (FFIEC), which is
not public information.
Ms. Velazquez. Why isn't it?
Mr. Otting. Because it is confidential supervisory
information.
Ms. Velazquez. So what type of analysis was conducted to
measure the proposal's input on CRA lending and investment in
LMI communities? Can that analysis be shared with this
committee?
Mr. Otting. When we look at a bank's performance in CRA, we
look at small business lending, farm lending. We look at the
HMDA data that they do the residential mortgage lending, and
then we look at the community development, and we try to make
an assessment on our new proposal. What do they have on their
balance sheet in relationship to their deposits? We have done
that analysis. We think that is what got us to get
directionally correct on the outstanding satisfactory level,
and now we have gone out from the banks to request that
information to validate that.
I would be happy to come by your office once we get that
data and that analysis completed, but it is not something we
would put out for public distribution.
Ms. Velazquez. Madam Chairwoman, I agree with everything
that you have stated before, and I believe that we should
request the data and analysis used to create this rule and, if
not, if they don't want to share it willingly so that we can do
our job, then we should subpoena such information.
Chairwoman Waters. Will the gentlewoman yield?
Ms. Velazquez. Yes.
Chairwoman Waters. Thank you very much.
I don't think that Mr. Otting is serious about his
willingness to cooperate with us. As I said before, I think he
believes that he knows better than any of us and he does not
have to work with the Members of Congress. You are absolutely
correct. If we have to subpoena the information, we will do
that.
Comptroller, while I believe the CRA must help provide more
funding for community development projects like public housing,
I am very concerned that the single-metric evaluation measure
included in your proposal will lead to a substantial dilution
of all of the core CRA requirements, and will enable banks to
focus on only a small number of large, easy projects to meet
their CRA responsibilities.
What safeguards are included in your proposal to ensure
this will not happen?
Mr. Otting. For every individual assessment area, we will
look at the actual volume of units that institution completed,
we will look at the volume of units that the competition had
done, and we will look at the population of low- to moderate-
income, and there is a criteria to which they have to do to
meet a satisfactory level. So, it is impossible, absolutely
impossible, to do what you described.
Ms. Velazquez. That is not what the CRA experts who came
before this committee stated, and that is why it is so--
Mr. Otting. It is impossible.
Ms. Velazquez. I control the time. That is why it is so
important that you expand the time to 120 days.
Thank you. I yield back.
Chairwoman Waters. The gentleman from Missouri, Mr.
Luetkemeyer, is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
And I certainly am disappointed that we allow the integrity
of the witness to be questioned. I think it is below the
comportment of this committee. I think the gentlelady from New
York should be called out for something like that, but I will
move on.
Mr. Otting, thank you for being here this morning. I am
probably one of the two guys on this committee who has actually
filled out a CRA report. I did it many years when I was in the
bank at home. I understand this does need some changes. It does
need some reform. It is not a very good report from the
standpoint of how it actually should measure the investments
that banks make into the communities. It does not incentivize
them the way it is presently structured, and especially not in
today's world. So, thank you for what you are doing.
I know one of the concerns that has been leveled this
morning is that they think the rule is going to disincentivize
mortgage lending in favor of community development. Now, I have
a point to make, and then I want to you answer that question.
This is the Community Reinvestment Act. It is not the
housing investment act. I realize that the law was put in place
to stop redlining, which is a laudable goal, and we should not
allow that to happen, but it also was there to incentivize
banks to invest in communities because communities are where
people want to live, where they have services such as churches
and schools and hospitals and community centers, and they want
to have small businesses that can actually create jobs so they
can live in a community where they want to work.
So, if you don't have those businesses and services
incentivized, you don't have the community. That is where I
think the Community Reinvestment Act comes in. It wants to
build a community and not just focus on housing, which is an
important part of this, and if you want to weigh this--as I
said in my testimony the other day--if you want to weigh it
more heavily one way or the other, that is fine, but to
restrict it only to that is totally misrepresenting the intent
of what this law should be about.
My question to you this morning, sir, is, how would you
answer the question about how you believe that some of these
folks believe that it disincentivizes mortgage lending in favor
of community development loans?
Mr. Otting. I don't believe it disincentivizes at all. As
we traveled across the United States and talked to community
groups and civil rights organizations and banks, we did not
want to disrupt people's business models, the way they were
serving their community. So, the claim that this will cause
less mortgage lending, I don't think is valid.
One of the things we did is we moved from units to on-
balance sheets so we could have an actual numerical measure
against deposits with those financial institutions that did
mortgage origination and sold it, so that we gave them credit,
even if they held the mortgage for 1 day, for 90 days of
credit. That is one of the open items that we are looking to
get feedback on from the notice of proposed rulemaking.
But I do agree with you that, if you really look at the
actual results in the Community Reinvestment Act, the biggest
component of the way institutions meet the needs of their
communities is through small business lending. It isn't
mortgages. It is actually small business lending.
And similar to my community, Maquoketa, when we lost that
big factory, families started to move out of the City and
people had to drive 30 to 60 miles to get a job. It had a
really negative impact on the social infrastructure of our
community.
Mr. Luetkemeyer. I thank you for the comment. It is
interesting that the last person who testified or asked
questions here is also the Chair of the Small Business
Committee, and this is something that I would think would be
right square in the middle of where she would like to be right
now with you, to help you, to encourage you to continue to
structure this thing so there is an incentive to put money into
small businesses that can build communities. Seventy percent of
the jobs in this country are provided by small businesses. That
is where people want to live, where they can actually get a
job.
One of the things I have found as I have talked to a lot of
other financial services folks around my district and the
country was the fact that the previous Administration used this
law to really beat the banks over the head with regards to
trying to incentivize them and force them to do certain things
that were actually against their own business model.
Are you aware of that, and what have you done to stop that
nonsense?
Mr. Otting. I think, unfortunately, CRA has been used by
certain organizations--when there is an event, a branch opening
a new business, an acquisition or a merger, the uncertainty
around the clarification about, is an entity in compliance with
their CRA, often can be used by certain groups to extract
economic dollars. I do think that by bringing clarity to this,
a lot of that will be eliminated. Perhaps some of the groups
that are protesting the loudest are recognizing that this
clarity will be healthy for community groups, civil rights
organizations, and the banks, but not so healthy for them.
Mr. Luetkemeyer. Thank you for that this morning, and thank
you for continuing to work hard on this. I think the clarity
you are trying to bring to this is very, very much needed to be
able to understand how banks can be incentivized and then given
credit for developing the communities that they want to have
people live in and work in. Thank you very much.
And I yield back.
Mr. Otting. Thank you.
Chairwoman Waters. The gentleman from California, Mr.
Sherman, who is also the Chair of our Subcommittee on Investor
Protection, Entrepreneurship, and Capital Markets, is now
recognized for 5 minutes.
Mr. Sherman. Mr. Comptroller, in about a month or so we
will have hearings on the London Interbank Offered Rate
(LIBOR). In our private conversations, you have urged us to
look at something other than the Secured Overnight Financing
Rate (SOFR) so that we don't get a rate that goes down in times
of fiscal crisis or downturn. I hope that you will be able to
propose a rate that is based on real, verifiable transactions,
not surveys.
But while we will listen to you on LIBOR, it is distressing
that you will not listen to Congress when it comes just to the
timing of when you are going publish these rules. You are
closing the book when we have asked. This is something I have
never seen an agency do. It shows a contempt for this committee
that is almost inconsistent with me listening to you on LIBOR
or us listening to you on anything else.
Now, it is my understanding that you have just recently
reached out to a number of banks to request data to support
your approach. If the OCC and the FDIC lack sufficient data to
support the proposed rule, why are you hell-bent on adopting it
on an expedited basis?
Mr. Otting. Would you mind if I just clarify a point on the
LIBOR really quick?
Mr. Sherman. No, this is my time.
Please respond to my question.
Mr. Otting. We do not set the index. That will be set by
the industry, but it has to be safe--
Mr. Sherman. Again, please respond to my question.
Mr. Otting. Is your question, why did we just recently
reach out to banks for the data?
Mr. Sherman. Yes, and knowing why do you want to adopt a
rule on such a quick timetable when you still don't have the
information.
Mr. Otting. We do have the information. When we have gone
out to the banks is, because they house the actual
information--we could get it through other sources--to do a
validation of the information that we pulled to make sure that
it is accurate. That information--
Mr. Sherman. You don't know whether it is accurate, but you
are hell-bent on ignoring the request of this committee to
extend--
Mr. Otting. We wanted to do validation. So, that data
request is supposed to be concluded by March 10th.
Mr. Sherman. Let me continue. You are not willing to wait
until you can work out something with the Fed, so you are going
to end up with regulatory arbitrage. Some banks will be subject
to one rule, and other banks will be subject to another rule.
Has the Fed encouraged you to ignore the request of this
committee for additional time to try get this rule right?
Mr. Otting. We have been on a long journey. We have
communicated our effort over the last 2 years with the
direction we are going. Regarding regulatory arbitrage, I don't
agree with that statement. We will control 85 percent of the
CRA activity in the industry today. There are hundreds of
billions of dollars that can flow into communities by, I think,
completing this--
Mr. Sherman. Right. Then if banks don't like your rule,
they can go get themselves regulated by the Fed, or if they
don't like the Fed's rule, they can rearrange their corporate
structure to be regulated by you.
Mr. Otting. Highly unlikely.
Mr. Sherman. Highly unlikely. We will see.
Now have you looked at the additional data that is going to
have to be requested and the--
Mr. Otting. This isn't additional data. It is the data we
have. We are just asking them to give us the answers.
Mr. Sherman. Once this rule goes into effect, if it were to
go into effect in its present form, consumers would have to
provide banks with, and banks would have to collect more,
information. That is a hassle for consumers, it is a privacy
concern for consumers, and it is a cost for banks.
Has that been analyzed--
Mr. Otting. That is an inaccurate statement. There would
not be a requirement for any additional data from consumers,
and banks have that data in-house already. They would have to
reformat it.
Mr. Sherman. There is no additional data collection?
Mr. Otting. No. Additional data from the banks to the
regulators but not from consumers to the banks.
Mr. Sherman. And how would this rule apply to--would it
reduce lenders' reliance on mortgages to meet CRA requirements?
Mr. Otting. How would the rule apply to lenders designed to
reduce--
Mr. Sherman. And then will the effect of this rule be that
banks try to comply with CRA, not by buying mortgages but by
doing other things instead? What effect is this going to have
on home lending?
Mr. Otting. I think it is going to increase lending because
those banks that just traded mortgage-backed securities or
mortgage pools and got a hundred percent on the dollar credit
for that will not be able to do that in the future. The little
secret to CRA was that Bank A bought the mortgage pool, got
credit, sold it to Bank B, got a hundred percent, sold it to
Bank C, got a hundred percent, and sold it to Bank D. So, $4 of
CRA credit was created--
Chairwoman Waters. Your time has expired.
Mr. Otting. --which is only $1.
Mr. Sherman. My time has expired. I look forward to
learning more about that.
Mr. Otting. Thank you.
Chairwoman Waters. The gentleman from Florida, Mr. Posey,
is recognized for 5 minutes.
Mr. Posey. Thank you, Madam Chairwoman.
I join everyone here in welcoming you, and thanking you for
your service. I commend you for taking on the daunting
challenge of trying to modernize the evaluation of banks under
the Community Reinvestment Act. I apologize for some of the
uncivil behavior you have already experienced here and no doubt
will continue to experience here. Unfortunately, that seems to
be the new leadership standard in the House of Representatives.
I notice you were cut off before you were allowed to answer
questions that they asked you, and I would like to yield you
time now, if you would like, to follow up on those.
Mr. Otting. Thank you very much.
I think it is clear that this proposal will increase the
number of assessment areas where banks are measured. When you
have additional measurement, that will increase additional
dollars that will flow into assessment areas across America. At
the top of the house of the banks we toured rural areas. We
went to Indian Country. We have now allowed for family farms
and for Indian Country to be included in CRA-related
activities.
At the OCC, we have a big initiative among minority
depository institutions (MDIs)o. We clarified that minority
depository institutions, both loaned by other banks and equity
investments, can get CRA credit. I think, under Mr. Meeks'
proposal, he is doing some great things, but I think if you
really look at the minority depository institutions, they need
capital flowing into those banks and this can allow that
capital to come in. And we have also offered up instances where
we will give a multiplier to those entities where we see
certain items that we think that need to occur.
So we are highly encouraged by being able to move this
forward. It has been a long-term process, years in the making,
and that is why we feel it is very important. For the 13 pages
in the red text that anybody can't get through in the next 40
days that we have left in the comment period, come over to the
OCC, and Bao Nguyen or Grovetta Gardineer, who are seated
behind me today, will sit down with them, as I will myself, and
we can walk people through it. We are not asking for something
unusual to get through this in the next 40 days.
Mr. Posey. Thank you, and I appreciate those comments, and
I am glad that you had time to make them.
There is an old saying that says what doesn't get measured
doesn't get done. I believe that completely, and you no doubt
have already found in Washington, D.C., that people generally
don't like accountability. The deep state has run this place
for a long time. They have done it however they want to do it.
It doesn't make any difference who is in charge, and now, there
is a new sheriff in town, and you are one of the deputies, and
I am deeply grateful to you for taking on the challenge and
stepping up and actually trying to modernize this and make it
measured. I think it will benefit everybody.
Mr. Otting. That is right.
Mr. Posey. Banking was used as a weapon against legal
solvent businesses by the last Administration under the
auspices of Operation Choke Point where, if the government
didn't like your business, they told banks basically that they
weren't allowed to do business with you, or they were going to
be in big trouble with the OCC. I am sure you are familiar with
that, and may have even been a victim of that at some time.
Do you believe this is in violation of the Community
Reinvestment Act?
Mr. Otting. We have had a lot of dialogue on that, in
regards to that, based upon a lot of letters from Congress
about looking at, if an institution decides not to bank a
particular industry, we have offered up to the banks that we do
not feel you should isolate and eliminate different industries,
but we also believe banks and boards have the ability to make
those decisions.
When you read the CRA, it says that the banks should serve
the entire community to which they provide banking services,
and so this is an area where, I will be honest with you, we are
working our way through how to provide good guidance to banks
on this issue.
Mr. Posey. But do you think it was in violation of the
Community Reinvestment Act?
Mr. Otting. I don't necessarily feel, if I elect not to
bank a particular company, that it is in violation of the
Community Reinvestment Act.
Mr. Posey. Okay. Although Operation Choke Point shouldn't
be a functioning program any longer, I have had some
constituent contacts who suggest that banks may choose to
withdraw or withhold banking services including lending from
services or businesses that, while completely legal, may not
have found favor in certain political circles. I am told that
the press calls this practice, ``de-risking.'' Can you explain
the OCC's policy on such practices, also known as de-risking or
de-selecting, as the case may be, and whether we have a policy
in place to ensure that banking services are available to all
legal businesses on equal terms?
Mr. Otting. We encourage banks to bank legal businesses
that operate within their community but do allow the
institutions to make a decision on those particular entities
that they bank.
Mr. Posey. Thank you.
Chairwoman Waters. The gentleman from New York, Mr. Meeks,
who is also the Chair of our Subcommittee on Consumer
Protection and Financial Institutions, is recognized for 5
minutes.
Mr. Meeks. Mr. Otting, do you know or do you believe that
CRA came out of the civil rights bill?
Mr. Otting. I believe CRA was intended to serve the entire
community to which it is regulated, and I also believe it was
intended to eliminate redlining within communities.
Mr. Meeks. Do you know that it, in fact, came out of civil
rights? In fact, if you look up the words--I have it right
here--that it came out of the civil rights bill, which was
passed in 1977.
And so the question I have, just listening to you you talk
about how you, yourself, have not seen or been a victim of or a
part of discrimination, but you have talked to some other
folks, but let me just say, it says right here: ``CRA laws
passed to reduce discrimination in the credit and housing
markets including what had passed the Fair Housing Act of 1968,
the Equal Credit Opportunity Act of 1974, the Home Mortgage
Disclosure Act of 1975, and that, in fact, that the home
mortgage disclosure--that CRA seeks to ensure the provisions,
the credit to all parts of the community, regardless of the
negative wealth or poverty of the neighborhood.'' It was and is
a civil rights bill.
Now I am saying this to you because, if you are not
affected by it at all, you have learned by some other folks,
then I am telling you so you know what civil rights is and what
it means to people of color in this country.
The question then is, do you respect the people in the
civil rights movement, the people in the civil rights
organizations? Is that respected by them? Because with you, I
want to put this into the record. Because what they have been
asking for and what you have heard here from a number of
individuals is asking for a longer period of time so that we
can get this right, because it affects so many people, not just
pushing a law on a 60-day period.
I want to submit to the record three letters. The first is
a joint trades letter from the Independent Community Bankers of
America, the National Bankers Association, the National
Association of Affordable Housing Lenders, and the Community
Development Bankers Association. These groups combined
represent a large part of majority of banks of all sizes in
this country.
And the letter says, ``We are, however, concerned, given
the complexity of the proposed rule, that the current 60-day
comment period is not an adequate amount of time to work with
our members to analyze, assess, and understand how the rule
will affect their operations and strategies for serving their
communities.''
And to this end, they respectfully ask for you to extend
the date to allow for 120-day comment.
Then, all of the members of this committee, bipartisan,
sent you a letter, and I want to submit that for the record.
And the third letter is your response, Mr. Otting. Your
response, frankly, shows either a lack of respect for Congress
or a lack of respect for those of us who believe in civil
rights. It says, ``Because the 60-day comment period does not
start until publication of the Federal Register, stakeholders
will have in effect approximately 90 days to review and comment
on the NPR.''
That is outrageous, and it is completely disrespectful of
individuals who would be affected by this, individuals who
would be regulated by this. All of them say, ``I don't
understand what the rush is.''
Chairwoman Waters. Without objection, it is so ordered.
Mr. Meeks. Thank you, Madam Chairwoman.
What is the rush, what are you afraid of, or why don't you
listen to the people who would be regulated by this and
affected by this? We talk about home ownership in your
proposal. Number one, let me just tell you something. In low-
and moderate-income communities, particularly communities of
color, the way you build wealth for those communities, the
largest investment that they will make is in their mortgage. I
wouldn't be here today but for the investment that my parents
made in a mortgage that they then utilized so that I could get
an education.
And then, based upon this, the OCC's proposal, only 25
percent of value of retail loans sold within 90 days of
origination would be qualified for CRA, which means that it
would become a disincentive for individuals in these
communities to lend money in these communities to people of
color and of low- and moderate-income, exactly the opposite of
why CRA was created.
It was to give more access for individuals to prevent
redlining and to make sure folks can get into banks and
incentivize banks to lend to people so they can get mortgages
so they can create wealth for themselves and use that at times
to create businesses and others.
Your proposal and your lack of courtesy of extending to 120
days discredits that. It shows disrespect.
I yield back.
Chairwoman Waters. The gentleman from Michigan, Mr.
Huizenga, is recognized for 5 minutes.
Mr. Huizenga. Thank you, and I appreciate you being here,
Mr. Otting.
I am trying to quickly look over the letter. I think my
friend from New York just misspoke, not intentionally, but just
misspoke. It is not a bipartisan letter. It is a bicameral
letter. It is a letter that was sent.
Mr. Meeks. That is correct.
Mr. Huizenga. And I am reviewing your response. I fail to
see the disrespect that you are showing directly from this
letter, but, nonetheless, I do want to hear from you how you--I
won't cut you off--are currently, and how you plan to in the
future, receive input from the public, as well as Members of
Congress and this committee.
Mr. Otting. Thank you very much.
As I have indicated in my open comments, this has been a
long journey, specifically over the last 2 years. We did
enormous outreach, traveling to communities across the United
States, meeting with groups, sharing the framework of what we
were looking to do, eliciting feedback. I will tell you that
between the ANPR and the NPR, a lot of that feedback actually
framed up to what we came forward with in the NPR.
Mr. Huizenga. And that was how long of a process?
Mr. Otting. We issued the ANPR in August of 2018, but we
began way before the ANPR of going out to communities. Prior to
that, there was a lot of dialogue going back 10 years within
the agency.
Mr. Huizenga. This isn't a surprise to anybody who has--
Mr. Otting. No.
Mr. Huizenga.--been involved.
Mr. Otting. No. And we redirected based on a lot of that
feedback about what the final product looks like, and it is
also important to note that the term of 60 days gets used here.
We actually produced on the internet of both the FDIC and the
OCC on December 9th the document. It didn't get published
through the Federal Register until January 9th, which was 28
days.
Mr. Huizenga. Yes.
Mr. Otting. Actually, there is 88 days for people to be
able to respond. After that period of time, we will take 60 to
75 days to analyze the comments that we get and there will be a
lot of outreach during that period of time as well.
Mr. Huizenga. Including members of this committee, which
I--
Mr. Otting. Absolutely. I know most of you here. I have
been up to your offices numerous time over the last 2 years. I
would venture to say I have been to visit each of you at least
twice. I think, every time I came to talk to you, I gave you an
update on where we were on modernizing CRA.
Mr. Huizenga. Okay. I appreciate that.
I want to get to one thing at the very end about my
district. I have a unique, I think, mix of both urban and
extremely rural and, in fact, one of my counties, which has a
sizable minority population, is the poorest county in the State
of Michigan, and is, I think, in the top 60 poorest counties in
the nation, so it's very difficult to have banking there. There
are branches, and I commend those folks who run them for that
outreach.
But we know banking has changed, due to the internet
predominantly, and I am curious if you could clarify how the
proposal is going to deal with that, and how you are going to
be tracking banks and giving them credit for where they are
receiving their deposits and where their projects are?
Mr. Otting. Sure. First of all, the branch network is still
a critical component of U.S. banking, and so, by simplifying
the rules of how it is measured, we won't have to do a small
sample of the assessment areas across America. We will be able
to look at every community, including your small communities,
and see how the banks that are domiciled in those communities
are supporting those communities.
Today, in my example of 276 regional banks, we looked at 40
of their assessment areas. We will look at all 276 going
forward, and so your community--we will be able to determine
what is going into that community from a CRA perspective. So,
there will be more data available.
Also as you talk about the evolution of banking going
through the internet, those institutions that take more than 50
percent of their deposits outside their assessment area will
also be required to invest back into those communities because
they will be deemed CRA assessment areas.
Mr. Huizenga. Okay. In my last 30 seconds, do you fear
that, without the Fed's support, financial institutions will be
unduly burdened with additional and possibly competing CRA
regulations?
Mr. Otting. I'm sorry, could you repeat that?
Mr. Huizenga. Do you fear that, without the Fed's support,
there may be competing CRA regulations out there?
Mr. Otting. I don't. We have thousands of rules,
regulations, and guidance that differ amongst the agencies. So,
no, I do not see it as an impediment at all.
Mr. Huizenga. And with my remaining 5 seconds, I appreciate
you being here, and the opportunity to continue this
conversation.
I yield back.
Mr. Otting. Thank you very much.
Chairwoman Waters. The gentleman from Georgia, Mr. Scott,
is recognized for 5 minutes.
Mr. Scott. Thank you very much, Madam Chairwoman.
At the outset, Comptroller Otting, let me remind you that
you are not the dictator of our financial system.
The reason I say that is because your attitude reflects
that. Our committee has had concerns raised to us from
community activists about your rule, and you have expressed
that those concerns don't matter. We have had requests for you
to appear and discuss and lengthen the timeframe for these
concerns. You said, ``No.'
You have actually misspoken when you talked about the
Federal Reserve. They were in here last month, and I
specifically asked them, ``Where is Mr. Otting?'' Because you
were the center of attraction when we were discussing that
bill, and I was very concerned that you failed to show up at
that hearing with the other regulators.
Our financial system regulatory process is a collaborative
effort, not just yours. We have had concerns from the very
banks who are very much concerned, and don't even know how to
follow this regulation.
So when some from the other side talk about uncivil action,
there is no uncivil action on our side. If there is any, it is
you who are coming in here with an attitude that, ``It is my
way or the highway.''
Now, I am very concerned about one of the fundamental
pieces of yours that impacts the very purpose for this Act. If
it weren't for the civil rights movement, there would be no
CRA. That is the pillar of this Act. And your rule violates the
efforts of banks, and restricts their efforts to increase and
supply adequate, affordable lending practices for the very
people that the Act was passed to protect.
When your proposal discounts loan origination in favor of
balance sheet, that right there makes it more difficult for the
community banks to serve and extend that help.
And so I can't understand why you are doing what you are
doing, when the entire community is asking, ``Why?'' The banks
can't even figure out how to respond. People in the civil
rights movement who gave their lives to have such a law placed
on the books are asking why. The Federal Reserve, the FDIC, all
of whom were here, were all trying to figure out why.
So tell us, why are you acting in such a dictatorial way?
Mr. Otting. Needless to say, I respect you very much,
Congressman. I find somewhat appalling the comments that you
made to me. I am doing it in the best interests of communities
across America. I do believe that this will increase--
Mr. Scott. But why haven't you responded? Why? Do you think
everybody who has to implement this--
Mr. Otting. How many years do you want this to go on?
Mr. Scott. No, I don't. My concern is--
Mr. Otting. I came to your office personally 3 times to
walk you through this.
Mr. Scott. I think you have. That is why I am so
disappointed in you, because I am surprised.
Mr. Otting. Yes, I have spent an enormous amount of time--
Mr. Scott. It doesn't seem like you.
Mr. Otting. Yes.
Chairwoman Waters. The witness is requested to provide an
answer in writing for the record.
The gentleman's time has expired.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Madam Chairwoman.
And, Comptroller Otting, thank you for being here. I
commend you for your work to modernize the Community
Reinvestment Act.
And I would ask my colleagues to follow the rules of
decorum and not refer to you as a dictator. I think you are
showing exemplary patience here today for someone who is
totally following all of the rules and procedures under the
Administrative Procedure Act. There is a comment period. You
are following those rules. There is no dictatorial behavior
here. You are just actually modernizing the CRA through the
rules and the rulemaking process that is set forth in Federal
law.
And there is a comment period. Obviously, we have some of
our colleagues who want to provide you some feedback on your
proposal. They get that opportunity. You are following those
rules.
And let me just make the counterpoint that I think not only
are you bringing the CRA into the 21st Century and modernizing
it, making it more objective and less subjective for the
lenders and the banks, but I think, more importantly, you are
bringing the CRA into the 21st Century in a way that will much
better help low- and moderate-income communities.
And in Kentucky, that I have the privilege of representing,
we have a lot of CRA deserts. We have a lot of rural
communities that don't get investment because the CRA is stuck
in 1977.
We need what you are doing, because we need CRA to reflect
the modern-day realities of low- and moderate-income
communities that are not served by this outdated CRA. And you
are doing a great job of bringing this into the 21st Century.
Let me ask you this. I really think that the best
innovation that you have done in this proposal is to clarify
what counts. And you and I talked about this before.
What I think is very, very important in this modernization
in your proposal, is that banks who have suffered under a lack
of transparency over the years, and they are understandably
skeptical that regulators will be able to totally remove that
subjectivity and guesswork as to whether an activity is CRA
qualifying.
So I want to ask you about that feature of the proposal
that says that banks could have projects approved for CRA
credit before they are being underwritten, contrary to the
current model of approving loans and receiving CRA credit after
the fact.
Tell me, what assurances can you give banks and lenders
that this proposal will, in fact, clarify in advance what
activities will receive CRA credit and allow banks to solicit
agency confirmation that an activity qualifies for CRA credit
prior to engaging in that activity?
Mr. Otting. Thank you, Congressman.
First of all, one of the big challenges with CRA often is a
bank is concerned about something qualifying, and so they had a
tendency to just slide right to the middle of the Bell Curve
and only do the most conservative things. And to be creative
across America and really, I think, serve the low- to moderate-
income community, we want people to stretch and think of new
ways to help that community with housing and jobs and
activities.
Mr. Barr. And how will that actually improve access to
capital in low- and moderate-income communities?
Mr. Otting. It will do two things. Because everybody around
America will know what counts. And a lot of times, you find
things being done in New York, that people didn't know about in
Los Angeles, and things being done in Seattle, that they didn't
know about in Chicago. So now, we have a list saying, here are
all of the things that will qualify.
Mr. Barr. I think that is huge. I think that is absolutely
immensely beneficial to low- and moderate-income communities.
Why on earth would there be criticism of this proposal that is
going to invite more capital into low-income communities
because banks and lenders are actually going to know in
advance--
Mr. Otting. That is right.
Mr. Barr. --that this qualifies and this gets credit.
That is a great innovation and I commend you for it, and
everyone who cares about low- and moderate-income communities
should applaud that.
Let me ask you this. The Fed is not part of this. What are
you doing to engage the Federal Financial Institutions
Examination Council (FFIEC) to work with not just the Fed and
your agencies and the FDIC, but also the State bank regulators,
to make sure we have harmonization here?
Mr. Otting. The ultimate goal was to bring this to one
rule. We are still hopeful that as we progress this into a
rule, that then the Fed can look at it, can observe how it is
working, and then ultimately their choice could be they could
adopt this or modify it.
But I do think the choices would be stay on the current CRA
plan or perhaps move into our plan or modify another plan. But
I do not see regulatory arbitrage, I do not see confusion
amongst the banks. Generally, the banks are looking for, from
their primary regulator, what the rules and requirements are,
and we think this brings tremendous--
Mr. Barr. Is there any indication to date that the comments
submitted in response to your rulemaking are anything other
than authentic?
Mr. Otting. There is not.
Mr. Barr. And final point, and I made this--
Mr. Otting. Can I take one question on that, Congressman?
Mr. Barr. Sure.
Mr. Otting. We don't know, because they can submit
anonymous comments. We read them all and see do they have
substance. It is not a numbers game. It is really the substance
and the actionable items that come in those letters.
Mr. Barr. Thank you. I yield back.
Chairwoman Waters. The gentleman from Missouri, Mr. Clay,
who is also the Chair of our Subcommittee on Housing, Community
Development, and Insurance, is recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman.
And thank you, Mr. Otting, for being here today.
The Great Recession had a disproportionate impact on
communities of color. CRA and laws like it were meant to level
the playing field for communities that face systemic
discrimination and financial exclusion.
CRA advocacy groups have argued that the OCC's one-ratio
rule would dilute CRA activity in low- and moderate-income
communities. Are you sensitive to these criticisms and willing
to listen to all community and civil rights organizations to
revise your approach?
Mr. Otting. We have had a number of discussions with
communities and civil rights organizations. Not everybody takes
the same position as the one that you described.
And, Congressman, it has been a few minutes, and I am happy
to do it again, to talk about the fact that there is no one
ratio in this proposal. That is a myth. It is inaccurate. The
average regional bank will have 502 measurement points.
So every community would be measured by units and dollars,
and at the top of the house, it would be dollars. So that is a
false statement. I am sorry that--I would be happy to come by
and explain that to you if you would like.
Mr. Clay. Okay. But, look, let's cut to the chase. The
overall intent of your revisions--is it your intent to uplift
these communities that have been locked out of the recovery,
they have been locked out of economic activity altogether? What
do you think the overall intent will be of your rule changes?
Mr. Otting. Absolutely, Congressman. I have a strong belief
that by clarifying what counts, clarifying where it counts, how
the regulators are going to count it, will allow communities to
attract dollars and capital into those communities. I wouldn't
be taking this journey if it wasn't for that.
Mr. Clay. Here is what the National Community Reinvestment
Coalition (NCRC) has estimated, that relaxing CRA, like your
proposal does, could lead to a potential loss of $52 billion to
$105 billion in lending to low- and moderate-income communities
over a 5-year period. And what do you say?
Mr. Otting. I say that study was flawed because it made an
assessment that 50 percent of the assessment areas would go
away. So, I don't think that study is accurate.
I also think NCRC is a biased organization. They receive
money in mergers that they extract from the banks. And so, I
don't think they can independently assess this rule.
Mr. Clay. Here is what they say, that implementing your
proposal, CRA rulemaking, shows a lack of concern for the
potential loss of lending to low- and moderate-income and
racial and ethnic minority communities. What do you say to
that?
Mr. Otting. I say we are closing the loopholes where high-
income people move into low- to moderate-income areas and get
credit for those as mortgages today.
Mr. Clay. Okay.
Mr. Otting. And we are going back to the individual
assessment areas. And so, every individual assessment area will
have a measurement.
Mr. Clay. How is that accurate, when we look at the
constant steady decline of overall family wealth in communities
of color, especially in the African-American community? Family
wealth is one-tenth of white wealth in this country. How do we
level that playing field through your changes?
Mr. Otting. I think it is disturbing, that trend line on
African-American home ownership in this country. We have met,
Grovetta and I, with the Black REALTORS Association. There is
work to be done there. We have to understand why that is
occurring.
Mr. Clay. Here is why it is occurring, because you never
get a fair appraisal value, you never get extended credit for
businesses or home mortgages. So they have to go into the
predatory market. How do we stop that? And how does your rule
address that?
Mr. Otting. I am not sure that is covered under CRA
exactly.
Mr. Clay. It has a lot to do with CRA, by what banks
actually do.
Mr. Otting. Not the items you were describing.
But you obviously have a passion for this. We have spent a
fair amount of time on this as well. I would be happy to come
over and spend some time with you. This is an issue we have to
get fixed in America.
Mr. Clay. We have never discussed this. You have never been
up to my office, have you?
Mr. Otting. Not to the best of my knowledge.
Mr. Clay. I didn't think so. But thank you for your
answers.
I yield back.
Chairwoman Waters. The gentleman from Colorado, Mr. Tipton,
is recognized for 5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman.
Comptroller Otting, I appreciate you taking the time to be
here.
And I am a little dismayed with some of the comments that
have been made here today, with the word, ``dictator'' directed
toward you, saying that you want to be able to restrict banks'
ability to be able to make loans for the people that they are
designed to serve.
We had a letter that was passed out that was sent to you by
some of our colleagues on the Democrat side.
We would like, Madam Chairwoman, to be able to introduce
that into the record with unanimous consent--
Chairwoman Waters. Without objection, it is so ordered.
Mr. Tipton. This letter does recognize what I hear you
talking about, wanting to be able to move the CRA into the
modern age, to be able to update something that is outdated,
and to make sure that we are actually addressing some of the
concerns in communities.
And one thing that I would like to be able to highlight is,
when we are talking about making out that menu of acceptable
CRA activities for banks, you had included something that came
out of some of our hearings: expanding broadband.
In your opening statement, you talked about living in a
rural area. That is my district. We talk an awful lot on this
committee about the urban areas, and we should, in terms of
creating some economic opportunity. But on a per capita basis,
the impact that we feel in those rural communities when we see
shrinking numbers of community banks being able to provide
services into those areas, it is important that we remember
that those people, those families, are important too.
And I think a lot of what you are trying to be able to
focus on, what we address in this letter, is to be able to make
sure that we are actually achieving some of those goals in
those local communities.
But I want you to be able to maybe expand a little bit on
some of the certainty that you can certainly create for the
banks in terms of what they are going to be investing in, but
also to speak about probably what is ultimately most important,
what I hope we all agree on: helping the lives of the people
who live in those communities through those investments.
You have been cut off a few times. Would you like to be
able to speak to that?
Mr. Otting. No, I think the certainty around the list of
what qualifies, it is amazing we have an Act that has been in
place since 1977, and you could travel around and ask people
and no one could tell you what actually qualifies for CRA.
This was a joint effort between the FDIC, the Fed, and
ourselves to come up with that list. It will be a living,
breathing document, meaning that we will add to that list, and
perhaps subtract from that list, if it is not meeting the needs
of low- to moderate-income communities. But also the intake
valves, so to speak, when there is a project that doesn't fit
on that list, to get a pre-ruling about whether this is
something that will benefit low- to moderate-income communities
across America.
I know your rural district. I have been over to see you
many times. If you have seen banks shrink and consolidate, the
assessment areas in rural America have gone away, this forces
those banks to go back out into those communities where they
have branches and support those local communities.
But just as important on the top of the house, when a bank
meets their assessment area requirements, they will then have
fungible dollars that they can go to rural America and make
those investments in things like you described, that can help
those people continue on with the American Dream. So, I do
think this is a really fundamental shift in the right direction
for all of America.
Mr. Tipton. And I appreciate that comment because this is a
complex issue in terms of trying to be able to define the
areas, what is going to actually be acceptable under the CRA.
I can speak to a lot of the banks that I have talked to,
investments that they would like to be able to make,
investments that they have made that were not actually credited
toward CRA, but they had a real commitment to be able to grow
those communities and to be able to make sure.
We have had a fair of amount of conversation in terms of
the comment period. I noted in your response letter to the
subcommittee chairman that you said you will continue to
monitor the number of comments to determine if an extension is
necessary later in the comment period.
Would you like to speak to what you are doing to be able to
lessen what you are getting back in some of those comments?
Mr. Otting. Absolutely. We have 40 days left in the comment
period. There are 13 pages in the red text that someone has to
read through and understand. And we look for those comments to
come in to add value.
It is not a numbers game, meaning form letters, things like
that. If they don't add substance to the comments with
actionable items, we so note those and we so note what was
covered.
But we have already begun the process. I said I read the
1,500 letters. Last week, there were 83 letters that had
already been delivered. This morning, I found out there are 152
letters. We are documenting, matrixing, identifying what is
coming in, in those comment letters.
So we can learn from those comment letters, things that can
make this rule, I think, the best that it can be. I agree with
you, this is a complex, emotional issue that requires a lot
of--
Chairwoman Waters. The gentleman's time has expired. The
witness is requested to provide an answer in writing for the
record.
The gentleman from Illinois, Mr. Foster, is recognized for
5 minutes.
Mr. Foster. Comptroller Otting, I understand that you
wanted to bring clarity and simplification to CRA evaluations,
and I appreciate that. But I am a physicist, and there is a
famous quote from Albert Einstein that says that things should
be as simple as possible, but not simpler. Okay? And I think
there is a danger here.
One of the simple principles that you might consider adding
to these is to reward the number of people helped and not
simply the dollar volume delivered--also, the number of small
businesses helped--that that should be an important part of any
numerical metric you come up with.
So, for example, if you go out into some rural area and you
build a giant automated factory with no jobs, you haven't
really helped any people, and that should not count as money
delivered to those communities. But if you count the number of
people helped, you come to something that more aligns with, I
think, our intent on both sides of the aisle here.
And so, I would like to just go through some specific
things that occurred to me just reading through and listening
to this discussion.
Why couldn't we, for example, have retained a separate
metric for lending and a separate metric for community
development investments and services?
Mr. Otting. Are you asking--
Mr. Foster. Instead of just having, like, one number, one
big number for the dollar volume, that just separately counts
lending into a community and--
Mr. Otting. We looked at that, we talked about it, and in
the end, concluded that we would go to one numerator which gave
banks the flexibility to apply their CRA activities to their
particular business model.
Mr. Foster. Right. But then the difficulty is that they
will say, okay, I am going to get all of the numerator out of
an investment in a big automated factory or something like
that.
Mr. Otting. So to your point, I didn't respond to that, but
the the examiners actually use their judgment, did that
particular activity have an impact? And so, we do that today.
It is not quantified, but the examiners' observation of impact
to the community is an important ingredient of the overall
review. Today, we use 80 percent subjective, 20 percent
objective. We are flipping that around, but still retaining
that overview by the examiner.
Mr. Foster. At the 20 percent level? The difficulty is that
the subjective thing must vary all over the map, and inspector
to inspector.
But another thing, would it make sense to put some sort of
concentration cap on transactions or activities as well?
Mr. Otting. Concentration as in, only so much in
residential mortgage, so much in small business?
Mr. Foster. For example, yes.
Mr. Otting. Yes.
Mr. Foster. Or specific large projects.
Mr. Otting. Again, there are different business models
amongst banks, and today some banks achieve all of their
objectives by small business lending, some do it all by
mortgages, and we generally do not dictate what the business
model could look like.
However, on the community development, we said, in the
markets, it has to be at least 2 percent of your dollar total
has to be community development activities.
Mr. Foster. Okay. Which is a pretty small fraction,
compared to the historical. If you look at what a small
community bank--
Mr. Otting. It depends upon the size of the investment in
that market.
Mr. Foster. Yes, but if you look at the small community
banks in rural areas and so on, they historically did a lot
more than 2 percent, and you are replacing it with something
less than that.
Mr. Otting. And we are open in the comments for feedback on
that. We obviously got that number by having a lot of
discussions with people. And if people came back and thought it
should be more, we would consider that.
Mr. Foster. Yes. I think there is also a danger that the
proposed rule expands eligible and qualifying CRA activities to
include some of what banks already do in the ordinary course of
business. That dilutes the effectiveness of the CRA to the
extent that you do that.
For example, community development activities of loans,
investments, and services would no longer have to have, ``a
primary purpose of community development targeted at LMI
individuals or areas.''
And so, there is a danger there that if it is only prorated
credit would be given for these instances, but broadening these
activities has the danger of perverting banks' incentives in
ways that really will end up being contrary. So, I would be
very careful of that change.
Mr. Otting. On your point, I think what you were making,
was if in a hospital was done in a community and it serviced 10
percent low- to moderate-income, then that project would only
get 10 percent credit toward their CRA. Is that what you were
referencing?
Mr. Foster. That is an example, right.
Mr. Otting. In the 200 list, which referenced giving more
credit, that list was accumulation through the Fed, the FDIC,
and the OCC of what institutions are currently getting credit
for, and then we synthesize that, did it make sense.
Mr. Foster. Yes. And again, I think putting into those
metrics the number of people helped in the instance of a
hospital, even if it mainly served higher-income areas, it
provides lots of jobs for people at all levels of income, and
that there should be credit for the people helped as well.
Thank you. I yield back.
Mr. Otting. Thank you.
Chairwoman Waters. The gentleman's time has expired. The
witness is requested to provide an answer in writing for the
record.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams. Thank you, Madam Chairwoman.
And thank you, Comptroller, for coming to answer our
questions today. I have several for you. And I know I have
asked you this question before, but I wanted to make sure
nothing has changed since we are into 2020.
Are you still a capitalist? Or do you think socialism would
be a more favorable economic system for our country?
Mr. Otting. Congressman, when my great-grandparents came
here from Ireland and Germany, they arrived in Ellis Island.
They were directed to Chicago, and they were farmers. And I am
here today because of the entrepreneurial spirit and the
capitalism they deployed.
My in-laws who came from Mexico and came to Los Angeles,
their family was taken care of because of capitalism.
I don't know what the strongest point of capitalism is, but
I affirm my support of capitalism.
Mr. Williams. Thank you for that. I appreciate it.
I think there is a lot of good in the new proposal that you
have talked about to modernize CRA regulations, and there are a
few issues that I want to touch on specifically.
The current CRA regime contains loopholes that allow a
bank's balance sheet to appear as if they are engaged in CRA-
eligible activity, even though they never actually made the
investments in their communities.
So, can you tell us how this new proposal tightens up the
CRA requirements to ensure that each institution is actually
making impactful investments in the community that they serve?
Mr. Otting. Specifically, on the mortgage side, is that
today a financial institution could go to Southwest Washington,
which is deemed a low- to moderate-income area, and I could
move into that neighborhood and a bank could get credit for
that mortgage.
In the future, both the area and the borrower will be
required to be low- to moderate-income. And so, we are able to
tighten that down, so to speak, in that regard. So that is
probably the most profound change that we have in the new
regulations.
Mr. Williams. Okay. Before I get into more CRA questions, I
wanted to raise an issue with you that has been brought to my
attention. Many financial institutions are being pressured to
stop doing business with industries that have fallen out of
favor with some of my colleagues on the other side of the
aisle. From the gun industry to private prisons to fossil
fuels, banks are under increased pressure to stop working with
these completely legal industries.
Mr. Posey touched on this before. And as someone who was
personally targeted by Operation Choke Point, I want to just
reiterate that all legal industries should have equal access to
the financial system.
So what would you tell financial institutions feeling the
pressure, as well as the private entities, some of which who
have received Federal contracts?
Mr. Otting. Yes. We believe the banking industry should
serve all legal businesses in America. However, we do leave
that up to the boards and management of those financial
institutions to make those decisions.
Mr. Williams. Federal Reserve Governor Brainard has raised
the point that using nationwide ratios for CRA may not be
compatible for the needs of various communities across the
country.
In my district alone, we have many rural communities, such
as Cleveland, Texas, that will undoubtedly have different needs
than those of urban areas in my district, like Austin.
I don't think she is necessarily wrong in her assessment,
it appears as if the new proposal takes this into account since
there is an asset threshold where each institution will be able
to decide whether to abide by the new or old CRA regime.
So can you please respond to the point that Governor
Brainard raises, and then elaborate on how the new proposal
would add additional flexibility for institutions serving all
areas of the country?
Mr. Otting. We believe this proposal offers the flexibility
to make a determination upon the size of the market and the
activities in the market. What I mean by that is, if your
particular city is an assessment area, we would look at the
low- to moderate-income activity in that market in relationship
to all the banks, and we would look at the population of low-
to moderate-income, and then we would compare that to the bank.
So we are rightsizing it, so to speak, for that market.
On the dollar size, what we are looking at is deposits
being the numerator and how much of their total CRA activity in
relationship to their deposits they are doing at the community.
So if you have a big community with lots of activity, you
better be doing your share, and you better be doing a
percentage of your deposits. If you are a smaller community,
obviously, what would be required of you would be significantly
less.
Mr. Williams. Thank you. In closing, I just want to thank
you for your leadership, and I appreciate your vision.
I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Florida, Mr. Lawson, is recognized for 5
minutes.
Mr. Lawson. Thank you, Madam Chairwoman.
And welcome to the committee, Mr. Otting.
One thing I would just like to state up front is that I
don't think you or your staff, to my knowledge, has been by the
office to talk to me about this.
Mr. Otting. We did come by for the Black Caucus Day, and we
sat in the conference room and we had a discussion on CRA.
Mr. Lawson. Could you explain the Black Caucus Day, because
I am not aware of that?
Mr. Otting. No, no. This was just me coming up to meet with
the Black Caucus.
Mr. Lawson. But you hadn't come to meet with me? I don't
want you to think that--
Mr. Otting. It was a meeting of one on two.
Mr. Lawson. I don't want you to think that because you met
with the Black Caucus that you--
Mr. Otting. No, no, I met with you and one other Member of
it. If you recall, I came up to talk about CRA that day, and
two Members showed up, and then you were one of the Members
that we had a dialogue with.
Mr. Lawson. Okay. Well, I have no knowledge of that. I
apologize if that happened.
Mr. Otting. We can follow up and give you the date.
Mr. Lawson. That would be great.
On December the 11th, you received a letter from the
chairperson which stated that CRA is a critical tool to combat
redlining and practices that still exist, in which banks
discriminate against prospective customers based primarily on
where they live, their race, and background, rather than
creditworthiness.
And early on, when you were giving your testimony, you
talked about your upbringing and what really happened and one
of the reasons why you wanted to make these particular changes.
Could you explain a little bit further what you were trying
to illustrate to the committee and how your background led you
to formulate these policies that would be critically important
to communities of color and disadvantaged communities in terms
of CRA and how they work?
And the reason I ask that is I represent an area that
stretches probably 240 miles, with a lot of rural communities
in between, where this becomes very critical. So I would just
like to hear your perspective in coming to this conclusion, and
maybe not extending the number of days to 120, but 60 days.
Based on your background, how did all of this come about?
Mr. Otting. First of all, it isn't 60 days. It is 88 days.
Mr. Lawson. Eighty-eight days.
Mr. Otting. But what I was making by that point is, I came
from a very poor area. My wife grew up in east Los Angeles,
which is a very poor area. They were first generation to the
United States. And as I was a banker, I was able to go out into
communities and deploy capital and lending into those
communities and see what could be done by creating jobs and new
low- to moderate-income housing and how it brought the vibrancy
of the community back with financial counseling.
So I was just making the impression that I, as Joseph
Otting, have been in those communities across America and
understand the need to get more lending and more capital into
those communities.
Mr. Lawson. Okay. Based on your experience and experiences
that you all have been going on in developing the new
guidelines, do you feel that the guidelines that are coming up
now, that many of these banks would do more to invest and
eliminate some of the discrimination that exists for many, many
years?
Like you said earlier, there still will be problems, but
how is it that your agency will be able to do a better job than
what has been extended in the past to combat a lot of this
discrimination or redlining?
Mr. Otting. First of all, we do observe redlining and
discrimination. I find it appalling in America today that we
still have instances of that. And we have a whole set of rules
on equal credit and fair housing that we do an annual review of
financial institutions. So, that is how the agency does that.
In relationship to how does CRA play a bigger role, I think
was the other question that you had for me, is by measuring
exactly what we have the banks do and what we say qualifies. We
can look and determine what is being done across communities
today.
There is no data today. That is one of the big problems
about CRA. If you want the information, you have to go bank by
bank by bank through their performance evaluation.
Our goal as a team, is to be able to produce that data, so
that a year from now when I am sitting here, you can look at a
market and you can tell me why in Florida is it only this
amount of money that is being invested in CRA. And you can't do
that today.
Mr. Lawson. Okay. And quickly, does this apply to the
credit unions also?
Mr. Otting. It does not. It would require legislative
action for the credit unions to be included.
Mr. Lawson. Okay. With that, I yield back.
Chairwoman Waters. Thank you.
The gentleman from Arkansas, Mr. Hill, is recognized for 5
minutes.
Mr. Hill. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for being here today.
I approach this like my friend, Mr. Luetkemeyer from
Missouri, having spent 40 years complying with CRA in various
capacities, in the late 1970s and early 1980s and in Texas for
a large multibank holding company in their planning department,
and then in the 1990s, compliance of a $3 billion bank reported
to me as we rolled out and implemented the Bill Clinton changes
to CRA in 1994 and 1995. And then for 15 years as a small,
intermediate bank CEO. So I do look at your proposal with sort
of a practical sense of where is it better.
I want to first of all say that review after 2 decades is
important to reflect the changing landscape of the industry,
and I thank you for stepping up as one of your early
initiatives and say, based on my experience, you having been a
bank CEO in greater Los Angeles, for example, that you see that
this needs to be changed.
I have talked to you about the fact that small,
intermediate banks bear a disproportionate amount of burden in
trying to comply with CRA, and yet some of them are doing the
best job of serving their communities. So as you look at the
comments, I hope you will keep that in mind, that that balance
is important.
Looking at the specific proposal, you answered Mr.
Sherman's question and also referenced a little bit to Mr.
Williams about double counting CRA credit in the mortgage-
backed securities arena, in the housing arena. I understand
that, and I certainly watched, with the advent of big data,
banks originating a loan, and selling it to a mortgage-backed
security, and as you said, $4 of CRA credit spread around.
But a lot of banks have built their models on originating
credit, selling them to the mortgage-backed securities market,
and then doing it again. So, that has expanded credit in the
United States. I am concerned that they don't get full CRA
credit to some degree for someone who is not abusing that
practice.
Have you thought about providing a multiplier for banks in
that credit risk? Or what are some of the things you are seeing
to give nuance to just saying, well, it is just 25 percent?
That is not a very sophisticated proposal in a really
sophisticated market. Maybe people could get--if they held it
over a period of time, over the duration of the loan, they got
more credit. What are your thoughts there?
Mr. Otting. First of all, thanks for the question.
Of the top 10 items that we will go through, between the
NPR and the final rule, that is one that is getting a lot of
discussion.
People intellectually understand where we are trying to go.
The industry gave us that feedback initially about 25 percent,
but over the last 2 weeks, we have done a lot of discussions
with people, and now we are starting to hear a little bit more
concern, should that be a higher number? And so, that will be
one of the key things that we will kind of think through as we
go to the final rule here over the next 60 to 90 days.
Mr. Hill. I think that is important.
Mr. Otting. I agree.
Mr. Hill. I look forward to looking at the comments and
discussing it more.
During those 15 years that I was a bank CEO, we had two
major rural counties, one with 20,000 people in it, and one
with 10,000 people. The one with 10,000 people was 50 percent
African American, with a very high poverty rate, an over 30
percent poverty rate.
So I share my colleagues' concerns about serving rural
communities, and one of the rural proposals said that you are
increasing small business loan amounts from $1 million to $2
million and small farms from half a million to $2 million. And
that is a real concern in Arkansas because that will mean a lot
of smaller banks can't as easily meet their CRA threshold.
Again, getting back to my point about truly small,
intermediate bank sizes versus growing big regional banks, what
are your thoughts there?
Mr. Otting. I would like to follow up and have some
dialogue on that, because we actually thought the feedback we
got from a lot of the small banks is, it doesn't take much to
get to a million-dollar crop loan in the environment today
because the costs have risen so high, that increasing that
would give them the ability to take care of their customers
under CRA. By no means did I think it would be a hindrance.
Mr. Hill. Yes.
Mr. Otting. I would love to follow up and hear your--
Mr. Hill. Please follow up on that.
And the other thing I have gotten a lot of feedback from is
your approach to counting volunteer hours and how that is
proposed. So, maybe we can have a follow-up conversation on
that, too.
Mr. Otting. I would be happy to.
Mr. Hill. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you so much, Madam Chairwoman.
I sincerely appreciate your leadership on trying to uplift
some of the struggling issues regarding the Community
Reinvestment Act, and I thank you so much for coming before our
committee again, Comptroller.
In Michigan's 13th Congressional District, I represent the
third-poorest congressional district in the country. I
consistently try to bring them into the room as I talk about
these issues so that we are connected to what the impact truly
is on the ground when we make changes here in Washington, D.C.
Most of my residents are left at the mercy of corporate
investors who are using both existing and new business models
to extract as much wealth as possible, exasperating challenges
that are already very much painful for distressed communities.
Despite this, every year our Federal Government gives away
billions of dollars in tax revenue incentives that have proven
consistently to fail to help our most vulnerable communities,
our low-income communities.
We are actually closing schools, and taking away parks, and
instead investing in stadiums and luxury hotels. That is
exactly what is happening. The system is now being increasingly
rigged, and CRA now is at the table in regards to be now so-
called used, and I think very much mislabeled, as a way to try
to increase affordable housing for our residents.
Mr. Otting, your proposal suggests that Opportunity Zone
(OZ) areas would qualify for CRA credit, but it is unclear
whether these OZ activities would have to meet CRA low-income
definitions. Right now, there are about 1,700 designated OZ
census tracts that do not qualify. It is currently under
investigation, because some of these census tracts did not
qualify under the set standards that they be poor, challenged
communities.
Madam Chairwoman, I would like to submit for the record a
New York Times article saying, ``Trump tax break that benefited
the rich is being investigated,'' as well as a recent article
saying, ``Treasury watchdog to investigate Trump opportunity
zone program,'' into the record.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Tlaib. So, yes or no, under your proposal, can banks
receive a CRA credit for activities that do not meet the
definition under CRA currently for low- and moderate-income?
Mr. Otting. They cannot.
Ms. Tlaib. So right now, they can't get credit for building
a soccer stadium, a for-profit soccer stadium?
Mr. Otting. You said if it is not in a--
Ms. Tlaib. They cannot get CRA credit in an Opportunity
Zone--
Mr. Otting. If it is not in a low- to moderate-income
community, they cannot get credit.
Ms. Tlaib. But right now, Opportunity Zones have been
designated in areas--
Mr. Otting. The clarification is, it could be an
Opportunity Zone as long as it is a low- to moderate-income
neighborhood. If it is that percentage of Opportunity Zones
that are not low- to moderate-income, it would not qualify for
CRA.
Ms. Tlaib. Okay. So if it is in a low- to moderate-income
community, great, check.
Mr. Otting. That is right.
Ms. Tlaib. So, if a for-profit hockey stadium gets built,
they get credit for that? In a low- or moderate-income
community, they will get credit for building a for-profit--
Mr. Otting. Yes, I appreciate, if you don't mind me
answering, so--
Ms. Tlaib. No, go ahead.
Mr. Otting. So, since--
Ms. Tlaib. Yes or no?
Mr. Otting. Since 1993--
Ms. Tlaib. It can.
Mr. Otting. Since 1993--
Ms. Tlaib. Chairwoman, it just needs to be very clear.
Mr. Otting. --they have given credit for sports facilities.
The beauty of putting this list out and giving people the
ability to offer comments is, if you don't like that, you can--
Ms. Tlaib. Please accept this as me submitting comments,
saying I have an issue with this.
Mr. Otting. We have to have written comments.
Ms. Tlaib. I will do that for you, no problem. I will write
it out for you. I will give you a number of various projects in
Detroit and throughout Wayne County where for-profit prisons
should not qualify to get CRA credit; there is a for-profit
hockey stadium, where literally a mile down the street, Cass
Tech High School doesn't have clean drinking water. Do you see
what I am saying here?
The true intent of CRA was not to help the wealthy and
those who already do not need help. And you know this.
Comptroller Otting, know that the frontline communities,
that is why we are here. Government has to be about people. And
right now, they are rigging the system. And CRA, you are
allowing them to codify into the CRA that, yes, for-profit
prisons and stadiums can actually get CRA credit in low- to
moderate-income communities. That is wrong.
Mr. Otting. Then, that is why we should change it in the
comment period.
Ms. Tlaib. Yes. That is why I am telling you right now, if
you want me to put it in writing, but I am telling you on
behalf of 13 District strong, I am giving you notice that we
have a serious problem with you giving credit for these kinds
of activities that have nothing do with access to affordable
housing.
Mr. Otting. You say, ``me.'' It has been in place since
1993. I am the first person--
Ms. Tlaib. I understand, but you just codified--no, you are
codifying it.
Mr. Otting. I am the first person who is putting a list
together--
Ms. Tlaib. Yes or no, you are codifying it now?
Mr. Otting. You have become aware of it because I put the
list out.
Ms. Tlaib. Oh, no, no, no, I wasn't here, sir. I have only
been here a year. I would definitely, even as a State
representative, I would have submitted comments and put you on
notice. But I am telling you, you are codifying it. It is okay.
We are not--
Mr. Otting. You are missing my point. The only reason you
even know about the stadium is because I put the list out for
public comment.
Ms. Tlaib. Yes, you can say that, but it doesn't make it
right or wrong, right?
Mr. Otting. I am not arguing whether it is right or wrong.
Ms. Tlaib. Look, I am going to submit questions, Madam
Chairwoman, to him directly, and Mr. Otting, I would like for
you to answer them in writing.
Mr. Otting. I came by your office before, and I would be
happy to do that again.
Ms. Tlaib. Yes. Coming by my office does not actually make
it right. It is still wrong to give credit to for-profit
prisons and stadiums for CRA.
Thank you.
Chairwoman Waters. The witness is requested to provide an
answer in writing for the record.
Mr. Otting. I am not sure of any for-profit prisons that we
have given CRA credit for.
Chairwoman Waters. The gentlelady's time has expired.
Mr. Otting. Thank you.
Chairwoman Waters. The witness is required to reply in
writing to the Member as soon as possible. Thank you.
The gentleman from Tennessee, Mr. Kustoff, is recognized
for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for appearing today.
At the end of your time, I know you were trying to finish
an answer. Would you like some additional time to try to
finish?
Mr. Otting. I was just going to comment that I am not aware
of a private prison receiving CRA credit.
Mr. Kustoff. In relation to that last set of questions, was
it the Clinton Administration that put the proposal into
action?
Mr. Otting. The last time it was modified was 1995, but the
activities that we put out on the list were actually begun in
1993.
Mr. Kustoff. Thank you.
If I could, Comptroller Otting, I know that a couple of my
colleagues have asked you about this, but I read an article
that was authored or co-authored by former Senator Phil Gramm
in The Wall Street Journal a couple of weeks ago, and it
discussed the cross-section between CRA credit and attempts by
some to target legal businesses and in some case companies with
Federal Government contracts, politicizing, if you will, some
of the banking services.
And I think we are all aware of what happened during
Operation Choke Point by the previous Administration to deny
credit to creditworthy customers, if you will, through
political intimidation. If you could, though, Comptroller,
could you address whether the OCC has done any analysis of
industries that are being denied banking or credit services
even though they may be financially sound and otherwise
creditworthy?
Mr. Otting. We have not done a study. Our position is that
legal businesses should have access to the U.S. banking system,
and we leave those decisions up to the management of the boards
of the respective banks. However, under CRA, an institution is
required to serve the entire community if they are domiciled in
that banking community.
Mr. Kustoff. Following up on that, what guidance would you
give those companies and industries from the OCC in order that
they can obtain that financing and stay legal?
Mr. Otting. We give guidance that legal businesses should
have access to the U.S. banking system.
Mr. Kustoff. Also, as it relates to farm lending in rural
communities--and you have had a number of questions as it
relates to those communities, and you talked about your
parents--in my district, which is the Eight Congressional
District of Tennessee, I represent a number of small farmers.
And in fact my State, Tennessee, has the largest Farm Bureau
membership in the country.
So could you talk about your proposal or the proposal of
the OCC and how it could better serve the rural communities
through increased farm lending?
Mr. Otting. Yes. There are a couple of key things as we
worked our way through in speaking to family farm owners. One
was that the dollar amount used to be half-a-million dollars or
less, and family farms were included for CRA. We are moving
that to $2 million. That did a lot of restrictions from banks
getting credit for CRA.
In addition to that, we have also now allowed larger
organizations that maybe are not with a branch in a respective
rural community to be able to do qualified CRA investments in
lending into those communities, and we think that will drive
more capital and investments in rural America.
Mr. Kustoff. Thank you.
And I do think that when we overlook rural America and when
we talk about the LMI communities, but obviously some of these
rural communities are struggling. We know that job
opportunities are few and far between.
Given--and you have talked about this--that physical bank
branches are disappearing, we have seen that over a number of
years for a number of reasons, including technology, as well as
the proposal focus on bank deposits from outside of the
physical locations, how do you envision that component directly
impacting rural America?
Mr. Otting. I think we have seen this migration through the
internet into certain geographic areas where those deposits are
managed by a headquarters operation. What we are trying to do
with this rule is those entities that have more than 50 percent
of their deposits that are coming outside their assessment
areas, assessing where they have 5 percent or more, and then
requiring those banks to invest in those communities across
America.
So there is movement from branches to internet. And then
outside the community, we are trying to create a mechanism so
that they invest back into the communities of America. This
will be a first step. We will get lots of comments about
whether it should be 5 percent or a lower number as we kind of
work our way through the rule.
Mr. Kustoff. Thank you. My time has expired.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman, for your
continued oversight, especially on an issue as consequential as
the Community Reinvestment Act.
A lot has been said about this proposal, that it is rushed,
it is not community-informed, it disregards the will of this
Congress. However, I believe the words and actions that matter
most in this process are yours, Comptroller Otting.
Last week the American Banker reported you as saying, ``I
have no problem with people challenging this. This is a
complicated, emotional issue.''
Yes or no, do you believe opposition to this proposal is
couched in emotion or misunderstandings, too complex--
Mr. Otting. I don't think it is an either/or question. I
think it is understanding it, so you can fully understand what
we are trying to do, without getting false information from
various people, so that you can reach your own conclusion.
Ms. Pressley. So again, do you believe opposition to this
proposal is because people--I am just elevating what you said
in American Banker--are emotional, or it is too complex for
them to understand?
Mr. Otting. I can answer the question the same way if you
would like.
Ms. Pressley. Sure.
Mr. Otting. But I wouldn't want to use your full 2 minutes.
Ms. Pressley. Okay. Very good.
We recently held a hearing where a panel of CRA experts
testified about your proposal, and I asked that expert panel,
by a show of hands, how many supported your approach. Of the
five-person panel, would you venture to guess how many raised
their hand in support of your proposal, this panel of experts?
Mr. Otting. I saw it, but it is a stacked deck.
Ms. Pressley. Reclaiming my time.
Mr. Otting. You can use statistics like that, but four of
them were Democratic witnesses, so--
Ms. Pressley. Only one witness--
Mr. Otting. It is because four of the five were Democratic
representatives.
Ms. Pressley. How many raised their hands in support of the
approach outlined by Governor Brainard? All five.
I find it hard to believe that four out of five issue
experts are opposed because this is a complicated, emotional
issue, the idea of a single metric, which Governor Brainard
warned would encourage more capital-heavy investments instead
of smaller.
If, hypothetically speaking, you ran a bank that loaned to
people of color, would you choose originating 300 small
business loans over making one $300 million investment if the
credit is all the same? Yes or no?
Mr. Otting. I think you are confused on the issue. We do
not have a single metric down to the individual--
Ms. Pressley. I am not confused, and I am not the only one
who believes you have a single metric.
So, moving on--
Mr. Otting. There is--
Ms. Pressley. Mr. Otting.
Mr. Otting. Here is the document. Show me on what--
Ms. Pressley. Mr. Otting.
Mr. Otting. Show me on what page, there is a single metric.
Ms. Pressley. Reclaiming my time, do you believe in a duty
to serve, yes or no?
Mr. Otting. Do I what?
Ms. Pressley. Do you believe in a duty to serve? Are you
familiar with that?
Mr. Otting. I do.
Ms. Pressley. Okay. So in 2014 and 2015, under your
leadership, how many mortgage loans did OneWest make to Black
borrowers in assessment areas, given your commitment to duty to
serve?
Mr. Otting. There was a very small quadrant of small loans
that was made that was--that the assessment was made on. But I
am the Comptroller of the U.S. Currency, so if you have issues
regarding OneWest Bank, you should contact them.
Ms. Pressley. I certainly have issues because there were
only--the answer is two.
Mr. Otting. Yes, but out of how many? Fifty-six, out of 56.
Ms. Pressley.Reclaiming my time. Reclaiming my time, that
isn't much of a--
Mr. Otting. Let's just be realistic about the quadrant. It
was a very small quadrant--
Ms. Pressley. Reclaiming my time.
Mr. Otting. --because we were focused on mortgages--
Ms. Pressley. Comptroller Otting, I have a number of things
that I am looking to get on the record from you.
But the point is, that isn't much of a commitment to
serving anyone, let alone the communities the CRA was intended
to serve.
While you were CEO, OneWest was one of very few banks to
receive a low satisfactory score on their service test. So, yes
or no, would you trust someone who repeatedly failed a key
component of a driving exam with rewriting the rules of the
road?
Mr. Otting. Those were three failed institutions that we
brought together. We did not have a long history--
Ms. Pressley. Yes or no?
Mr. Otting. There is no ``yes'' or ``no'' answer to this
question.
Ms. Pressley. We disagree on that and many other things,
Comptroller, respectfully.
Mr. Otting. Three failed institutions that we brought
together, that we did the best. And I think if you go speak to
people in the Los Angeles community, OneWest Bank has done a
remarkable job in their community reinvestment.
Ms. Pressley. Again, we could debate that.
It seems your takeaway from your experience with the CRA is
not that your bank, or any bank, for that matter, needs to do
better, but that you should get more credit for business you
were going to do anyway.
Either you want to hear what people have to say or you
don't, Comptroller Otting. Your responses to community groups
and this Congress alike suggest you don't.
Thank you, and I yield back.
Chairwoman Waters. Will the gentlelady yield me the balance
of her time?
Ms. Pressley. Absolutely, Madam Chairwoman.
Chairwoman Waters. Mr. Otting, I am going to ask you to
think about the stadiums that are being built in the Inglewood
area of Los Angeles. I know you know the area. You have the
Chargers, you have the Rams, and you have the Clippers. And, of
course, gentrification is taking place.
They are now, under your proposal, eligible for loans in a
way that they have not been in the past. People are being moved
out. The rents are going up. The cost of housing has exploded.
They are being basically forced out of the community. But the
stadiums now can get CRA credit.
You don't have to answer now. I am going to move on. And
hopefully, someone will yield me time for another question.
With that, the gentleman from Ohio, Mr. Gonzalez, is
recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, for
holding this hearing.
And thank you, Mr. Otting, for your service to the country
and for your participation today.
I want to start with one point, which is I think that it is
somewhat comical that the witnesses are always experts. I would
like to remind the committee that we had a comedian, I guess,
in here, I forget when, who completely embarrassed himself, and
it was an enormous waste of time to have his presence here.
And so this notion that every single person we bring
forward is somehow an expert, I think, is something that we
should reconsider.
So with that, on the stadiums piece, I just want to confirm
something. We are in the comment period today, correct?
Mr. Otting. That is correct.
Mr. Gonzalez of Ohio. Okay. So this isn't currently law?
Mr. Otting. Oh, it has been in the law since 1993.
Mr. Gonzalez of Ohio. Okay.
Mr. Otting. And we go back--that is as far as we could
research where a bank was given credit. So, it is currently in
the law. It is up for discussion only because we brought it out
that it was available.
Mr. Gonzalez of Ohio. Yes.
Mr. Otting. No one had ever raised the issue in the past.
Mr. Gonzalez of Ohio. And I want to commend you for that,
because over the last few weeks, I have spent quite a bit of
time talking about banks throughout my State, and I will tell
you in my conversations, I haven't heard objections. I have
heard hesitation on certain items--and I will press on that in
a second--but I haven't heard anybody say, this is a bad idea,
this is going to harm the community.
One of my banks in particular has an outstanding rating,
one of the highest ratings, and they have done a great job. And
the CRA has, for all of Ohio really, I think, been a huge
benefit. And people are excited about the change, they are
excited about the objectivity, in particular, because I think
in some respects it has been a black box, and sort of the
subjectivity of each regulator has made this harder to do.
And so, I commend you for putting the proposal forward. I
encourage you to continue taking feedback, obviously, and
implement it as necessary.
And on kind of one of the points I heard yesterday when I
was talking with a bank, they said, ``We like the proposal. We
are a little concerned with the timeline. It is a big shift. It
is a fundamental shift with respect to how you track and
calculate your CRA activities.''
So I guess my question would be, what do you think about
the timeline component, and how much willingness is there to
work with the banks to help them make this adjustment?
Mr. Otting. We have communicated that we think the timeline
transition is 1 to 3 years.
Mr. Gonzalez of Ohio. Okay.
Mr. Otting. For two reasons. One is the technology
reporting for the denominator on deposits; most banks report
deposits by branch code versus geocode, and so we are going to
have--some can do it, some can't. We think we need to work on
getting it to geocode. And then, we have also committed that
any bank in their 3-year assessment period, we wouldn't start
until the new timeline. So we are offering up, as a minimum, a
1-year and potentially a 3-year transition.
All of the financial institutions that I have spoken to in
the last couple of weeks, when we have clarified that for them,
I think it has given them great comfort that they can make that
timeline.
Mr. Gonzalez of Ohio. Okay. Thank you.
And then I want to move on to discuss how you view the
future of banking as it relates to emerging technologies. So,
leave the CRA alone for a second.
I believe the OCC was the first prudential regulator to
launch an innovation program. Today, all of the Federal
financial agencies have initiatives of some form but that they
are all separate. As you know, the U.S. has a much more
complex, multiagency regulatory structure than other countries,
a fact that many cite as creating a risk to U.S. leadership and
financial leadership globally.
Beyond informal discussion, do the agencies need to form an
ongoing channel for coordinating on innovation, identifying
areas where they should work together and sharing learnings
with each other? Is there an argument against doing so?
Mr. Otting. I don't know if there is an argument against
that. I think the agencies do a pretty effective job. If you
think about, really, the FDIC and the CFPB just stood those up
recently.
Mr. Gonzalez of Ohio. Yes.
Mr. Otting. And I think there is a lot of coordination.
Probably the bigger issues are clarifying and giving legal
guidance as to how those entities will be formed. Whether they
will be LICs or special charters is probably the next big thing
that has to be resolved.
Mr. Gonzalez of Ohio. Okay. And then, more broadly, what is
the potential for supervisory technology and regtech to reduce
compliance costs to banks and, therefore, their customers, and
could it help community banks meet the competitive challenges
they face, in your estimation?
Mr. Otting. That is a complicated thing. The regtechs--part
of how we take that forward into the future, is we spend a lot
of time specifically in the AML/BSA activities, trying to say,
okay, now we have the standard high up in enough. We are
comfortable they are complying with the law. What technology
can they use to make those costs more effective?
Mr. Gonzalez of Ohio. Yes, and I am running out of time. I
would love to follow up on that specifically. AML BSA, I think
we have an opportunity from a tech standpoint to really improve
what we are doing there.
With that, I yield back.
Chairwoman Waters. The gentlewoman from Virginia, Ms.
Wexton, is recognized for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for joining us here
today.
The CRA examinations evaluate bank service to LMI
communities in three general areas: lending; investment; and
service. And one way for banks to fulfill this service criteria
is through nonprofit community programs like financial literacy
or volunteering at a food bank, is that correct?
Mr. Otting. That is correct.
Ms. Wexton. Okay. During August recess, I visited a
community farm in my district where there just happened to be a
busload of employees from a local bank who had just been there,
and they had been weeding and harvesting and planting and
everything like that. That is a local community farm that grows
fresh produce for food banks in the area, so it's a great,
great community service.
But I am concerned that the proposed plan gives undue
weight to quantitative measures at the expense of qualitative
measures, and the volunteer hours can really illustrate that in
my mind. The plan calls for quantifying an hour of volunteer
service using BLS payroll numbers to equate volunteer hours to
investments. So I did the math and it looks like for a $2
million community development loan, one loan for one project,
not even a particularly large project, that would equate to
55,555 hours of volunteer service based on the $36-an-hour rate
that was proposed in the NPR.
Can you explain how a single loan like that would compare
to tens of thousands of hours of volunteer work in the LMI
communities? What is the rationale for that?
Mr. Otting. That is an abstract question. I would have to
understand the community, what the community development loan
was used for versus what the volunteer hours were used for.
Ms. Wexton. But having a 1-to-1 ratio like that, you can
understand how that could skew in favor of some of these for-
profit development projects that don't really necessarily--
Mr. Otting. As we indicated, we have metrics, and then we
have examiner judgment. At the top of the house, the examiner
judgment will look at the activities that qualified, and they
have the ability to move or make comments on the ultimate
valuation or evaluation based on their subjective evaluation.
So, some of the things you described would go into that
subjective evaluation.
Ms. Wexton. I am concerned, because the whole point of
changing to these criteria is so that you have an objective
criterion, and now you are saying this objective part of it
would help make up for that. So I would just urge you to
consider coming up with a criterion that would give greater
weight to those kinds of community service organizations.
Mr. Otting. We have used the concept of multipliers,
especially if you read the proposal. In the equity for CDFI and
low-income housing, we have heard they had a difficult time
attracting equity. So maybe a multiplier concept--
Ms. Wexton. Yes. Thank you. I would suggest that might be a
helpful way of doing that.
I do want to talk just very briefly about the financial
literacy component of it. In the previous iteration of the CRA
analysis, that had been limited to LMI communities and
communities of need, but now you are expanding it to any
communities, and I am concerned about that because banks can go
to, for example, an upscale retirement community in my
neighborhood, in my district, and conduct these financial
literacy classes, which are really nothing more than marketing
schemes for their bank, and that would qualify under the
service component of the CRA.
What is the rationale of extending that from the
communities of need to just anybody?
Mr. Otting. As we went out in communities across America,
we heard that the need across America is for financial
literacy, and people felt that it shouldn't be just restricted
to low- to moderate-income people. So, we put that in as a
question.
Ms. Wexton. Reclaiming my time. But do you understand that
the purpose of the CRA is to help low- to moderate-income
communities?
Mr. Otting. I do.
Ms. Wexton. Thank you very much.
I will at this time yield the balance of my time to the
chairwoman.
Chairwoman Waters. Thank you very much.
I started out discussing what was happening in Inglewood.
Are you familiar with Inglewood, California?
Mr. Otting. I am.
Chairwoman Waters. Do you know about all of the stadiums
that be are being built and moving in?
Mr. Otting. I do.
Chairwoman Waters. They are now eligible for loans in a
concrete way, in ways that they were not in the existing CRA.
Mr. Otting. That is not correct, Chairwoman.
Since 1993, the banks have allowed CRA credit for stadiums.
So, this is not a change to that program.
Chairwoman Waters. I'm sorry. My time is up. We will get
back to this when I have more time.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Chairwoman Waters, and Ranking Member
McHenry.
And thank you, Comptroller Otting, for being here today. As
we have heard a lot today, the Community Reinvestment Act
modernization proposal offered by the FDIC and the OCC reflects
a significant shift away from the current outdated regime to a
new one that should better reflect the realities of today's
banking industry. I don't know that the proposal as it is
currently written is perfect, but I do know that the current
CRA has not kept pace with today's changes in technology, and
current regulations and approaches create uncertainty for banks
and can serve as barriers to carrying out CRA's intended
mission. So I want to applaud you for taking on what obviously
is for many a contentious issue.
As I reflect upon my own small business career, and my
involvement in community banking back in Tennessee, I am just
really struck by the notion that CRA hasn't been updated in a
quarter of a century, and I know that if in my business, I had
not evolved sufficiently in a quarter of a century, that would
mean trouble for my business.
So, again, I applaud you for taking this on, and despite
some of the criticisms about the timing for moving it forward,
I think it points to the problem with regulatory burdens like
CRA, well-intended perhaps in their beginning, but then they
become static and concrete and they interfere with the natural
evolution and advance of small business. So I applaud you for
moving forward, and I think it is time to do so, and I think
that this probably is an area that we should revisit more often
than every quarter century, and so, again, thank you for doing
so.
I know that one of the facets of this proposal that aims to
provide certainty to financial institutions is publishing a
publicly available list of pre-approved CRA activities that
will qualify for CRA credit. No doubt, we have heard some
discussion about some of those activities.
Comptroller Otting, how is this initial list going to come
together, and is it expected to be an exhaustive list?
Mr. Otting. Thank you very much. The list came together
through the interagency work between the Federal Reserve, the
FDIC, and ourselves of what current activities were being given
credit under CRA, and so that got accumulated where we put it
out in the body of the NPR for comment for people to be able to
either react positively or negatively to that. It is the first
time since the Act was approved in 1977 that there was any kind
of list put forward.
There is a commitment in the NPR to review that list, at a
minimum, every 3 years. We will make it a living and breathing
thing. But just as important, we have created an intake where
people can come to their primary regulatory and seek approval
on perhaps items that are not on that list today.
Mr. Rose. From the comments the OCC and the FDIC have
received up to this point, do you think a list like this can
help fix the problem of subjective and time-consuming
examinations? Is that the crux of it?
Mr. Otting. I think it helps bring clarity both to the
communities and the banks of what items can qualify for CRA,
and so, when a community has a particular project they are
interested in doing, they know they can go to the banks and
talk about getting CRA credit for that, and I think that will
dramatically improve that.
The other thing is that often banks will do transactions,
that in the middle of their CRA exam, they find out don't
qualify, and so it forces people back to the most conservative,
middle-of-the-road type CRA investments, and we want to
encourage new and innovative ways to do CRA in communities that
help low- to moderate-income people.
Mr. Rose. I have heard some criticisms that this proposal
actually disincentivizes smaller loans. Do you agree with that
assessment?
Mr. Otting. I do not, because we have a metric-based in
every assessment area that a bank operates in that will measure
the units and the dollars.
Mr. Rose. Can a bank write just one large check to satisfy
their CRA requirements under this proposal?
Mr. Otting. Absolutely not.
Mr. Rose. I know you have covered this, but I want to give
you a chance here in about 40 seconds, this issue of NFL
stadiums, to just give you some time to respond to that. It
sounds to me like you have pointed out an issue that is of
grave concern to people by undertaking this process.
Mr. Otting. I actually appreciate the interest of people in
this item because it goes to prove that getting that list out
and getting people's feedback is important for what really
works for communities, and it has been done since 1993. So we
are not doing anything new with this proposal other than
identifying what have been historical practices.
Mr. Rose. Thank you.
And, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from California, Ms. Porter, is recognized
for 5 minutes.
Ms. Porter. Hello, Mr. Otting. Governor Leal Brainard has
been running point on the CRA modernization at the Fed. She
gave a presentation earlier this month, explaining how the Fed
came to its blueprint, why the Fed believes that its version is
more true to the purpose of the CRA than the OCC's version. Are
you familiar with Governor Brainard, herself?
Mr. Otting. Yes, I am.
Ms. Porter. She has been working on economic policy for 30
years. She studied at MIT, and has worked at the U.S. Treasury,
the White House, the Brookings Institution, and the list goes
on.
Mr. Otting. I am not aware that she has been working on it
for 30 years.
Ms. Porter. Do you think that Governor Brainard doesn't
understand your CRA proposal?
Mr. Otting. You would have to ask Governor Brainard that
question.
Ms. Porter. Do you think Governor Brainard is somehow
economically advantaged by the current CRA framework?
Mr. Otting. You would have to ask--
Ms. Porter. She is somehow--
Mr. Otting. You would have to ask--
Ms. Porter. Well, no, I am asking for your opinion.
Mr. Otting. I don't have an opinion.
Ms. Porter. You don't have an opinion about whether
Governor Brainard doesn't understand your CRA proposal or is
economically advantaged by your CRA proposal?
Mr. Otting. You would have to ask her that question.
Ms. Porter. You recently said in The Wall Street Journal,
``If you don't like the OCC's CRA blueprint, you are either
economically advantaged by the current structure or you don't
understand it.''
So, basically, you are either corrupt and on the take or
you are not educated or intelligent enough to digest the OCC's
proposal. What bucket should I put Governor Brainard in?
Mr. Otting. I guess you have to make that decision
yourself.
Ms. Porter. Is there a third bucket?
Mr. Otting. I wouldn't offer up an opinion.
Ms. Porter. Because you did say that, if you don't like the
proposal, if you oppose the proposal--and I oppose the OCC's
proposal--you either are economically advantaged by the CRA--
which I am not--or I don't understand it. Which do you think
applies to me?
Mr. Otting. You would have to make a determination on how
you would want to vote.
Ms. Porter. Is there a third category you would like to
develop for people like me--
Mr. Otting. Not at this time.
Ms. Porter. --who don't agree with you?
Mr. Otting. Not at this time.
Ms. Porter. How about Chairwoman Waters? She opposes the
OCC's CRA proposal. Would you say she is somehow on the--
Mr. Otting. You would have to make that determination.
Ms. Porter. I would encourage you to understand that some
people who don't agree with the OCC's CRA proposal simply have
read the CRA, have studied it, are economic experts or have
been on this committee, leading this committee currently, and
simply have a different vision of the CRA than you do, and I
would ask you to be please be respectful, particularly in the
press, about how you talk about those who disagree with you,
because rulemaking is a collaborative public process, and each
of us, whether we are a Congressperson or we are just a member
of the public, has the right to disagree, and it doesn't mean
we don't understand or that we are somehow on the take under
the current system. It just means we have a different vision.
Mr. Otting, you also said that 9 out of 10 major banks are
supportive of the direction the OCC is heading. Are you
familiar with the American Bankers Association (ABA)?
Mr. Otting. I am.
Ms. Porter. The top 10 banks in the country are all members
of the ABA, and yet the ABA itself has put out a statement,
which I have here, and I am happy to submit for the record.
May I submit this for the record?
Chairwoman Waters. Without objection, it is so ordered.
Ms. Porter. The ABA said, ``We continue to believe that the
nation would be best served by a final interagency rule that
also includes the Federal Reserve which would provide a
consistent regulatory framework for all banks.''
That is the ABA statement. Yet, you recently said 9 out of
10 of the major banks are supportive of the OCC proposal. I am
confused, Mr. Otting. Which major banks were you talking about?
Is this like a toothpaste commercial where 9 out of 10 dentists
agree?
Mr. Otting. I think the statement you read is different
than whether the banks support it. What they said in that
letter is their preference would be that the three regulatory
agencies come together on a final rule. That is one comment in
that letter. The other comment is the banks deciding that they
would like to move forward. They have issues, and we have asked
them to comment on those issues.
Ms. Porter. Reclaiming my time.
Mr. Otting. We look forward to those comments in the
final--
Ms. Porter. Reclaiming my time. The American Bankers
Association statement will be in the record. So, that will be
speak for itself.
But you said 9 out of the 10 major banks are supportive of
the direction the OCC is heading. Who are those major banks?
Mr. Otting. I would be happy to come by and have a dialogue
with you if you think that would be appropriate.
Ms. Porter. You are unable to state for the committee today
any banks that support your direction?
Mr. Otting. We will file a comment letter with the comments
of the financial institutions with which I have had
discussions.
Ms. Porter. Thank you.
I yield back.
Chairwoman Waters. The gentleman from South Carolina, Mr.
Timmons, is now recognized for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman.
And I would like to thank you, Comptroller Otting, for
taking the time to come and answer our questions today. This is
an important hearing, and I appreciate your presence here.
Mr. Otting. Thank you.
Mr. Timmons. I want to start at the beginning.
Could you discuss what you think the original purpose and
intent of the Community Reinvestment Act was and share your
thoughts?
Mr. Otting. Clearly, in 1977, as the Congress was looking
at the way banks were serving their communities, they found
instances where there were redlining activities and
discrimination activities, and they felt that banks should
serve their entire communities in which they operate, and some
of that activity was actually done by the U.S. Government. And
so, the Act was approved in 1977, that encouraged banks to
support their entire communities but required the regulatory
agencies to do an observation of that, and then, in follow-up
succession Acts, it was determined that the written reports
needed to be produced to justify the banks' observations.
Mr. Timmons. We keep hearing a lot about football stadiums,
and you referred to the 1993 date as the time which they were
eligible for CRA funds. Could you talk about that history as
well?
Mr. Otting. Just a point of clarification, the first time
we could find where an athletic facility got CRA credit was in
1993. So, it wasn't like there was a change at that point in
time. It is just the first time we saw the agency start to give
credit, and these include soccer fields and AA baseball
stadiums and things like that. So, it is not like a
professional, but athletic facilities in 1993 is the first time
we saw where banks were given credit.
Mr. Timmons. What percentage overall would you say goes to
these types of projects currently?
Mr. Otting. Oh, you mean in the total of CRA, there is $480
billion in annual CRA activity across the nation.
Mr. Timmons. Less than 10 percent? Less than 5 percent?
Mr. Otting. In the basis points.
Mr. Timmons. Okay. Thank you.
I want to quickly talk about the list of the activities
that are CRA-eligible in your proposal versus what is currently
eligible. What are the differences?
Mr. Otting. A hundred percent.
Mr. Timmons. What are the differences currently versus in
the proposal? Just big picture.
Mr. Otting. We actually put on paper what qualifies and
then published that list, which had never been previously
published.
Mr. Timmons. So, this will give banks more clarification?
Mr. Otting. Yes.
Mr. Timmons. And now, they don't have to wonder whether
projects they are investing in will qualify or not, and they
will be--
Mr. Otting. Right. Now we did find geographic differences,
meaning stuff that was being done in New York that qualified
wasn't being done in other places. Stuff was being done in Los
Angeles that wasn't being done elsewhere. So, quantifying that
list for the nation is what I would say would be different.
Mr. Timmons. So, a more--
Mr. Otting. Robust.
Mr. Timmons. A better framework to understand the entire
program.
Mr. Otting. That is right.
Mr. Timmons. I have had some concerns from people in my
district. We have a couple of substantial banks there. They are
concerned that with the proposals surrounding what areas
qualify, my community will receive less from those banks. I
understand that, but I guess the next question is, will other
banks that are currently not investing in our community make up
that difference? Could you talk some about that?
Mr. Otting. I am not aware of where any bank would pull
back from an area based upon the revisions to what we are
accomplishing. It will increase the areas that banks will be
required to do Community Reinvestment Act activity, but I would
be happy to either call those banks or have dialogue with you
through them to make sure that I understand their concern, but
there should not be a community in America, based upon what we
are doing, that should see a reduction in their CRA
requirements.
Mr. Timmons. Okay. Thank you.
I have also heard some concerns from individuals and groups
involved in providing affordable housing for LMI communities.
What are your thoughts on how affordable housing CRA
investments will be affected by the proposal?
Mr. Otting. First of all, the big challenge that we have
heard about housing as we went across the United States and
talked to people was attracting capital. Most people will tell,
you we can get all the debts we need for low-income housing,
but attracting capital has been the complicated part.
So, in the proposal, what we did is we offered up a
multiplier for equity that goes into low-income housing
projects and CDFIs that, if you provide equity, we have said,
should we give 2 times credit or 3 times credit in the
numerator for the formula, and that has been received quite
well, I think, by those people who are participating in that
industry.
Mr. Timmons. And, again, this is a process where feedback
will produce a final result.
Mr. Otting. Right.
Mr. Timmons. And that is a very constructive process.
Mr. Otting. Actually, getting to the multiplier came from
the feedback process.
Mr. Timmons. Thank you. I appreciate your time.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentlewoman from Iowa, Mrs. Axne, is recognized for 5
minutes.
Mrs. Axne. Thank you, Madam Chairwoman,
And I thank you, Comptroller Otting, for being here. I
appreciate having another Iowan here.
It is good to hear that we are seeing some unity across the
banking industry in support of the real purpose of the
Community Reinvestment Act. Of course, let's go back to that:
preventing discrimination and ensuring that people and
communities are not left out of our financial system and our
economy. That is the core of why we are all here.
I am concerned that this proposal will take money away from
States like Iowa. We know that this isn't just an urban problem
or a rural problem, and we need to recognize that what is going
to be helpful for areas here in D.C. might not be helpful in
places like Creston, Iowa, in my district. And by the way, the
needs in rural opportunity are different, as you well know.
Maquoketa has different concerns than Corning, Iowa. Northwest
and southwest Iowa are different in many ways.
My concern then is that moving towards a one-size-fits-all
proposal never works, certainly not when it comes to equal
opportunity. So, Comptroller Otting, are you concerned that by
giving all banks the same list of activities that are eligible
for CRA credit ahead of time and reducing the importance of
qualitative evaluation, as my colleague, Ms. Wexton, referred
to earlier, that this proposal is going to reduce the incentive
for banks to work directly with communities to make sure they
are getting what they actually need from banks?
Mr. Otting. I do not think that it will do that.
And as a point of clarification, in communities across
America--and let's just take a particular regional bank that I
know has a lot of branches in your district--they probably
don't today identify that as an assessment area, and in the
future, no matter where those large banks have, they will have
to do CRA activities in those communities, and we will measure
that. So, it is our viewpoint that more activity will flow into
rural communities across America rather than less.
Mrs. Axne. I will be anxious to see that because the
proposal talks a lot about reducing what are called
inconsistencies in CRA evaluations, and I would argue that we
should be seeing inconsistency. That is the beauty of the
different communities in this country and the differing needs
that they have. I would say that the inconsistencies would show
a well-run program. If we are saying that everybody falls into
the same category, and we are not looking at these different
variables, this whole thing should be based on the variables
that are brought to the table. So, therefore, you are going to
have inconsistencies in how things operate.
My concern is that this inconsistency is what happens when
banks are properly listening to what local communities want and
are meeting those needs, and we are going to lose that in this
new proposal.
Mr. Otting. Can I respond to that quickly?
Mrs. Axne. Sure.
Mr. Otting. I don't think we lose that because, in
preparing the list of everything that is being done, we have
actually discovered for a lot of people other things that could
qualify in their community, but just as important, we have
created an intake valve where someone in your community can
come to their regulator and say, ``Hey, we are thinking about
doing this. It is unique. It is not on the list. Can we get
pre-approval before we do it and then find out after the fact
it doesn't qualify?''
Mrs. Axne. I would love to see that part of the proposal in
detail.
Mr. Otting. It is in the ANPR.
Mrs. Axne. Yes, and I would hope that somebody who is from
the Midwest really understands the issues we are facing, not
just with this but in general with the economy overlooking
parts of this country. And my job is to stand up for States
like Iowa and make sure they get what they need. So please,
please, make sure that you use those good Iowa roots to ensure
that we are protecting people in States like ours.
Moving on, the proposal also makes some changes to the
assessment areas that banks have to serve, including creating
deposit-based areas. There is obviously a balance here. Having
a physical bank to go to is important for a lot of my
constituents in Iowa, and there is a lot of research showing
that people and small businesses are more likely to want to
borrow from their local bank. That said, I absolutely recognize
the way people bank has changed and that regulation should
reflect that, but the threshold for an area to qualify is 5
percent of the bank's deposits, is that correct?
Mr. Otting. Yes. Today, there is no criteria for an
internet bank to do any CRA other than where their headquarters
is, or where they identify an assessment area. So we put in the
proposal that if 50 percent or more of your deposits come from
outside your assessment area, those markets that are 5 percent
or more would be deemed an additional assessment area, but we
have put that out for comment and have asked the question, ``Is
5 percent the right number?'' But this is the first step
towards trying to have internet-based providers put dollars
back into local communities.
Mrs. Axne. I am glad you are going to continue to look at
that because it is 5 percent of retail domestic deposits, if I
am correct, and I would say that we only have four States--
California, Texas, Florida, and New York--that even have even 4
percent of the U.S. population. So, for a nationwide bank, I
think a small State like Iowa or West Virginia is going to have
a tough time qualifying as an assessment area.
Mr. Otting. It is 5 percent of that bank's deposits, not
the banking industry.
Mrs. Axne. Okay. Well, that is good to hear.
Thank you. I am out of time.
Mr. Otting. Thank you very much.
Chairwoman Waters. Thank you.
The gentleman from North Carolina, Mr. Budd, is recognized
for 5 minutes.
Mr. Budd. Thank you, Madam Chairwoman.
Comptroller Otting, it is good to see you today.
Before I dive in on CRA, as you probably know, the House is
going to vote on a bill later today to comprehensively reform
the consumer credit reporting system. I don't know if you've
seen many news reports on this. I doubt you have, because the
committee just held one hearing on this, and it was in February
of last year, 2019. But I would like to know what the OCC would
think about the likely consequences of removing accurate
information from those credit reports.
For example, the bill would shorten the time that some
information can remain on the credit report from 7 years down
to 4 years, and it would virtually remove all predictive data
from the credit reports.
So, as quickly as you can, has the OCC looked at the impact
on safety and soundness of making such broad changes to the
contents of credit reports?
Mr. Otting. Excuse me for 1 minute. I am not as familiar
with it, but the person who would be is right here.
Mr. Budd. Thank you.
Mr. Otting. So, we are aware of it, but we haven't issued
an opinion on it at this point in time.
Mr. Budd. Okay. That is a pretty significant bill that we
are voting on that has virtually no engagement. It seems like
we should have done more in the House to present that evidence
to you and have you weigh in on that.
But I want to move on. The regulations in the CRA have not
been updated in about 20 years. I think that has been discussed
a little earlier today. In fact, they were written even before
interstate branching and internet banking even exited. However,
critics of CRA reform say that modernization would decrease
lending in low- to moderate-income communities. Can you
elaborate on whether or not you believe your proposal would
increase lending in low- to moderate-income communities, and do
you believe that if the regulations stay as they are without
reform, that it might actually hinder lending in those
communities?
Mr. Otting. We absolutely do think it will increase lending
in low- to moderate-income areas.
Mr. Budd. The reform would, correct?
Mr. Otting. Pardon me?
Mr. Budd. The reform would increase lending?
Mr. Otting. Yes. It would absolutely increase it for a
number of reasons: one, offering accountability by having a
measurement system that we can all look at both on units and
dollars, by eliminating low- to moderate-income qualifications
of loans that actually go to high-income people in those
communities across America, and then also increase the
reporting that is done in all assessment areas for a bank
versus just a small segment of the bank's assessment areas. And
we will have tremendous amounts of better data to be able to
share with Congress once we complete this.
Mr. Budd. Thank you.
You mentioned also in a recent Bloomberg article that you
appreciated the Fed's framework and even incorporate some of it
into your proposal. Can you tell us some details on what
aspects of the proposal come from the Fed's ideas and
framework?
Mr. Otting. Yes. In the individual assessment areas, we
always felt units and dollars were important, and the OCC and
the FDIC were talking about, should we limit the size of a
transaction to drive that there is granularity in the actual
units. The Fed came up with a process of taking a bank's low-
to moderate-income loans, divided by their total loan volume,
and then comparing that both to the population and the
transactions in the market, and we adapted that into the OCC
and FDIC proposal. So, a big part of what Governor Brainard had
with us in dialogue is included in the OCC and FDIC proposal.
Mr. Budd. It sounds like some good common sense. Thank you
for that.
And, Madam Chairwoman, I yield back. Thank you.
Chairwoman Waters. The gentleman from Utah, Mr. McAdams, is
recognized for 5 minutes.
Mr. McAdams. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for being here today.
The CRA was instrumental civil rights legislation from the
1970s meant to address redlining. Its fundamental goal is to
ensure that financial institutions have an affirmative
obligation to serve the credit needs of local communities in
which they are chartered.
And I will repeat what I said when the FDIC and the Fed
were here in December: CRA reform must preserve the spirit and
intent of the CRA to benefit low- and-middle-income communities
and individuals while also updating the CRA for a 21st Century
financial system.
I do have concerns about this not being a unified
rulemaking with the Fed, and I also believe that we should have
a fulsome comment period. It is more important to get CRA
reform done correctly than hastily.
A number of our financial institutions have used strategic
plans in the past to solicit community input and to develop
their CRA plans, and as a former mayor, I participated
oftentimes in some of this strategic planning. So, I was glad
to see that that was maintained in the proposal. Thank you.
With that, I do have a couple of questions. Comptroller
Otting, I have some concerns with the 50 percent, 5 percent
system that you're setting up with the proposal. Rather than
drive investments and lending into underserved areas, I think
what that will ultimately do is shift activities from one hot
spot to another hot spot. I really think you are just going to
shift focus into high-population States and Cities like New
York City, Los Angeles, Texas, and Florida, leaving the rest of
the country in the same spot that they are now.
Presuming that a bank must set up new assessment areas
where they don't currently have a footprint, how should they be
expected to know what the credit needs or community development
needs of an entire State or large MSA are, and wouldn't this
just lead to a cookie-cutter, least-common-denominator approach
to meeting that obligation?
Mr. Otting. I think they would do it just the way that
institutions do it today. They do it usually through community
reinvestment officers in those respective markets who tie into
the local community, participate in what the needs are of the
community, and then take those needs back to the banks and
share where the opportunities are.
Mr. McAdams. My concern is really the qualitative nature of
that engagement. As a former mayor, I know how much these
institutions reached out to try and understand community needs,
not only with mayors and local officials, but other community
members, and I worry the 50 percent, 5 percent paradigm shifts
really undermine the qualitative nature of that local
engagement.
Moving on to a different topic, when visiting with a number
of my stakeholders, they have also expressed concerns with some
of the changes to the community development section,
specifically regarding the promotion of economic development by
financing small businesses.
In the proposal, some of the language on supporting
economic development by financing small businesses was
eliminated. In light of the critical importance of economic
development and job creation, retention and/or improvement for
low- and moderate-income individuals and the demonstrated
success of these programs to create opportunities, to create
jobs, self-reliance, and prosperity for low- and moderate-
income individuals in underserved communities, what was the
policy reasons for eliminating those provisions from the notice
of proposed rulemaking?
Mr. Otting. I am not aware where we have eliminated--and
you are saying in the investment test?
Mr. McAdams. In economic development, specifically.
Mr. Otting. I don't think we did. Maybe we should follow
with up with you.
Mr. McAdams. Yes, I can share with you some of the language
that raised some alarms.
Mr. Otting. I would very much appreciate it. This is a
great time in the comment period to give us feedback.
Mr. McAdams. Okay. That is great. That would be very
helpful. Thank you.
Lastly, Comptroller Otting, one of the concerns I have and
one of the areas that I am focused on in any CRA reform
proposal is, what does reform mean for affordable housing and
market-rate housing development? Utah, like many places, is
facing a growing housing shortage with quickly escalating home
prices. So, this is important for me and my State, particularly
since the proposal opens up a number of business lines that can
count towards CRA obligations, I worry that the focus on
affordable housing may fall by the wayside.
Has the FDIC released any analysis on what the proposal
would mean for supporting affordable housing development and if
we see a shift in CRA activities away from that space?
Mr. Otting. The list of qualified activities are what was
currently being done across the United States today. So we
haven't opened it up. We have just clarified what gives CRA
credit today. I think your issue on housing is an important
one. As we have traveled around the United States, you used to
hear about the need for jobs and activities and then housing.
Now it is housing is one, housing is two, and housing is three.
So, I think that is a valid point. We can talk more about that
when we come by.
Mr. McAdams. Thank you. My last question--it looks like we
are out of time, but I want to focus on the ability to continue
to innovate and not just have cookie-cutter proposals but
innovative proposals of the CRA. So we will follow up with
that.
Mr. Otting. Okay.
Mr. McAdams. And, with that, I yield back.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil,
is recognized for 5 minutes.
Mr. Steil. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for being here today.
I appreciate your work at looking at CRA as a way to update
its regulation that, as we have noted here today, has not been
updated for quite some time, and I think there has been pretty
healthy dialogue also about the concern of implementation. And
I would encourage you to look as to ways to take this
regulation and find ways to improve the efficiency of the
implementation. Because I think that it has been discussed
pretty broadly, I am going to pass on asking questions on the
implementation today and shift gears slightly to the Volcker
Rule.
As you know, Representative Gonzalez and I have led a group
of members from this committee in writing to you and the other
financial regulators regarding the Volcker Rule and its reform.
The letter that I sent was dated December 3rd of last year and
argued that the covered funds provision in the Volcker Rule was
overly broad and unnecessarily included venture capital and
other long-term funds.
Prior to the implementation of the Volcker Rule, banks
supplied a significant amount of capital to venture and growth
funds, and this was especially true in regions like Wisconsin
and across the Midwest that aren't typically the magnets for
this type of investment. Exempting venture and growth funds
from the Volcker Rule's covered fund definition, I believe
would spur increased investment in innovative companies in
places like Wisconsin, across the Midwest, and across the
country.
Could you comment on your view of the need to fix or revise
the Volcker Rule and, if so, what you have been doing to
address this?
Mr. Otting. First of all, I do agree with your comments. As
a former banker, we were actively participating in those small
tranches of various forms of preferred or common or
subordinated debt that these companies needed before they could
go out and access the larger dollar amounts that generally were
available through Wall Street. I view that as a critical
component of capital for growth and expansion of those
businesses, and the Volcker Rule took that away.
There has been a high priority amount of work, I would say,
on this particular topic. If I could ask you to wait a week, I
think you would be really pleased. I wouldn't want to comment
publicly until all the agencies have approved it but I would
say we are in the short stroke, so to speak, of accomplishing,
I think, the modifications that we have described.
Mr. Steil. I appreciate the feedback. I will wait anxiously
to see what you put out in a week. I appreciate you coming here
today.
And I yield back.
Chairwoman Waters. The gentlewoman from North Carolina, Ms.
Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman.
And thank you, Comptroller Otting, for being here.
CRA is meant to meaningfully address redlining and ensure
access to capital in LMI areas, including for small business
lending. There continues to be a need for affordable small
business loans for low- and moderate-income individuals and
those seeking to open small businesses in low- and moderate-
income communities.
A recently released CFPB report notes that reductions in
access to capital for small businesses have been exacerbated by
bank and branch closures, and, thus, there are fewer formal
banking options available to small businesses. So, despite the
numerous calls to strengthen incentives for small business
lending and improving data collection, this proposal fails to
do that.
In fact, your proposal's one ratio and credit for large
infrastructure projects will lead to banks focusing on big
deals rather than small businesses, business or home mortgage
lending.
So how does your proposal define small business lending and
what specific ways does it seek to increase access to capital
for small businesses already located in the LMI communities?
Mr. Otting. In the proposal, we are raising the dollar
amount of small business lending that qualifies for CRA from $1
million to $2 million because, as we have traveled around, we
heard that was too restrictive for businesses.
And so we think that has a positive impact on dollars that
can flow into those communities, specifically in the CDFI
arena, which is where a lot of small business lending is being
funded by CDFIs that are in those communities, and know the
people in those comments. Two very important things are: one,
we have clarified that CDFIs will qualify for CRA; and two, we
have put forward in the proposal that the equity that goes into
CDFI could be multiplied, meaning that if you were willing to
put a dollar of equity in, you could get $2 or $3.
So, we think we have had a strong vision on small business
lending of how we create dollars. I would also just add a
comment that we are seeing, as banks do a less effective job in
small business lending, that internet lenders are coming into
that space in a fairly robust way.
Mr. Adams. Okay. I have another question as well. It is
paramount that the Community Reinvestment Act is implemented in
a manner that is consistent with its original purpose to ensure
that all communities, including low- to moderate-income
communities, have equal affordable access to the banking
system. Concerns have been raised that the proposal decouples
the link between CRA and the legacy of redlining--we talked a
lot about that--that it was intended to redress and
specifically the link to minority communities that have been
systemically discriminated against.
So would you explain how your proposal specifically
preserves the legacy and the mission of the CRA as it was
originally intended?
Mr. Otting. The CRA--we believe there is nothing that we
are changing that changes that mission or requirements. As you
know, we have fair housing and equal credit requirements also
that we look at financial institutions' activity on an annual
basis. If there are any violations of that, we are required to
report those to the Department of Justice or HUD. So I don't
believe there is any changes in this document that takes you
away from the original intent of the 1970 and in my mind
actually enhances it because there is greater accountable.
Mr. Adams. So, yes or no, do you believe that modern-day
redlining occurs?
Mr. Otting. I do think there is modern-day redlining.
Mr. Adams. Okay. Let me ask one other question.
I want to return to the discussion on Opportunity Zones and
follow up on the concerns that Ms. Tlaib raised during her line
of questioning. You indicated in 2018 that you expected to
offer CRA for opportunities on investment. Your proposal
includes that. So are you aware of the concerns about the
legislation due to the lack of accountability and oversight?
Yes or no, are you aware of that?
Mr. Otting. I'm sorry. I missed the question.
Mr. Adams. Are you aware of the concerns about the
legislation and its lack of accountability and real oversight?
Mr. Otting. On Opportunity Zones?
Mr. Adams. On Opportunity Zones.
Mr. Otting. I read comments that people feel like perhaps
some of the markets didn't meet the original intent of the
legislation, but I do not spend a lot of time on the
Opportunity Zone side.
Mr. Adams. There have been a lot of issues raised about it.
Are you interested in--
Mr. Otting. We are not impacted by the Opportunity Zones
because we don't have jurisdiction nor--it is generally a tax-
related issue, and so we are not directly involved in the
Opportunity Zones. The only time there is crossover is where we
have said that if a low- to moderate-income area is also in an
Opportunity Zone--
Mr. Adams. I am out of time. Thank you very much.
I yield back.
Chairwoman Waters. The gentleman from Texas, Mr. Gooden, is
recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman.
Thank you, Mr. Otting, for taking the time to attend
today's hearing, even if you haven't always felt welcome at
times.
Before presenting these questions, I just wanted to
highlight the significance of today's hearing and a few
pressing concerns around the intent and purpose of the
narrative built around today's hearing.
The CRA regulations that have been in place since 1995 lack
objectivity, fairness, transparency, and consistency, and they
are very confusing. This isn't my personal take, but the
concerns voiced by legitimate stakeholders in the 1,500-plus
comments on the proposed notice over the past 18 months, and I
see your head is nodding in agreement. Ninety-eight percent of
the comments said the current regulations are confusing; 94
percent of the comments said the current regulations lacked
objectivity, fairness, and transparency; and 88 percent of the
comments said that current legislation lacked consistency.
And, in fact, the current regulations are riddled with
loopholes, as we have discussed here, some that even allow for
CRA credits for loans to wealthy households in LMI areas, which
inevitably leads to the gentrification of those areas, which is
something that my colleagues across the aisle have voiced some
disturbance with, and I agree with them.
So it is only natural to conclude that we actually do need
broad reform of these policies, and we need it to be
consistent, transparent, objective, and as clear as possible.
And I believe that will fulfill the CRA's true intent and
purpose to ultimately serve LMI households and individuals.
However, instead of supporting your reforms, which I think
are great, the majority has decided to question everything
throughout this stage including the implementation, and I have
heard a lot of reliance today on dissident voices. Earlier
today, you were questioned about your knowledge of the
overwhelming opposition that we had here a few weeks ago. It
was difficult for you to get a response out, but only one
Republican was there. It was very partisan.
We have heard about this letter that I think was sent to
you by Members of Congress. They were all Democrats. So, we
have seen a very partisan take on this but, nonetheless, you
are here. We are happy you are here and we thank you.
I have a few questions. You mentioned that expansion of
qualifying activities will encourage more capital investment
lending and services in LMI, rural, and distressed communities.
Would you please expand on that?
Mr. Otting. Yes. There are two ways we think that works, or
actually three ways. The first, you identified, not allowing
people to get credit for mortgages to high-earning people in
low- to moderate-income areas. The second is publishing the
list of what qualifies, so communities can look broadly in
their community and ask, where could we get credit for CRA
which would motivate a bank to take on transactions like that?
And the third is at the top of the house, once we look at the
individual assessment areas, a bank can choose to move dollars
at the top of the house around once they have met a certain
criteria and go out to places like Indian Country or family
farms or do additional small business lending outside their
assessment areas. We think that will populate more activity
across America.
Mr. Gooden. Thank you.
In December, you mentioned there was a lot of support for
the reforms from the public, as well as banks, but you also
stated there was strong opposition from certain groups. Who are
those groups, and why are they against these reforms?
Mr. Otting. There is a long list, but I Congresswoman
Porter tried to put it into two buckets: either they are on the
take; or they don't understand it. We spent a lot of time
trying to make sure people understood it. As to the comments
that you made, objectivity, transparency, all of those things
are what you would think people would want, but there are
groups who are economically benefited by not having that
objectivity, and when there is a merger or an acquisition, they
show up and basically demand money from financial institutions
or not support the merger.
Mr. Gooden. Which leads to those loopholes I mentioned, and
I would like to know how you tackled the issue in your reform
proposal to kind of take care of getting rid of these loopholes
that people are taking advantage of?
Mr. Otting. I think you do it by having objectivity,
because if at any point in time, if we are proficient at our
goal, a bank will be able to know every 90 days whether they
are in compliance with CRA. It is like capital. If we said to a
bank, ``We are not going to tell you until after the exam
whether you passed the capital exam,'' people would say that is
the stupidest thing they have ever heard in their lives, but
that is kind of what we do with CRA.
So, if you can look at your balance sheet every quarter and
decide, am I in compliance with the capital laws, why can't we
decide every 90 days if you are in compliance with CRA?
Mr. Gooden. Thank you. I appreciate your time.
And I yield back to the chairwoman.
Chairwoman Waters. Thank you very much.
The gentlewoman from Pennsylvania, Ms. Dean, is recognized
for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman.
And, Mr. Otting, I, too, thank you for being here today and
I am hoping you are listening to our suggestions and our
concerns. I think everybody in this room, on both sides of the
aisle, wants to strengthen CRA, to see that it is as effective
as possible, doing its mission, to build community, to build
wealth, and to eliminate discrimination.
I wanted to first point out opposition to your proposal
that is across the industry. It is across community groups,
agencies. For example, FDIC Board Member Martin Gruenberg, as
some have said here, voted against the proposal, describing it
as, ``a deeply misconceived proposal that would fundamentally
undermine and weaken the Community Reinvestment Act.''
It is also notable that the Federal Reserve did not join in
this proposal due to remaining concerns about the proposed
rulemaking. A Federal Reserve Board Governor was quoted as
saying, ``Given that the reforms to CRA regulations are likely
to set expectations for a few decades, it is more important to
get the reforms done right than to do them quickly.''
I couldn't agree more, and I was hoping that somewhere in
your testimony today, you would pause and say, ``I have to
pause as a banking regulator. I have to listen to these other
voices, including advocates who have come before this
committee.''
So I ask that of you, will you consider taking a pause to
take input from these hearings and from these other regulators?
Mr. Otting. Yes, you have 40 days to complete the--
Ms. Dean. No, I asked you for a greater pause.
Mr. Otting. --comment period.
Ms. Dean. Not the 40 days.
Mr. Otting. You have 40 days to comment in the period.
Ms. Dean. Will you consider a longer period of time--
Mr. Otting. The answer is no.
Ms. Dean. You will not. Why not?
Mr. Otting. Because we feel that this has been a multiyear
process where we have extracted a lot of feedback and
comments--
Ms. Dean. I will reclaim my times. Other experts in the
field do not believe it has been thoughtfully considered.
Mr. Otting. Everybody is entitled to their own opinion.
Ms. Dean. Exactly.
I would like to talk about the problems in the proposal
that affect my community. I represent suburban Philadelphia,
Pennsylvania's Fourth Congressional District. In my home
district of Montgomery County, we have seen some of the highest
proportions of bank closures, including over 15 percent of
locations in the years 2008 to 2016. We know this
disproportionately affects low- and moderate-income
communities' access to financial production. Do you agree with
that?
Mr. Otting. I would have to see the data. You are asking me
to comment--
Ms. Dean. This is data--
Mr. Otting. You are asking me to comment on something
without being able to see the data and analyze it.
Ms. Dean. We will be sure to share it with you, but it is
actually important to your rulemaking. It is important to your
regulation and rulemaking.
Mr. Otting. I am not sure I totally understand your
question.
Ms. Dean. Excuse me. I will restate the question. In your
rulemaking, did you consider the closing of branch banks and
what impact that has on low- and moderate-income communities?
Surely, you must have.
Mr. Otting. The answer is yes. For first time ever, ever in
the history of the CRA regulations, we are giving banks credit
for maintaining or opening LMI branches. That has never been
done before.
Ms. Dean. And yet this rule will continue the closing of
bank branches in low- to moderate-income communities. That is
the assessment that we have seen.
I will continue. This affects the core of the Community
Reinvestment Act's mission. According to the Philadelphia
Federal Reserve, the importance of the bank branches and the
service they provide lies at the very heart of the Community
Reinvestment Act. By eroding incentives to open bank branches
in low- and moderate-income communities in your proposed CRA
rule, I am afraid you are going to hurt my constituents rather
than help them in your reformation of CRA.
Do you understand the connection between access to
community banking in areas that are low income and access to
wealth, access to capital?
Mr. Otting. I do know, and I see nothing in the rule that
would support your statement.
Ms. Dean. You should take a look at the research that has
been done that shows that you will actually dilute the ability
of folks to--
Mr. Otting. Again, if you would like to send the research
over, we would be happy to review it.
Ms. Dean. I am certain you are well aware of it, sir, and
that is what you are actually in the business of doing:
collecting the research and understanding the impact of your
reform to CRA.
Finally, I want to say something. I find your comments
about discrimination puzzling. How is it that a man in your
position, 30 years in banking and regulation, said in 2018
before this committee, and then repeated today, that you have
not seen discrimination? I don't know how you have been in this
country and not seen discrimination. You said in 2018 that you
didn't watch TV or read newspapers and you had not seen
discrimination.
Are you the best person to reform--
Mr. Green. [presiding]. The gentlelady's time has expired.
You may submit your additional statement for the record.
Ms. Dean. Thank you, Mr. Chairman.
Mr. Green. You are welcome.
The Chair now recognizes the newest member of the
committee, the gentleman from Texas, Mr. Taylor, for 5 minutes.
Mr. Taylor. Thank you, Mr. Chairman. I appreciate it.
And thank you, Comptroller. I appreciate you being here.
I just wanted to make sure I kind of understood the Federal
process. Now, you are making a rule. It was published, I
believe, on January 9th. A letter was written about it on
December 11th. So, clearly, before you published it, people
knew about it, because they were already asking questions. Are
you complying with the Federal laws as they are written in your
rulemaking?
Mr. Otting. We are.
Mr. Taylor. Okay. And so it isn't that what you are doing
isn't in compliance with the law. It is just that people, I
guess, some people here are unhappy with the laws as they are
written. Is that a fair--
Mr. Otting. They are unhappy with the comment period which,
as you recall back in August of 2018, before that, we spent
months and months and months going around to communities across
America and soliciting feedback. We produced an ANPR that had
roughly 40 questions that we asked people to give us feedback
on. Then, from those questions, we again went out around the
communities across America and started to put a framework
together and talk to people about that framework.
And so, between August of 2018 and December of this year,
which was roughly 14 months, we entertained concepts, thoughts,
and opinions, and then produced on December 12th, the actual
notice of proposed rulemaking. Then, it was published in the
Federal Register on January 9th, offering up a 60-day comment
period, which we knew would be long. It turned out to be 88
days in total. And we have been on a long-term process that
people want to describe as short-term.
Mr. Taylor. So, the 1,500 comments you are referring to,
were those collected subsequent to the publication on January
9th or were they--
Mr. Otting. No. As part of the comment period, we got 1,500
comments, but there were meetings with thousands of other
community organizers, and nonprofit civil rights organizations
who came to the OCC, and you may or may not know that we went
around to markets across America, and hosted bus tours where we
went into low- to moderate-income communities and met with
community leaders to find out, what are your needs, and how can
the CRA fulfill those needs?
Mr. Taylor. With thousands of meetings and bus tours, it
seems like there has been a considerable effort to get input.
Mr. Otting. Enormous, more than I am aware of for any other
rule.
Mr. Taylor. Wow, that is terrific. I applaud you for that
level of effort and engagement, in reaching out to
stakeholders. I assume you weren't meeting with bankers. You
were meeting with people who were applying for loans. You were
meeting with community interest groups.
Mr. Otting. Most of those 75 percent were community
leaders.
Mr. Taylor. Wow. Okay. So you are not even really going so
much to the people who are having to comply with the CRA and
fill out the forms, but you are going to the people--
Mr. Otting. People who did low- to moderate-income housing,
people who did CDFI activities, which is small business
lending. The real true people who were in communities doing the
activities. That is whom we wanted to hear from.
Mr. Taylor. It sounds terrific. I wish we had this kind of
effort to bring in input, and clearly you are modernizing an
Act that is in desperate in need of it.
In terms of modernization, just shifting slightly, you seem
to have indicated that bankers were gaming the system. How are
they gaming it? And you refer to the $1 equals $4. But could
you sort of expand on that?
Mr. Otting. I don't know if I would say ``gaming'' is the
right word, that structurally they had the ability to do this.
And what they were able to do is, when a mortgage is originated
either as a single mortgage, a pool of mortgages, or it is
created into a security of low- to moderate-income borrowers,
banks could trade those items, and every time they traded those
items, it was counted as 100 percent for CRA.
And so as we looked at that, we felt that was one of the
ways that we wanted to analyze a bank's long-term commitment on
their balance sheet as a percentage of deposits. By doing that,
we are eliminating that motivation to trade those securities
around, that you sell them to me, and I sell them to her, and
she sells them back to me, and I get a dollar of credit every
time that mortgage traded hands, in accomplishing my CRA. But
not one new dollar was going into that community.
Mr. Taylor. And so, how are you adjusting that? The
difference, I think, is between originating and holding a
mortgage, right?
Mr. Otting. Yes.
Mr. Taylor. So, the person who originates it may not be the
person who holds it one quarter or the next quarter or the next
quarter?
Mr. Otting. Yes.
Mr. Taylor. So, a loan portfolio can move around. How are
we changing that?
Mr. Otting. The person who has it on their balance sheet
will get credit for the length of time they have held it, and
the person who originates mortgages and sells them off will get
credit as if they have held that mortgage for 90 days even if
they have only held it for 1 day.
And that is a part, I would say--we talked about, what are
the top 10 things we are hearing about in our dialogue with the
financial institutions. They are saying that may be too
restrictive, and I think we will get some comments back through
the period which will cause us probably to look at that and
decide, did we pick the right number, 90 days, should it be 180
days?
We clearly don't want to, by any means, reduce the amount
of dollars that are flowing into the community.
Mr. Taylor. My time has expired. Thank you.
I appreciate that, Mr. Chairman. I yield back.
Mr. Green. The gentleman's time has expired.
The gentleman from Illinois, Mr. Garcia, is recognized for
5 minutes.
Mr. Garcia of Illinois. Thank you, Mr. Chairman.
Good afternoon, Mr. Otting.
First, I want to go on record as taking strong exception to
your earlier characterization of the CRA as some sort of an
instrument that people in communities use to extract dollars
from banks.
I do so because I came to know one of the CRA's champions
in Chicago, Gale Cincotta, a community activist, a community
builder, who was renowned across this country by people who
work in low-income and working-class communities, and to build
them up.
The topic at hand, given the proposed measure of CRA-
qualifying activities is dollar-based, per your proposal, banks
would be encouraged to engage in high-dollar, simpler projects.
As we have discussed today, that is likely to include flashy
investments like stadium renovations that make it easier for
banks to pass their CRA examinations but do little to help the
low-income communities CRA was written to serve.
Mr. Otting, there are many smaller, more complex projects
worth investing in, in my district. CRA is helping to drive
that investment. I would like to tell you a couple of stories.
One, Gabriela Roman is an executive director of the Spanish
Coalition for Housing, headquartered in the Hermosa
neighborhood in my district. She writes, ``We refinanced our
main office building at 1922 North Pulaski in 2018 for
$670,000. It took us a long time to find a lender because it
was a small deal. We eventually refinanced with a small bank
that made the loan a part of their community reinvestment
activities. The office serves about 4,000 community residents
each year.''
Two, Lulu and her husband Rupert live in the Belmont Cragin
neighborhood in my district. They have a long history on the
northwest side with the housing center, starting in 2013 when
the couple purchased their first home, after completing our
first-time home-buyer class.
``We were able to take control of our finances with the
class and figure out what best fit our income in terms of
finding a loan and a property,'' Lulu said, ``and we learned
what we can afford and what we cannot.''
Lulu's involvement with the center has blossomed from
there. She became a block leader, organizing play streets
events that provide families safe places for their children and
hosting neighborhood meetings to discuss residents' concerns
and issues. This is what community building is about.
Lulu's first-time home-buyer class was supported by CRA
contributions from financial institutions who considered the
donation part of their CRA investment strategy and support. As
a small nonprofit organization, Lulu would be unable to
continue those classes providing necessary education and
engagement without CRA contributions.
Mr. Otting, if your proposal is adopted, all banks will
need to do to meet their CRA obligations is invest in a few
high-dollar projects with scale. I am concerned that projects
like the ones that have helped Gabriela and Lulu will be
neglected.
Have you considered the likelihood that banks will abandon
their investment in worthy projects in needy neighborhoods like
the ones I have described?
Mr. Otting. First of all, I love those stories about
Gabriela and Lulu, and I think those stories are told all
across America, where people get the chance to be a part of the
American Dream.
Mr. Garcia of Illinois. And to my question, sir?
Mr. Otting. First of all, I think maybe you don't totally
understand our proposal. In the assessment areas, we are
measuring units and dollars. No financial institution can do a
couple of large transactions--
Mr. Garcia of Illinois. So you are not concerned that it
will have the impact that I described, yes or no?
Mr. Otting. No, I am not.
Mr. Garcia of Illinois. You are not. Okay.
You have been a banker. What is the incentive for a bank to
say, ``I will fund one large project instead of a hundred or a
thousand smaller projects?'' Isn't it easier just to fund one
large one?
Mr. Otting. The structure that we are proposing will not
allow them to do that.
Mr. Garcia of Illinois. In my opinion--and I have read it,
and I have been an urban planner and a community builder for
many decades in Chicago--it will. So, thank you for your
answer.
I would like to enter into the record, Mr. Chairman, a
report on community reinvestment from The Resurrection Project
in Chicago. It provides for affordable housing, financial
education, and immigration services on Chicago's southwest
side.
Mr. Green. Without objection, it is so ordered.
Mr. Garcia of Illinois. Thank you.
The report describes $537 million in community investment
that The Resurrection Project has created or preserved. Behind
this figure are thousands of homeowners helped, affordable
housing units created, spurred economic development on retail
strips in that community, and foreclosures prevented.
The CRA helps make this possible. I urge you to rethink
your proposal.
Thank you, Mr. Chairman.
Mr. Green. The gentleman's time has expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Loudermilk.
Mr. Loudermilk. Thank you, Mr. Chairman.
Mr. Otting, thank you for your patience. I think we are at
the bottom of the ninth, and I am the closer. So, maybe we can
wrap this thing up.
I really appreciate you being here. Thank you for what you
are doing. There is something that has kind of been lost in the
last few years here in Congress, and it is constructive
dialogue, where we can speak to each other as adults.
I apologize that some of my colleagues aren't able to do
that. But I think it is important that if we are actually going
to get to something for the American people, that we can do
that. And we are always going to have differences.
I think it is beyond time for us to address these issues
with the CRA. And I will get to the CRA in a moment.
But my focus, especially having rural areas, areas that
were really, really hit hard during the financial crisis--
Georgia lost more banks than any other State. We still have had
a problem with de novo banks, new banks starting up. We still
have about three counties that don't have a bank branch at all.
Where you have that, you have the lack of capital in
lending, and we need to do something to spark that going in.
Now, I need to make sure that everyone has access to
capital. And one of the areas that I am concerned about
relating to that is valid when made, is there are some
businesses out there that I think have been wrongly
characterized that are providing funding to areas that other
banks either aren't or cannot, because lack of small-dollar
lending.
And as you know, because of the Madden decision, the court
deviated from almost 2 centuries of precedent of when a loan is
made, and that loan is sold, that the interest rate of the
original loan stays with it. And that is in jeopardy.
Could you explain why is it important for banks to be able
to transfer loan risk off their balance sheets into the market?
Mr. Otting. It creates liquidity. And certain people have
the ability to have origination capabilities and be out in
geographic markets or vehicles to create that. And then, often
there are investors who will look to provide the capital to
fund those loans. And all of a sudden, if that whole model is
disrupted because, if I am a buyer, and maybe that interest
rate is going to change on me, I probably wouldn't buy that
asset.
And as you know, we did not support the Madden decision. We
have an NPR out that we think will modify this, and we are
highly confident. There has been some action by a magistrate
court last week on an 1848 law that we had provided them, and
we are optimistic that we will get this resolved in 2020.
Mr. Loudermilk. I appreciate that, especially with the
patchwork of interest rates that we have State by State, which
I, as a federalist, I do support the ability to do that, but
you do have to have consistency, especially with low-dollar
lending.
And that is something that is very important, I believe,
especially in today's environment, when there have been studies
that have been out recently that 40 percent of American
families could not afford a $1,500 emergency right now without
borrowing the money. The problem is, we don't have access in
many cases to go find sources for that money.
And I appreciate your bulletin encouraging banks to get
back to small-dollar lending, but that was almost 2 years ago,
and we need a rulemaking. Can we expect the agencies to take
action on small-dollar lending?
Mr. Otting. You can, in 2020.
Mr. Loudermilk. Okay. Thank you. That is very encouraging.
I have a little bit of time left, so I do want to touch on
something that I think others may have spoke about, which is
the CRA.
Mr. Otting. I just look forward to having a CRA
modernization completion party and that we all can come
together as a nation recognizing that. I think this rule will
support rural America. It will support low- to moderate-income
areas across this nation. And we can get the capital and
lending out that those communities deserve today.
Mr. Loudermilk. I agree that there is a lot that needs to
be revised. And there seems to be--there is a fear of change in
this City. We have seen it when technology companies have come
in with new technology ideas. There is a fear of doing that,
even though those technology companies often focus on the low-
and moderate-income areas, or as a new term of banked or
unbanked and underbanked.
I also think that, unfortunately, you came in to do this
during an election year. Had it not been an election year or,
quite frankly, who appointed you to this position, you may have
met with some criticism, but not the vitriol that you have
right now.
I encourage you to continue going with your patience and
perseverance, because I think in the long run everyone will see
that those that they are afraid of being harmed will actually
be benefited from your actions.
Mr. Otting. I agree.
Mr. Loudermilk. Thank you. I yield back.
Mr. Green. The gentleman yields back.
Mr. Otting, thank you so much for appearing today. I will
yield myself 5 minutes.
Sir, you, on page 11 of your testimony, address the
question of ``astroturfing.'' Are you familiar with the term in
your testimony?
Mr. Otting. I am.
Mr. Green. And you focus on advocates who stuff the ballot
box. Is there a reason why you have chosen ``advocates'' as a
term for stuffing the ballot box?
Mr. Otting. Is there a reason--
Mr. Green. You focus on advocates. When you refer to
advocates--
Mr. Otting. No, we focus on everybody who wants to make a
comment.
Mr. Green. Okay. I am pleased to hear you say this because,
as you know, you are affiliated with an entity that was once
cited for stuffing the box, as you put it.
Mr. Otting. That is not a true statement.
Mr. Green. Okay. Would you kindly explain, please?
Mr. Otting. Yes. This was by a group in northern California
called the California Reinvestment Coalition. They made an
accusation that OneWest Bank and myself were involved in that
activity, and that is not true. That is slander on their part.
We put a letter up on our website and said, look, if you
want to be able to send something out to the regulators saying
that OneWest Bank does a good job in their community, you can
use this as a foundation, but we would encourage you to
customize that.
And they said CRC accused that some people submitted false
letters. We were not involved in that process as all. I would
never do something like that. And it is no different than the
letter CRC sent out yesterday to their members saying, change
the letterhead here and send this in to the OCC for comments.
So we will see a lot of comments coming in from the
California Reinvestment Coalition with a similar concept. But I
can assure you, we would never do anything like that, nor would
I ever participate in anything like that.
Mr. Green. Thank you.
Given your level of sensitivity to the issue, what have you
done to prevent this from occurring?
Mr. Otting. It is very difficult, to be honest with you,
because the comment letters that come in, we accept anonymous
comment letters through the process, but what we do is, all
letters that come in, we log them in, we look at the issue, we
decide if they are actionable, and then we spend time on those
letters to understand. So it is a bit of a complicated issue
that can occur with the way the structure of the system is
today.
Mr. Green. With limited time, do you give an admonition on
your website?
Mr. Otting. Do we give a what?
Mr. Green. Do you give a warning, an indication, that this
type of activity is unacceptable?
Mr. Otting. We use the Federal system, and so this isn't an
OCC system that we use, we actually use, where the proposed
rule is posted and then the comments come in. And then we, just
like everybody else, including yourself, if you would like to,
can go in and look at the comments. And is there a warning on
that system? There is not.
Mr. Green. Okay. And would you propose having some sort of
admonition? Would that be something appropriate?
Mr. Otting. I think we all should have a responsibility
that if you are submitting comments--
Mr. Green. I am going to have to ask you if that is a yes
or a no. Sometimes, I don't know whether people have said yes
or no when they finish, so--
Mr. Otting. The problem--and I would say yes, but here, if
I could. I would be concerned that people wouldn't offer their
comments if we required them to identify themselves.
Mr. Green. Okay. I will accept your ``yes'' simply because
I have another question.
What do you think of the notion of auditing after?
Mr. Otting. I think it is very difficult when you will
accept anonymous letters from people.
Mr. Green. If you audit not for the purpose of ascertaining
who sent the information but for determining whether or not the
information is so similar that you can conclude that it may not
be information that is valid?
Mr. Otting. We do that today. We categorize letters, was it
a new issue or was it a letter that was produced by somebody
and then mass produced by people and mailed in? We already do
that today.
Mr. Green. And what about technology, having the limited
experience you have had and with the sensitivity--I knew you
would be very sensitive, by the way--
Mr. Otting. I am not sensitive to it. When someone
challenges your character--
Mr. Green. I would be, if I were--but, sir, I would be
sensitive were I you, so do not be offended.
But my point is, given your level of sensitivity, what
about technology? Have you proposed any technology? You are in
a key position to propose change, and I am trying to get some
sense of what changes you would recommend.
Mr. Otting. To be honest with you, this isn't an area I
have spent a lot of energy on. We are generally the input
version. We post the rule, the data comes in, we analyze the
comments, and then make a determination if we want to modify
the NPR based upon that. I am assuming this is probably
something that should be taken up at a government-wide level
because it is a government system.
Mr. Green. We will. But I do thank you for your comments.
My time has expired.
Without objection, I will enter into the record two
documents that appear to contradict the Comptroller's response
to Chairwoman Waters' questions.
The first is his own proposal, which states that a bank
will get CRA credit for a ``loan to a family-owned corn and
wheat farm with gross annual revenues of $10 million to
purchase a tractor.''
The second document is remarks made from FDIC Board Member
Marty Gruenberg opposing the Comptroller's proposal, saying,
``This proposal would allow a bank to achieve a less-than-
satisfactory rating in nearly half of its assessment areas and
still receive a satisfactory or even outstanding rating.''
Without objection, they will be placed in the record.
Again, Mr. Otting, I thank you for your testimony.
The Chair notes that some Members may have additional
questions for this witness, 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 this witness and to place his 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 adjourned. Thank you, again.
[Whereupon, at 1:26 p.m., the hearing was adjourned.]
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