[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]




 
                     BETTER TOGETHER: EXAMINING THE

                  UNIFIED PROPOSED RULE TO MODERNIZE

                     THE COMMUNITY REINVESTMENT ACT

=======================================================================

                             HYBRID HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CONSUMER PROTECTION
                       AND FINANCIAL INSTITUTIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 13, 2022

                               __________

       Printed for the use of the Committee on Financial Services
       

                           Serial No. 117-93
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]          
 
 
 
 
                        ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
48-469 PDF           WASHINGTON : 2022                            
                           
                           

                 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             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   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
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
RITCHIE TORRES, New York             BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts      LANCE GOODEN, Texas
ALMA ADAMS, North Carolina           WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan              VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania         PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
     Subcommittee on Consumer Protection and Financial Institutions

                   ED PERLMUTTER, Colorado, Chairman

GREGORY W. MEEKS, New York           BLAINE LUETKEMEYER, Missouri, 
DAVID SCOTT, Georgia                     Ranking Member
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California             BILL POSEY, Florida
AL GREEN, Texas                      ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JUAN VARGAS, California              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   TED BUDD, North Carolina
MICHAEL SAN NICOLAS, Guam            RALPH NORMAN, South Carolina
SEAN CASTEN, Illinois                JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts,      WILLIAM TIMMONS, South Carolina
    Vice Chair
RITCHIE TORRES, New York

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 13, 2022................................................     1
Appendix:
    July 13, 2022................................................    39

                               WITNESSES
                        Wednesday, July 13, 2022

Agnani, Seema, Executive Director, National Coalition for Asian 
  Pacific American Community Development (National CAPACD).......     5
Crosby, Catherine, Board Chairperson, National Community 
  Reinvestment Coalition (NCRC)..................................     7
Genao-Estrella, Yoselin, Executive Director, Neighborhood Housing 
  Services of Queens CDC Inc.....................................     9
Getter, Darryl E., Specialist in Financial Economics, 
  Congressional Research Service (CRS)...........................    12
Leighty, Quentin D., Chief Financial Officer and President, First 
  National Bank of Las Animas, testifying on behalf of the 
  Independent Community Bankers of America (ICBA)................    10

                                APPENDIX

Prepared statements:
    Agnani, Seema................................................    40
    Crosby, Catherine............................................    46
    Genao-Estrella, Yoselin......................................    62
    Getter, Darryl E.............................................    71
    Leighty, Quentin D...........................................    83

              Additional Material Submitted for the Record

Perlmutter, Hon. Ed:
    Written statement of the American Bankers Association........    93
    Written statement of the Mortgage Bankers Association........   104
McHenry, Hon. Patrick:
    Written statement of the Bank Policy Institute...............   109


                     BETTER TOGETHER: EXAMINING THE

                   UNIFIED PROPOSED RULE TO MODERNIZE

                     THE COMMUNITY REINVESTMENT ACT

                              ----------                              


                        Wednesday, July 13, 2022

             U.S. House of Representatives,
                Subcommittee on Consumer Protection
                        and Financial Institutions,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ed Perlmutter 
[chairman of the subcommittee] presiding.
    Members present: Representatives Perlmutter, Meeks, Scott, 
Sherman, Green, Foster, Vargas, Lawson, Casten; Luetkemeyer, 
Lucas, Posey, Barr, Williams of Texas, Loudermilk, Budd, 
Norman, Rose, and Timmons.
    Ex officio present: Representative Waters.
    Also present: Representative Garcia of Illinois.
    Chairman Perlmutter. The Subcommittee on Consumer 
Protection and Financial Institutions will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the subcommittee at any time. Also, without objection, 
members of the full Financial Services Committee who are not 
members of this subcommittee are authorized to participate in 
today's hearing.
    Today's hearing is entitled, ``Better Together: Examining 
the Unified Proposed Rule to Modernize the Community 
Reinvestment Act.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    In the 1930s, the practice of redlining, intentionally 
refusing to extend credit to borrowers in geographic areas 
based on race or ethnicity, was the official policy of the 
United States Government. People of color were largely excluded 
from homeownership, small business loans, and other 
opportunities.
    In the 1960s and 1970s, Congress passed a series of laws 
aimed at stopping discrimination in the housing and financial 
system. Among these laws, the Community Reinvestment Act (CRA) 
was enacted in 1977 and requires banks to meet the credit needs 
of their communities, including low- and moderate-income 
neighborhoods. The Federal banking regulators are tasked with 
scoring banks on how well they are meeting CRA goals and 
regulations around this law. But nearly a century later, we 
still feel the ripples of past policies holding our country 
back.
    In research sponsored by the Federal Reserve Bank of 
Minneapolis, the authors found that no progress has been made 
in reducing income and wealth inequalities between Black and 
White households over the past 70 years. And in testimony 
before this committee in 2019, journalist Aaron Glantz shared 
findings from his investigation into modern-day redlining, in 
which he discovered that in 61 metro areas across the country, 
people of color were more likely to be denied a conventional 
mortgage than their White counterparts, even when they made the 
same amount of money, tried to borrow the same amount of money, 
and wanted to buy in the same neighborhood.
    In May, the banking regulators issued a joint proposed rule 
making to strengthen and modernize the CRA. The last time the 
CRA was significantly updated was in 1995, and since then, the 
financial system has changed a great deal. Banks are more 
digital and have fewer branches, algorithms and automation play 
a significant role in determining credit risk, and non-bank 
lenders dominate the mortgage market.
    The CRA rulemaking is an opportunity to ensure our 
financial system works for all Americans and to finally put an 
end to modern-day redlining. A strong CRA rule could be the 
catalyst we need to close the racial wealth gap. Legislation 
noticed with today's hearing includes, but is not limited to: 
H.R. 2768, the American Housing and Economic Mobility Act, from 
Congressman Emanuel Cleaver; a discussion draft entitled, ``the 
American Community and Investment Reform Act,''; and a 
discussion draft entitled, ``the Making Communities Stronger 
through the Community Reinvestment Act.''
    I look forward to today's discussion and to hearing from 
each of our witnesses about how to best strengthen and 
modernize the Community Reinvestment Act.
    I would now like to recognize the ranking member of the 
subcommittee, Mr. Luetkemeyer, for 5 minutes for his opening 
statement.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    The Community Reinvestment Act was enacted in 1977 to 
ensure that banks are meeting the credit needs of communities, 
and to combat the practice of redlining, where individuals in 
certain geographic areas were cut off from banking services. 
However, after nearly 50 years, it is clear that the CRA as it 
currently stands is in desperate need of reform. Consumer 
groups, banks, multiple Administrations, and Members on both 
sides of the aisle understand the need to modernize and update 
the CRA in a meaningful way.
    The banking landscape has changed since the last major 
reform of the CRA almost 30 years ago. The rise of mobile 
banking has upended the traditional CRA assessment area, and a 
dramatic decrease in bank branches has resulted in banking 
deserts. Furthermore, some groups claim the current CRA does 
not do a good job of driving investment in underserved areas. 
Other groups say the vague requirements of the CRA do not help 
banks or consumers understand what qualifies for CRA credit, 
leaving all involved parties in the dark.
    It is clear a new CRA is needed that will provide 
transparency and accountability for the banks. It appears the 
Federal banking agencies attempted to solve some of these 
issues in their recently-proposed rule on CRA. For example, 
many of the new standards in the rule establish subjective 
quantitative metrics to determine what activities earn CRA 
credit and how much each is worth. It is a critical step in 
modernizing the CRA so that banks, localities, and consumers 
all better understand the program.
    The proposed rule also expands the importance of banking 
activities outside traditional mortgage lending. While mortgage 
lending remains important, there is an additional emphasis on 
small business, farm, and automobile lending, along with an 
expanded range of community service and development activities. 
I have said many times that it is called the Community 
Reinvestment Act, not the, ``Housing Reinvestment Act,'' and 
banks should be given credit--to appropriately try to solve 
these issues. I remain very skeptical of this rule as a whole 
and have serious concerns regarding its direction.
    According to Federal banking agencies, the CRA was 
established to require banks to meet the credit needs of 
communities, including lower- and moderate-income 
neighborhoods, consistent with safe and sound operations. For 
nearly 50 years, the CRA has examined the deposit-taking branch 
locations of banks and entering assessment areas. The proposed 
rule radically changes that approach by creating retail lending 
assessment areas, where assessment areas are not determined by 
deposits, but ultimately any geographic area where 100 mortgage 
loans or 250 small business loans were made.
    This is a dramatic shift that would place assessment areas 
of financial institutions well outside of their communities. As 
I stated before, modernization of CRA is critical given the 
rise of mobile and online banking, but establishing assessment 
areas based on lending metrics is misguided at best. The core 
idea behind the CRA is that banks must serve the credit unions 
of the communities in which they are receiving deposits. The 
proposed rule upends that core tenet.
    In addition, while the proposed rule does provide 
subjective quantitative metrics for certain CRA credit, the 
amount of data that banks are forced to compile under the 
proposed rule is truly immense. According to the estimates 
within the proposed rule conducted by the FDIC, the total 
estimated annual burden of this rule would be 225,000 hours. 
That is a staggering number which will place a significant 
burden on financial institutions and have an impact on access 
to credit for the very communities the CRA is attempting to 
help. This enormous burden ultimately means it will be more 
difficult for financial institutions to receive outstanding or 
satisfactory grades on their CRA exams.
    As probably the only Member of Congress who has actually 
filled out one of these forms, I can tell you this is an 
extremely big burden for folks, and the present form is very 
difficult to fill out the way it is. To add more of a burden is 
just unconscionable.
    This leads me to my final point. The CRA was intended to 
ensure that financial institutions are serving the credit needs 
of their communities. It was not intended as a way to hold 
banks hostage and extort money from them whenever a merger 
takes place. The final rule produced by the banking agencies 
should reflect the original intent of the CRA and look to 
provide access and drive investment into lower- and moderate-
income communities. If this rule does not accomplish this goal, 
then it has significantly deviated from the original intent of 
the CRA and should not go forward.
    With the comment period closing on August 5th, I look 
forward to examining the comments and concerns from industry 
stakeholders, many of whom are still combing through the 679-
page rule. I am also disappointed that a request to extend the 
90-day comment period was flatly denied by the Federal banking 
agencies. A rule as important as CRA should not by done in a 
fly-by-night manner, and should have thoughtful, comprehensive 
input from industry stakeholders before and forward. I look 
forward to examining the proposed rule.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Perlmutter. The gentleman yields back.
    The Chair now recognizes the Chair of the full Financial 
Services Committee, the gentlewoman from California, Chairwoman 
Waters, for one minute.
    Chairwoman Waters. Thank you, Chairman Perlmutter, for 
holding this hearing on the regulatory proposal to update the 
Community Reinvestment Act rules. Under my leadership, 
committee Democrats shut down the Trump Administration's 
efforts to undermine the law's original intent. So, I am very 
pleased to see the agencies work together on a new proposal to 
ensure that banks are meaningfully investing in all 
communities, not just some of them.
    Although the CRA was enacted to eliminate redlining, 
disparities for people of color--today, for example, the Black/
White homeownership gap is at a 120-year high, and the 
megabanks are reportedly denying Black homeowners the 
opportunity to refinance their mortgages at significantly 
higher rates than White borrowers.
    I look forward to the hearing, and I am hoping that our 
witnesses can help shed some light on what is going on.
    I yield back the balance of my time.
    Chairman Perlmutter. The gentlelady yields back.
    I now want to introduce our panel, and I am pleased to 
welcome each of our witnesses, some of whom are here in person 
and others are on the platform. So, thank you all.
    Ms. Seema Agnani is the executive director of the National 
Coalition for Asian Pacific American Community Development. Ms. 
Agnani has more than 25 years' experience in community 
development, capacity building, and immigrant rights, and was 
previously a member of the Consumer Financial Protection 
Bureau's Community Advisory Board.
    Ms. Catherine Crosby is the board chairperson of the 
National Community Reinvestment Coalition. Ms. Crosby is 
currently the town manager for Apex, North Carolina, and has 
played an important role in negotiating bank public benefit 
agreements with community, regional, and national banks.
    Mr. Quentin Leighty is the chief financial officer and 
president of the First National Bank of Las Animas, Colorado, 
and we are glad to have a Coloradan on this panel, thank you, 
sir. He is testifying today on behalf of the Independent 
Community Bankers of America. Mr. Leighty has been with the 
First National Bank since 2005, and is an alumni advisory board 
member at the Graduate School of Banking at Colorado.
    Dr. Darryl E. Getter is a specialist in financial economics 
at the Congressional Research Service. Dr. Getter has also 
served as a visiting economist at the Consumer Financial 
Protection Bureau, and as a financial economist at the 
Department of Housing and Urban Development.
    Mr. Meeks is walking in right now, and I know he would like 
to introduce Mrs. Yoselin Genao-Estrella. So, I am going to 
give him that opportunity before he catches his breath.
    Mr. Meeks. Mr. Chairman, you are absolutely right. I ran 
over here for this opportunity, because I am so pleased to 
introduce Yoselin, who is the executive director of the 
Neighborhood Housing Services of Queens, and provides excellent 
and critical resources to constituents of Queens, back in my 
district. They have been working very closely with our office. 
They testified at local hearings that we have had, and the job 
they do to make sure that those who are less fortunate than 
others have housing is just absolutely tremendous.
    And so, I wanted to run over here to introduce her and say 
thank you for all the work that you do in the city, and 
particularly, in the Borough of Queens.
    Chairman Perlmutter. Thank you, Mr. Meeks.
    And also, I would like to thank Ms. Genao-Estrella. She was 
in a car accident yesterday, I think, and is so intrepid that 
she still wanted to testify for us today. So, thank you very 
much for being here.
    And thank you to all of our witnesses.
    For those of you on the platform, I would ask you on behalf 
of the older members of this committee, like me, to please take 
your time. Speak slowly. Speak as distinctly as you can so that 
we can better understand your testimony.
    Ms. Seema Agnani, you are now recognized for 5 minutes to 
give an oral presentation of your testimony.

    STATEMENT OF SEEMA AGNANI, EXECUTIVE DIRECTOR, NATIONAL 
  COALITION FOR ASIAN PACIFIC AMERICAN COMMUNITY DEVELOPMENT 
                       (NATIONAL CAPACD)

    Ms. Agnani. Thank you. Chairwoman Waters, Chairman 
Perlmutter, Ranking Member Luetkemeyer, and members of the 
subcommittee, thank you for this opportunity to testify on this 
important joint rule on modernizing the CRA.
    National CAPACD is a coalition of about 100 organizations 
working across the country in low-income Asian American, 
Pacific Islander, and Native Hawaiian communities. They employ 
a diverse set of strategies from affordable housing to 
community organizing and supporting small businesses in order 
to advance equities and create vibrant healthy communities. As 
has been said, I have been working in the community development 
sector for--essentially since the inception of my career.
    In fact, had read the CRA legislation on my flight to my 
first job interview in New York City in the early 1990s. This 
landmark legislation was established to address redlining, 
discrimination, and disinvestment in communities of color. And 
unfortunately, it has been well documented that income and 
equality and the wealth gap have continued to widen, as has 
been said. This is the result of lack of access to safe, 
affordable financial services, access to credit, and of course, 
investments in affordable housing and support for 
microbusinesses.
    Despite this, 98 percent of banks passed their CRA exams. 
As has also been said, the Black homeownership rate is really 
unacceptable. And the overall homeownership rates for families 
of color in this country are 30 points lower than that of White 
families. Abusive payday lenders as well as online lenders are 
increasingly concentrated in communities of color and are 
charging unspeakable interest rates, leading to further wealth 
stripping of our communities.
    Simultaneously, our communities are being pushed out of 
neighborhoods that they have long occupied as a result of 
gentrification and rising rents, as well as predatory 
investments and lack of access to affordable credit. So, the 
CRA really must be modernized to address the broad range of 
financial entities that now exist, and should be evaluated on 
the actual and direct benefit to low-income communities of 
color, as well as to disincentivize the types of investments 
that promote displacement of low- and moderate-income 
communities of color.
    Today, that is the biggest threat to housing: disability 
displacement due to rising rents and evictions. And the COVID 
pandemic has only exacerbated that situation. For the Asian 
American, Native Hawaiian, and Pacific Islander communities, 
the majority of those who are living in poverty are 
concentrated in the highest-cost housing markets, leading to 
these communities being at disproportionate risk of 
displacement at this time in history.
    In addition to this, the limited English proficiency rates 
that are extremely high among low-income Native Hawaiian and 
Pacific Islander (NHPI) communities puts them at a particular 
disadvantage in terms of navigating the mortgage process or 
being able to understand what loan products are being offered 
to them. This was clearly evidenced through the rollout of the 
Payment Protection Program in the aftermath of the pandemic, 
particularly the first round, where our communities were really 
not able to access those resources that were made available 
because of the lack of language access, as well as the lack of 
relationships with mainstream financial institutions. Many of 
them turned to payday lenders and other alternative lenders due 
to lack of access.
    We would like to see race and ethnicity centered at the 
evaluation of CRA evaluations. The current proposed rule really 
does not go far enough. In addition, we would like to see CRA 
evaluation being based on ensuring that further displacement 
does not occur as a result of these investments and loans. In 
addition, it should further create affordable housing. We would 
like to see incentivization of preservation of existing 
affordable housing, naturally occurring affordable housing, and 
in order to ensure we don't advance homelessness. And 
unfortunately, the definition of affordability is still too 
high. The majority of our communities are unable to access 
those affordable units under the current CRA.
    Finally, we would like to see language access incentivized 
in the CRA. When financial institutions make the effort to 
reach those with limited English proficiency, they should 
qualify for CRA credits for things like recruiting employees 
who speak the languages of the local communities.
    Thank you for the opportunity to testify today.
    [The prepared statement of Ms. Agnani can be found on page 
40 of the appendix.]
    Chairman Perlmutter. Thank you, Ms. Agnani.
    And I didn't give the witnesses the speech that I was 
supposed to give at the beginning of your testimony. You get 5 
minutes. The screen will show when you are down to one minute. 
And we try to keep it to 5 minutes and not go too far.
    I would now recognize Ms. Crosby for her 5 minutes of 
testimony.

  STATEMENT OF CATHERINE CROSBY, BOARD CHAIRPERSON, NATIONAL 
            COMMUNITY REINVESTMENT COALITION (NCRC)

    Ms. Crosby. I am honored to testify before you today on the 
proposed regulatory reform of the Community Reinvestment Act. I 
am the board chairperson of the National Community Reinvestment 
Coalition (NCRC). NCRC is a coalition of 600 community-based 
organizations. Our members do CRA on a daily basis, and 
increase lending, investment, and services for our country's 
underserved communities. I am also the town manager for Apex, 
North Carolina, home to approximately 73,000 residents, and 
prior to that, I served in Dayton and Toledo, Ohio.
    The notice of proposed rulemaking issued by the Federal 
bank agencies represents the most significant changes to the 
CRA and exams in 27 years. CRA will be more effective in 
bolstering bank reinvestment activity in underserved 
communities, and in ensuring underserved groups' ability to 
move into high-opportunity communities the more rigorous CRA 
exams and ratings are. The NCRC proposed some significant 
improvements and tests, but the improvements are not across-
the-board on all aspects of the exam.
    I am pleased with the discussion draft, Making Communities 
Stronger through CRA, circulated by the committee today. The 
bill would require banks to establish community advisory 
committees, which would be consulted by providing input on 
banks CRA strategies, plans for meeting the needs of people of 
color, and on bank mergers and branch plans. In addition, the 
bill would increase oversight, meeting important needs such as 
those with small dollar mortgages.
    Finally, NCRC is pleased we are able to influence the 
bill's proposal for periodic inner-agency statistical studies 
on racial disparities. We are pleased that the American 
Community Investment Reform Act of 2022 would require CRA exams 
for security companies and affect their community development 
financing activities. We do not support the presumption that a 
financial institution with an outstanding rating satisfies the 
convenience and needs of communities as part of its merger 
application. We outline our views about this in recent comments 
to the FDIC.
    We strongly support applying CRA to independent mortgage 
companies, as the American Housing and Economic Mobility Act 
would do. In a previous report, we described how the 
application of CRA by the State of Massachusetts to mortgage 
companies is a model for Federal law.
    Persistent racial and ethnic disparities in lending should 
compel the agencies to incorporate race and ethnicities into 
the CRA exam. An NCRC national-level analysis shows continuing 
disparities, and in loan denials by race among people of color 
who received home loans, their equity accumulation was less. 
NCRC has asserted in a paper that it is possible for changes to 
CRA to comply with legal standards if CRA exams lending by race 
and ethnicity in geographic areas experiencing ongoing 
discrimination. By including race, CRA could address the racial 
disparities and have a direct impact on quality-of-life and 
health outcomes.
    The COVID pandemic disproportionately affected communities 
of color in terms of unemployment, rates of COVID, and 
disclosure. In part, this is a legacy of 80 years of redlining. 
NCRC studies have shown that communities of color which were 
identified as risky on redlining maps produced by the Home 
Owners' Loan Corporation remain economically depressed, and 
experienced a higher incident of adverse health outcomes.
    I represent communities that have been distressed for 
decades due to redlining. The NCRC is helpful in that it 
proposed that CRA exams would assess lending separately in low-
income and moderate-income tracks. This would help the 
distressed in lower-income communities. I also urge the 
agencies to go a step further and to examine lending in 
underserved neighborhoods with the lowest levels of lending.
    As documented by NCRC, these tracts are disproportionately 
communities of color. I was formally the chief of staff in 
Toledo, Ohio, which is located in Lucas County. CRA reform was 
needed there because in that county, low- and moderate-income 
(LMI) neighborhoods are receiving low levels of lending. NCRC 
documented that from 2018 through 2020 in Lucas County, just 
12.4 percent of home purchase loans were made in LMI 
neighborhoods despite 32 percent of people living there. No 
lender in Lucas County is doing an adequate job of serving the 
Hispanic population.
    Among the top 20 lenders, the percentage of loans for 
Hispanic applicants varied from 1 percent to 3 percent, despite 
being 7 percent of the County's population. In Wake County, 
where the town of Apex is located, 20 percent of the population 
is African American. Of the top 20 lenders in the County, only 
2 make 20 percent or more of their loans to African Americans. 
The rest make 8 percent or less of their loans to African 
Americans. And none are providing loans to the Hispanic 
community proportionate to their representation.
    These disparities make a compelling case to examine lending 
by race or CRA exams in areas experiencing ongoing 
discrimination. We ask that the agencies reconsider their 
decision not to do that.
    Thank you.
    [The prepared statement of Ms. Crosby can be found on page 
46 of the appendix.]
    Chairman Perlmutter. Right at 5 minutes. Thank you very 
much.
    I now recognize Ms. Genao-Estrella for 5 minutes for her 
testimony.

   STATEMENT OF YOSELIN GENAO-ESTRELLA, EXECUTIVE DIRECTOR, 
        NEIGHBORHOOD HOUSING SERVICES OF QUEENS CDC INC.

    Ms. Genao-Estrella. Good morning, Chairman Perlmutter, 
distinguished guests, and our very own Congressman Meeks.
    My name is Yoselin Genao-Estrella, and I am the executive 
director of a tiny but mighty organization, Neighborhood 
Housing Services (NHS) of Queens. Although imperfect, CRA has 
been a lifeline for investment in underserved communities. The 
notice of proposed rulemaking (NPR) to modernize the CRA 
represents a step in a positive development, and it is a step 
in the right direction. However, with the current proposal, CRA 
will remain far from effective and likely incapable of reaching 
its goals.
    Although there is no silver lining to fully address 
centuries of racial disparity or redlining, a comprehensive 
cross-sector approach is urgently needed. We appreciate all of 
the regulators for getting together and putting forth this 
collective NPR, as well as our legislators in Congress for 
introducing legislation that could potentially complement the 
overarching goals of a straining CRA.
    However, we need a bold holistic approach instead of a 
piecemeal approach. For CRA to actually address redlining, it 
needs to consider this goal. It is threatening the role of 
community input, to provide access to banking, emphasize 
homeownership as a path to wealth creation, and explicitly 
include race. We appreciate the regulators' emphasis on the 
importance of community input. However, it is not just 
important to allow community input in this process; regulators 
must center the needs and voices of communities of color and 
LMI people in the exam and ratings.
    In addition, acknowledging the increase in digital banking 
and regulating this practice cannot negate the importance of 
maintaining and opening new bank branches in already-
underbanked LMI communities and communities of color. Access to 
banking and affordable, accessible products is critical to 
building wealth through savings and assessing credit, yet banks 
continue to expand and grow their branches as branches close 
and communities are constantly left out of the financial 
system.
    We see this phenomenon in our own backyard where financial 
institutions create self-fulfilling prophesies by not providing 
adequate products and services in LMI bank branches and then 
justifying branch closures due to the lack of business 
activity. Immigrant communities, for example, are often left 
behind in the banking system because of language, culture, and 
identification barrier.
    Homeownership remains an important path to wealth creation 
and developing intergenerational wealth for communities of 
color. Yet, too often these communities are left out of the 
homeownership opportunities, are targeted by predatory products 
and are given limited opportunities to accumulate wealth due to 
lower appraisal values.
    We appreciate the proposed data-driven framework and 
acknowledge that it could combat great inflation, but we are 
concerned about the overall impact without significant changes. 
We are deeply disappointed that the regulators failed to push 
for regulations that will have CRA live up to the intended 
purpose of addressing redlining. Despite acknowledging the 
law's origins and how modern-day redlining persists, all of the 
regulators' proposals regarding race within the examination 
framework would do is to disclose already-public data, and 
would have no public impact on final ratings.
    As a nation, we are in the crossroads as we strive for 
racial equality and economic mobility, especially as we recover 
from COVID-19. With intentionality, CRA can be one of the 
engines to end racial disparity and finally combat redlining. 
The time is now.
    Thank you for the opportunity to be here, and I am happy to 
answer questions. Thank you.
    [The prepared statement of Ms. Genao-Estrella can be found 
on page 62 of the appendix.]
    Chairman Perlmutter. Ms. Genao-Estrella, thank you for your 
testimony.
    Now, I would like to recognize a Coloradan on the panel, 
Mr. Leighty, for 5 minutes.

 STATEMENT OF QUENTIN D. LEIGHTY, CHIEF FINANCIAL OFFICER AND 
  PRESIDENT, FIRST NATIONAL BANK OF LAS ANIMAS, TESTIFYING ON 
 BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Leighty. Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee, I am Quentin D. 
Leighty, CFO and President of the First National Bank of Las 
Animas in Las Animas, Colorado. I am testifing today on behalf 
of the Independent Community Bankers of America (ICBA), where I 
am the chairman of the policy development committee and a 
member of the Federal delegate board. Thank you for the 
opportunity to testify today.
    The inclusive community focus on lending and service 
required by CRA is the essence of what community banks do. For 
this reason, CRA has not required us to shift or tailor our 
banking practices, but only to document what we are already 
doing. The First National Bank has served the communities of 
Southeast Colorado since 1901. Today, we are a $580 million 
bank, and most of the communities we serve are low-, moderate-, 
or middle-income, and some are designated as either distressed, 
underserved, or both.
    I am proud that my bank has consistently received CRA 
ratings of outstanding. We are an intermediate small bank with 
2 assessment areas and our last examination was in 2020. My 
written testimony includes a detailed discussion of how we 
achieved our outstanding score, by serving borrowers at 
different income levels and businesses and farms of different 
sizes, particularly within the distressed and underserved 
communities.
    Our exam also found excellent responsiveness to the 
community development needs and recognized our donation of 
funds, employee time, and expertise to critical community 
development services. Our performance was typical of thousands 
of community banks.
    ICBA has developed the following recommendations for CRA 
modernization. Current thresholds do not reflect the extensive 
consolidation and growth that has occurred in the industry 
since 1977. Updated thresholds would partially ease the CRA 
regulatory burden for most community banks without impairing 
agency CRA assessments.
    The agency should create a list of CRA qualifying 
activities. While the list should not be exhaustive, it would 
provide banks with greater clarity. CRA regulations should 
exempt minority- and women-owned financial institutions and 
Community Development Financial Institutions (CDFIs) from 
documentation and full-scope examinations. This change would be 
fully consistent with the spirit of CRA.
    Finally, ICBA recommends that all institutions that serve 
consumers be subject to CRA. In the absence of CRA, credit 
unions are not held accountable for their service to LMI 
communities. Moreover, the increasing trend of credit union 
bank acquisitions is removing CRA-covered institutions from the 
marketplace. We ask that this committee hold a hearing on 
credit union and community bank acquisitions and CRA.
    As you know, the OCC, the FDIC, and the Federal Reserve 
recently released proposed rules to modernize CRA. I will use 
this opportunity to make some broad and preliminary 
observations. On asset thresholds, the proposal would increase 
the small bank threshold to $600 million, and the intermediate 
small bank threshold to $2 billion, which is short of our 
recommendation of $2.5 billion. Banks with assets of more than 
$10 billion would be subject to additional requirements. This 
would provide welcome regulatory relief for small banks, 
including mine.
    The opt-in approach. The proposal would allow small banks 
to opt in to the new retail lending test or continue to be 
evaluated under the current test. We strongly support the opt-
in approach. As any new test requires banks to overhaul their 
compliance management systems and retrain their staff, this 
disruptive change comes at the expense of community service. We 
urge the agency to extend the opt-in approach to intermediate 
small banks as well.
    The out-of-area activities. The proposal would allow banks 
to receive CRA credit for beneficial loans and investments made 
outside their assessment area. ICBA strongly supports this.
    The list of eligible activities. The proposal requires the 
agency to maintain a non-exhaustive list of activities eligible 
for CRA credit. As I had mentioned, ICBA strongly supports this 
change, which would create more transparency and predictability 
in CRA evaluations.
    My written statement provides more detailed analysis of the 
proposal. Thank you, again, for convening this hearing today 
and for the opportunity to hear the community bank perspective. 
I am happy to answer any questions you may have.
    [The prepared statement of Mr. Leighty can be found on page 
83 of the appendix.]
    Chairman Perlmutter. Mr. Leighty, thank you for your 
testimony.
    Dr. Getter, you are recognized for 5 minutes for your 
testimony, sir.

    STATEMENT OF DARRYL E. GETTER, SPECIALIST IN FINANCIAL 
        ECONOMICS, CONGRESSIONAL RESEARCH SERVICE (CRS)

    Mr. Getter. Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee, thank you for the 
opportunity to testify today.
    My name is Darryl Getter, and I am a specialist in 
financial economics at CRS, focusing on financial regulation in 
the mortgage, consumer, and small business credit markets. At 
CRS, our role is to provide Congress with objective and 
nonpartisan research and analysis. Therefore, any arguments 
presented in my testimony are for the purposes of informing 
Congress and not to advocate for a particular policy outcome.
    My testimony begins with a brief background of the 
Community Reinvestment Act. It then highlights some of the 
aspects of the proposed CRA rule that was jointly announced on 
May 5, 2022, by the OCC, the Federal Reserve Board, and the 
FDIC.
    Congress passed the CRA in response to concerns that 
federally-insured banks were not making sufficient credit 
available in local areas where they were chartered and 
acquiring deposits. Specifically, the expansion of bank 
operations across State borders led to concerns that local 
deposits were being used to fund out-of-State and international 
lending activities, as opposed to housing, agriculture, and 
small business credit needs at more localized levels.
    In addition, there was concern about redlining practices in 
which a bank may refuse to provide financial services to all 
residents in a local area, perhaps due to discrimination. For 
this reason, the CRA requires Federal bank regulators to 
evaluate the extent that banks effectively meet the credit 
needs within their designated geographical areas, including 
low- and moderate-income neighborhoods, in a manner that is 
consistent with prudential safety and soundness regulations.
    The bank regulators award CRA credits and issue performance 
ratings, which are subsequently taken under consideration when 
banks apply for various activities that would require 
regulatory approval. In 1995, the CRA framework was updated to 
clarify and standardize the examination process. For example, 
the concept of an assessment area was introduced primarily with 
a geographical definition. In other words, a bank's lending 
activities would be evaluated within the geographical location 
of its main office, branches, and deposit-taking ATMs, as well 
as surrounding areas where it may have originated and/or 
purchased a substantial portion of its loans.
    The definition of community development was also revised to 
include the promotion of community welfare, and the definitions 
of a small business and a small farm were also revised. The CRA 
examinations were also customized to account for differences in 
bank sizes and business models. Under the current CRA 
framework, geographical issues have recently emerged, this time 
as banks have increasingly adopted technology to conduct 
digital payments and other online transactions.
    For the purposes of CRA compliance, a bank may be able to 
provide electronic and digital financial products to low- and 
moderate-income communities outside of its designated 
geographic assessment area, but whether it receives CRA credit 
may depend upon an examiner's interpretation of the 
circumstances.
    The joint proposed rule that would update the current CRA 
framework includes the following provisions. The definition of 
a CRA assessment area would be updated and expended to allow 
for evaluating more activities that occur outside of a bank's 
primary assessment area. Furthermore, the proposed rule 
clarifies that all activities meeting the expanded community 
development definition would be eligible for CRA consideration, 
regardless of whether they occur in the designated assessment 
area.
    The proposed rule also expands the definition of community 
development, which is aimed to encourage partnerships with 
financial entities that promote greater access to financial 
products and services to traditionally-underserved populations 
and geographies.
    The proposed rule also incorporates greater use of the data 
and documentation of a bank's lending and investment activities 
for measuring CRA effectiveness. Over time, these metrics may 
allow regulators to better gauge average and above-average CRA 
activity levels. Collectively, these updates are intended to 
promote financial inclusion efforts, and they may also result 
in the evaluation of more community development activities 
initiated by banks that may not have been evaluated under the 
current CRA framework.
    Thank you for your time, and I am happy to answer any 
questions.
    [The prepared statement of Dr. Getter can be found on page 
71 of the appendix.]
    Chairman Perlmutter. Dr. Getter, thank you for your 
testimony.
    We expect to have votes called on the House Floor around 
11:30, so will get as many questions in as we can. Hopefully, 
we can get through everybody who wants to ask questions, but if 
not, then we will have to recess and then come back to finish 
things up.
    I will now recognize myself for 5 minutes for my questions.
    Ms. Genao-Estrella, one of the new categories of 
revitalization and stabilization activities in the proposed 
rule is disaster preparedness and climate resiliency. What 
types of needs do you see in your community for building more 
resiliency, and how might directing CRA investment help in 
those efforts?
    Ms. Genao-Estrella. Thank you so much for the question, 
especially since our communities in Queens have experienced 
different type of disasters.
    And as we look to continue being able to provide 
resiliency, there are not a lot of resources available. Our 
communities cannot continually depend on disaster relief 
efforts from the government. We need short-term and long-term 
solutions. And we are very pleased that the climate resiliency 
is included, because it would provide to the very same 
communities that often get the brunt of the disasters that 
happen constantly due to climate change, but being able to 
provide investments that are needed in our communities. It is 
urgently needed. We also are very cautious about being able to 
include community input in the--in making community plans 
available and working in tandem with the government as well.
    Chairman Perlmutter. Thank you. And obviously, we all know 
that communities in New York, and outside of New York, got 
clobbered by Hurricane Sandy.
    Mr. Leighty, I have a question for you. What role do you 
think banks in Colorado can play in investing in disaster 
resiliency efforts? Not so much out around Las Animas, but you 
have brush fires and wildfires out there, and obviously in the 
foothills and in the mountains, we had them too.
    Can you also comment on your bank's experience in disaster 
recovery?
    Mr. Leighty. Sure. Unfortunately, we have had a lot of 
experience with fires in the area, and of course, we are close 
to the Black Forest fires that occurred here not that long ago. 
We got active in helping finance the rebuilding of those areas, 
and we have been very active in helping fire departments, both 
with renovation loans and new equipment, and just being 
prepared for the growth that has occurred in our State as well. 
And so, we are very active with the municipalities in making 
sure fire departments have the equipment they need and the 
financing available to get that. And that is the role that we 
have played directly.
    Chairman Perlmutter. Thank you.
    Mr. Leighty. We also have a couple of volunteer 
firefighters who work for us, who leave the job from time to 
time to go help fight those fires.
    Chairman Perlmutter. Thank you, and I thank them for their 
service.
    I have another question for you. Many bankers have asked 
for more clarity around what counts as a qualifying activity 
for CRA credit. Under the proposed rule, the agencies would 
maintain a publically-available list of activities eligible for 
CRA credit.
    Would having such a list of qualifying activities be 
helpful for community banks in making decisions regarding 
strategies in reaching low- to moderate-income communities?
    And I want this to be answered by Ms. Agnani and Ms. Crosby 
as well.
    Mr. Leighty. I believe it would be helpful. The more 
clarity we can have, the more efficient we can be, and the more 
we can spend time on community development and lending versus 
wondering what is coming at us on the regulatory side. And so, 
I think it would be very helpful and something we would 
certainly use.
    Chairman Perlmutter. Ms. Agnani?
    Ms. Agnani. Thank you. Yes. I do believe it would be 
helpful. Although, I think a comprehensive list--there will be 
always be additional needs. However, explicitly stating things 
like language access and ensuring that things like displacement 
do not occur would definitely reinforce and help strengthen the 
CRA.
    Chairman Perlmutter. Thank you.
    Ms. Crosby?
    Ms. Crosby. I agree with both Mr. Leighty and Ms. Agnani. I 
think that also creates greater opportunities for the 
institutions to work with their community partners to identify 
opportunities that would help strengthen communities.
    Chairman Perlmutter. Thank you.
    I have another question for you, Ms. Crosby. Your testimony 
highlights the need for CRA exams to consider lending to both 
neighborhoods and individual borrowers by income and race.
    Can you please explain why this is important, and do it in 
14 seconds?
    Ms. Crosby. That is a little bit unfair, but I will try. I 
think it is really important to be working in two very 
different communities, one community where lending is not 
happening at all, and there is significant divestment. That is 
the importance of tracking by place, and then working in a more 
affluent community where we want to as to the diversity of our 
community it is really important to be able to track how people 
are able to access financial services to be able to live in our 
community, and that is where you track by individuals. So, the 
importance of mobility as well as the importance of making 
investments in communities that are underserved is why you need 
to track by both.
    Chairman Perlmutter. Thank you. And my time has more than 
expired.
    I will now recognize the ranking member of the 
subcommittee, the gentleman from Missouri, Mr. Luetkemeyer, for 
5 minutes for his questions.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Getter, as someone who has studied the CRA, have 
assessment areas ever been based on lending activity instead of 
physical branches or deposits prior to this proposed rule?
    Mr. Getter. As far as I know, the assessment area has been 
based on lending activity. Although, deposits are very 
important.
    Mr. Luetkemeyer. Right. To me, you are looking at what the 
name of this Act is, it is the Community Reinvestment Act.
    Mr. Getter. Yes.
    Mr. Luetkemeyer. You want to take the dollars that are 
being deposited into the bank and then reinvest those in the 
community, and to make sure that money goes back into the 
community. I think we have a problem here.
    I am the ranking member of the House Small Business 
Committee, and we set up a small business plan for the 
restauranteurs of this country. The problem with it was that 
they highlighted and prioritized women, minorities, and 
veterans. And that was taken to court and declared to be 
unconstitutional because it prioritized these three groups over 
everybody else.
    But by the same token, everybody needs to be aware that 
when you start prioritizing things like this on race, I think 
we are going down a rabbit hole here. I think we need to look 
at this for low- and moderate-income folks, and I think the way 
to do this is to say that all of the money that comes out of a 
neighborhood needs to go back into it in some way, whether it 
be in housing, small businesses, churches, or community 
projects like community centers, and food pantries, things like 
that. That money needs to go back in there, and there needs to 
be a threshold on that to make sure it does. Otherwise, the 
money gets taken out.
    I think this is the argument most people are making this 
morning, that money is coming out of the community and not 
going back. I think if we make the argument that the money 
needs to go back to the very community that it is being taken 
from, I think we get to where we need to go, because I am 
concerned that if we go down this hole of, it has to be only on 
race, I think we are setting this whole Act up to be thrown out 
of court as unconstitutional, based on what I have seen already 
in the Small Business Committee.
    Would you agree with that, sir?
    Mr. Getter. Yes. And the statute even requires the 
regulators to focus on geography. So, I don't know if the 
regulators could even extend by race.
    Mr. Luetkemeyer. Mr. Leighty, you are in the banking 
business. Would you agree with my assessment, there, that we 
need to have a threshold, and make sure all of that money goes 
back into the community, to make sure that we protect all of 
the folks who have been depositing with the institution so they 
can get their community--that is what this whole thing is all 
about.
    Do you agree?
    Mr. Leighty. I would agree. That is how we reinvest. One of 
the things that we look at is our loan and to deposit ratio, 
and ours is very high, and historically has been, because we 
are reinvesting those dollars back into the community.
    Mr. Luetkemeyer. As a former examiner, I can tell you that 
is something that we always looked at is whether the bank was 
actually servicing its area by reinvesting in the community in 
all sorts of ways, whether it be home mortgages, auto loans, or 
small businesses, as well as community service things like 
churches and food pantries and community centers. To me, that 
is where this whole bill should be going.
    The Housing Resource Center of the National Housing 
Conference put out a paper, ``Could the future of CRA be in 
doubt,'' and one comment in there was, ``Community development, 
investment, and lending are essential to repairing communities. 
Yet under the proposal, community development performance would 
not affect most large banks' overall CRA rating because retail 
test performance weighs heavier, 60 percent, than community 
development performance, 40 percent.''
    This is from the National Housing Conference, and Mr. 
Chairman, I would like to ask unanimous consent to have this 
entered into the record.
    Chairman Perlmutter. Without objection, it is so ordered.
    Mr. Luetkemeyer. Thank you, sir.
    Mr. Getter, would you like to comment on that?
    Mr. Getter. No, sir. I decline to comment at this time. I'm 
sorry.
    Mr. Luetkemeyer. Okay.
    Mr. Leighty, would you like to comment on that, that the 
CRA rating is going to be weighed too far to the retail test 
performance section rather than the community development 
preference? Is that a better problem with this bill or this 
proposed rule?
    Mr. Leighty. I guess I am not sure I am ready to comment on 
that. I apologize.
    Mr. Luetkemeyer. Okay. I see I have 18 seconds left, so 
with that, I will yield back to the Chair, and we can hopefully 
get everybody back before the vote.
    Thank you, Mr. Chairman.
    Chairman Perlmutter. I thank the gentleman.
    The gentleman from New York, Mr. Meeks, who is also the 
Chair of the House Committee on Foreign Affairs, is now 
recognized for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    And just briefly, in response to Mr. Luetkemeyer, the 
reason why we have to have a CRA is because for over 200 years, 
this country has focused on race. And the CRA was done as a 
civil rights bill to correct the historic racism in the United 
States of America. And I would say that particularly in 
housing, it still exists today. The injustices and disparities 
in housing, based upon the history of this country, are 
prevalent and alive, and that is why we need CRA. And we know 
from the time that CRA was initially enacted, things have 
changed, because banking has changed. And as a result of that, 
we have to make sure that we continue to correct the 
disparities and the racism that this country was built on.
    Ms. Crosby, we know that relying on data just around LMI 
communities does not address these racial disparities, and and 
studies show that we need to make sure that it is addressed. 
How do you recommend enhancing CRA so that racial equity is at 
the forefront of the work that we are doing so that we can get 
rid of racism and redlining?
    Ms. Crosby. I think that there are a number of examples of 
how this could be done, but we propose an interagency 
statistical study that would identify metropolitan areas and 
rural counties experiencing ongoing dissemination. In those 
areas, CRA exams would include metrics such as percent of loans 
to African Americans or Hispanics or Asians, and the racial or 
ethnic subgroups on CRA exams would be based on the results of 
the statistical study.
    Mr. Meeks. Thank you for that.
    Let me go to Ms. Genao-Estrella, because you talked about, 
again, in certain LMI communities and communities of color, 
banking deserts starting to happen. And so, people don't have 
access to it.
    How do you suggest the CRA could address just that issue, 
the closing of branches in low- to moderate-income communities 
and communities of color? How would CRA address those issues?
    Ms. Genao-Estrella. Thank you so much for the question. 
It's very pertinent to the communities that we serve.
    We see banking deserts in our community, and one thing that 
CRA can do is to be able to regulate, and also that there will 
be consequences for closing branches that are in LMI 
communities and communities of color. And there will be 
repercussions because we see when these branch closures, and 
also this bank desert, when we see the repercussions on our 
small businesses, we see the repercussions that happen and 
there is a correlation between branches and also being able to 
have economic opportunities and access to banking in those 
communities that need it the most.
    Mr. Meeks. Thank you for that.
    And I want to also try to get to Mr. Leighty. I have been 
supportive of innovation in the fintech space, because I 
believe that they have the ability to provide significant 
access to communities that have historically been shut out of 
the financial system, but fintechs and nonbanks that may not 
have charters, are not FDIC-insured. But they do provide core 
financial tools to their consumers. However, the CRA only 
applies to FDIC-insured banks. So, these nonbanks and fintechs, 
which I, at times, applaud for making LMI a priority, are 
outside the scope of the CRA.
    What do you think the role of the CRA should be as it 
relates to these nonbanks? And how do you think CRA regulation 
of the nonbanks could be beneficial to curing racial 
inequalities?
    Mr. Leighty. We certainly support a level playing field and 
also equality in that CRA space, because they are providing 
great services. But we have seen many times when a shadow 
industry comes in and gets into an environment that doesn't 
have the same regulatory rules, it affects everybody. And so, 
we would support CRA rules for them, for credit unions and 
other financial services.
    Mr. Meeks. My time has expired.
    Chairman Perlmutter. The gentleman's time has expired. The 
gentleman yields back.
    The gentleman from Oklahoma, Mr. Lucas, who is also the 
ranking member on the House Science, Space, & Technology 
Committee, is now recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    While the banking community has changed substantially in 
the last decade, the Community Reinvestment Act has not been 
meaningfully revised since 1995. And we are certainly in a 
different world now than we were 27 years ago. And we can all 
agree that CRA can be updated to better serve lower- and 
moderate-income communities.
    Dr. Getter, could you discuss how this proposed rule 
attempts to provide clarity on whether CRA credit applies to 
digital financial products and services that benefit an area 
outside of a CRA assessment area?
    Mr. Getter. Yes. And I have had a moment to also think 
about the previous question, so I think I can do both of them 
at the same time.
    Mr. Lucas. Please.
    Mr. Getter. For the most part, the CRA does provide--the 
proposed rule does provide more clarity on the specific 
community development activities. They came up with 11 new 
categories that will let banks know that these loans will be 
eligible for CRA consideration.
    The issue is, that category would only count 30 percent 
instead of 45 percent for the retail lending area. Now, with 
the retail lending area, they did say you can--if you do a 
substantial amount of lending in these areas outside of your 
assessment area, you can create an assessment area and that 
will be included.
    What I would say might be something to think about or an 
issue to think about is that because the statute says we want 
you to cover lending in a geographic area, the regulators have 
to give 45 or higher weight to loans in the retail assessment 
area. Whereas in the community development area, they can 
include all loans in all areas, but it is given less weight 
because it is not directly in the assessment area.
    So, the CRA incentivizes lending to LMI areas. It just 
gives heavier weight to loans within those assessment areas and 
areas in which they are doing a substantial amount of lending.
    Mr. Luetkemeyer. It is my understanding that the CRA rule 
will have a 1-year implementation period following the 
publication of the final rule.
    Mr. Leighty, could you give us your perspective on the 
evaluation process and compliance changes that would be needed 
by a bank once this rule goes into effect? Basically, is 1 year 
a sufficient amount of time?
    Mr. Leighty. We always like more time versus less. A lot of 
us wear a lot of different hats. There are very few of us who 
are siloed in community banking, so it does take time to get 
our arms around legislation, especially legislation that has 
nearly 700 pages to decipher.
    So, the extra time would certainly be helpful. I would say 
a year at a minimum. And it is going to cost us. We are going 
to need consultants and lawyers and maybe even some software to 
make sure that we implement those changes correctly. The more 
time we have, the less expense on those ends we can have, 
because we can digest that internally without needing to go to 
a third party.
    Mr. Luetkemeyer. This proposed rule offers a list of 
examples of qualifying activities that are eligible for CRA 
credit, which should help reduce uncertainty around which 
activities will receive credit. It is important that this rule 
provide clarity to banks before they commit to potential CRA 
activities.
    Dr. Getter, can you discuss how comprehensive this list is 
and if this list includes a process for banks to seek approval 
in advance regarding whether an activity is eligible for CRA 
credit?
    Mr. Getter. The list, from what I could tell, was very 
comprehensive. Where there was uncertainty was, if a bank made 
a loan outside of the area, if they would get credit for it. 
And I do think that is one of the issues with CRA. It is not 
just the digital of reaching out to people that has improved 
with the technology, but also the way loans are funded has 
changed over time. And the CRA sort of has a preference for 
loans that are funded in portfolio.
    So if a bank wanted to fund just a piece of a loan, or get 
into a loan participation, let's say, with a CDFI that was not 
in its assessment area, they may get some credit, but not the 
same amount of credit that they would get if it was in the 
assessment area.
    Mr. Luetkemeyer. If the Chair will indulge me for one 
second, do you see a process by which banks could get advanced 
approval in the rule?
    Mr. Getter. Yes, they can have a discussion with the 
regulator. Normally, they make the loan and then go to the 
regulator for approval, but I don't believe there is anything 
that is stopping the bank from going to the regulator first and 
getting some clarification.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chairman Perlmutter. I always indulge my friend from 
Oklahoma.
    The gentleman from Georgia, Mr. Scott, who is also the 
Chair of our Housing, Community Development, and Insurance 
Subcommittee, is now recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Ladies and gentlemen, race is a serious issue. It has been 
that way since the very foundation of this country. I would 
mention those brilliant words by Thomas Jefferson, ``All men 
are created equal, endowed with certain unalienable rights, 
among those are life, liberty, and the pursuit of happiness,'' 
and this man wrote that when he owned slaves. The reason I am 
saying that is we have to stop being shy about dealing with 
race.
    Ms. Crosby, I want to direct this question to you. We have 
a current framework within our rule, but it bases 
discrimination only on credit. Now with the new rule, I 
suppose, and you tell me, we are finally putting it in a 
category of any racial activity, of any type of discrimination.
    So, Ms. Crosby, it is my hope that you can shed a little 
light on whether or not these new requirements that we have 
will have the effect that is needed. Would it have little or no 
effect on the impact of ratings of a bank and it would not 
constitute a lending analysis for the purpose of evaluating 
redlining risk factors?
    First, I want you to tell me if this is true. Are you as a 
person satisfied with the--not the current rule but this 
proposed rule? Will it do the job of dealing with racial 
discrimination head on?
    Ms. Crosby. Thank you. I think at NCRC, we believe it could 
be stronger. The agencies propose to use Home Mortgage 
Disclosure Act (HMDA) data to produce exam type of prescribing 
lending in rates but it is not incorporating those findings 
into the banks' exam.
    In addition to that, it is possible for changes to CRA to 
meet current legal standards if CRA examined lending by race 
and ethnicity in geographic areas experiencing ongoing 
discrimination or exhibiting significant racial disparities in 
lending.
    We also propose including analysis of lending in 
underserved neighborhoods with low levels of lending, which are 
disproportionately communities of color. The agency should at a 
minimum bolster fair lending reviews of company CRA exams for 
banks that perform poorly in HMDA data analysis of lending by 
race. In addition, the agencies propose to use Section 1071 
small business and farm lending data by race and gender in CRA 
exams when Section 1071 data becomes available.
    I think there is an opportunity to strengthen the proposed 
rules so that race can play a greater role in addressing the 
needs of underserved communities.
    Mr. Scott. Can you explain why it is important that the 
rule does go further and includes information on a bank's 
lending data in these underserved areas?
    Ms. Crosby. In short, I will summarize it by saying that 
when there were Federal policies that encouraged redlining by 
race, that disproportionately impacted communities, and we are 
seeing that today, even through our analysis of health outcomes 
from COVID, when you correlate the data of communities that 
were most significantly impacted by COVID with the data of 
communities that were redlined, you see the direct correlation 
of the impact of those policies that actually discriminated 
against communities of color and are still persistent today.
    So, there were intentional efforts to discriminate against 
people of color by putting them in certain communities. There 
needs to be intentional efforts to correct that.
    Mr. Scott. Thank you, Ms. Crosby.
    Chairman Perlmutter. The gentleman's time has expired. The 
gentleman yields back.
    The gentleman from Florida, Mr. Posey, is now recognized 
for 5 minutes.
    Mr. Posey. Thank very much, Chairman Perlmutter.
    Dr. Getter, what do you understand to be the objectives of 
the Community Reinvestment Act?
    Mr. Getter. I'm sorry. Would you please say that again?
    Mr. Posey. What do you understand to be the objectives of 
the Community Reinvestment Act?
    Mr. Getter. Oh, okay. Thank you.
    The objective is to make sure that banks are lending where 
they accept deposits or where they were chartered, as stated in 
the statute. That is what the banks are usually evaluated on, 
how well they are reinvesting back into their communities.
    Mr. Posey. Okay. This hearing finds much disappointment 
with the Community Reinvestment Act in achieving those 
objectives. What does your study of this Act suggest for the 
sources of the disappointment?
    Mr. Getter. The banks say that they were making loans but 
it wasn't getting counted. So, they wanted to make sure that 
they got credit for the CRA lending that they were doing.
    Mr. Posey. Okay. The hearing memo speaks about modern-day 
redlining, and this phrase appears widely in discussions of the 
Community Reinvestment Act on the internet and in policy 
circles.
    Can you describe what the modern-day redlining is, and how 
it differs from prior forms of redlining?
    Mr. Getter. Previously, redlining may have meant not 
getting a loan, whereas today, redlining could mean higher 
prices. So, the HMDA is really trying to capture both. How much 
credit is being denied, and is the credit being priced 
correctly?
    Mr. Posey. Very good. Thank you.
    In your research paper, ``The Effectiveness of the 
Community Reinvestment Act,'' you point out that compliance 
with the CRA does not require adherence to lending quotas or 
benchmarks, and that in the absence of benchmarks, evaluating 
the effectiveness of the Community Reinvestment Act is 
difficult.
    Could you expand a little bit on that theme for me?
    Mr. Getter. Right. The regulators are careful. They don't 
want to say how much lending is enough. Ultimately, the 
regulators are also the prudential regulators of the banks. So, 
they don't want to say, you have to make this loan, or this 
many loans, and then if the loans don't perform, turn around 
and have to say, well, now, you have to hold all of this 
capital.
    So, the regulators do try to give banks flexibility. And, 
again, they are just trying to make sure that the lending is 
covered in the assessment area, which is what the statute 
requires.
    Mr. Posey. Very good.
    Do you believe that given our country's emphasis on free 
market economics and finance, it would be possible or even 
desirable to remedy the problem by providing benchmarks for the 
Community Reinvestment Act based on lending quotas and quotas 
for other services?
    Mr. Getter. I will say that CRA loans are profitable loans. 
So, it is not like the regulation is forcing them to make a 
loan that is not profitable. That is why the loan can be 
eligible for CRA credit. The banks go out and lend and then 
they get their exam and see how many of those loans are 
eligible for CRA credit. And sometimes it is hard to separate 
out that the bank made the loan because it was profitable or 
did they make the loan because they were trying to comply with 
CRA?
    Again, the prudential regulators do not want banks to make 
unprofitable loans. I would say that they do have a choice in 
making loans, and it is just a matter of doing enough 
documentation to show that this loan made a difference in the 
LMI communities.
    Mr. Posey. The composition of lending portfolios and other 
bank services are subject to tradeoffs with other criteria like 
risk-return, and capital requirements. How does the 
implementation of the Community Reinvestment Act account for 
these tradeoffs in rating banks under the Act?
    Mr. Getter. Indirectly, because they have to cover their 
assessment areas, and it may be an inadvertent consequence that 
they get credit for holding whole loans rather than sharing 
risks.
    So in a world where you can securitize and you can do loan 
participations and things like that, they tend to get less 
credit, even if they are helping low- to moderate-income 
communities outside of their assessment area, because the law 
states, we want to know what you are doing inside your 
assessment area.
    Mr. Posey. Thank you.
    My time has expired.
    Mr. Chairman, thank you very much.
    Chairman Perlmutter. Thank you, Mr. Posey.
    The gentleman from Texas, Mr. Green, who is also the Chair 
of our Subcommittee on Oversight and Investigations, is 
recognized for 5 minutes.
    Mr. Green. Thank, Mr. Chairman.
    Mr. Chairman, I kindly associate myself with the remarks of 
Chairs Meeks and Scott.
    And I contend, Mr. Chairman, that the current CRA 
legitimizes invidious discrimination. As evidence, in his 2019 
testimony before this committee, journalist Aaron Glantz shared 
a finding from his investigation into modern-day redlining 
which included the following:
    ``In 61 metro areas across the country, people of color 
were more likely to be denied conventional mortgages than their 
White counterparts, even when they made the same amount of 
money, tried to borrow the same amount of money, and wanted to 
buy in the same neighborhood.''
    He goes on to say, ``Despite these disparities, 99 percent 
of national banks received a satisfactory or outstanding grade 
on their inspections under the Community Reinvestment Act.''
    It legitimizes invidious discrimination. One of the things 
that we must do would be to establish strong standards, with 
meaningful sanctions. It is not enough to have standards if you 
don't have sanctions that are meaningful.
    When I was the president of the NAACP, we engaged with a 
bank that wanted to merge. That was the point where you could 
get the attention of a bank that was out of compliance. That is 
not enough. We need stronger standards, and we need stronger 
sanctions.
    I am currently considering legislation to increase the Fed 
Fund Rate on a bank that is out of compliance with the CRA 
under stronger standards until that bank presents some sort of 
action plan and begins to implement it such that we will know 
they are moving towards compliance.
    We have suffered long enough. The status quo intends to 
protect the status quo. There is a desire to have a CRA that 
would allow 99 percent of the national banks to receive a 
satisfactory or outstanding grade when they have engaged in 
invidious discrimination.
    So, again, in his findings, people of color were likely to 
be denied a conventional mortgage more so than their White 
counterparts, even when they made the same amount of money, 
tried to borrow the same amount of money, and wanted to buy in 
the same neighborhood. That says it all. We have to make a 
change.
    Ms. Genao-Estrella, how do you respond to my comments?
    Ms. Genao-Estrella. This goes to the heart of the 
communities that we serve, in which I see it vividly. This is 
not about 40 years ago. We see it in our communities, not only 
constantly being denied but also there is a pattern. For 
example, in New York City, 22 percent of the population is 
Black, but fewer than 5 loans by CRA-regulated banks go to 
Black borrowers.
    We see patterns after patterns. And right now, we go to the 
intention. By intention, it just needs to be an action and we 
see also that--
    Mr. Green. Permit me to intercede with 31 seconds left.
    What do you think of my idea to increase the standards, of 
course, but also to impose sanctions that are much stronger? 
What are your thoughts on that?
    Ms. Genao-Estrella. Yes. It is very important that there 
are repercussions for banks, for bank institutions if there is 
a pattern, and they are not providing the products and services 
that the community needs, especially communities of color and 
also LMI communities.
    Mr. Green. Thank you, Mr. Chairman.
    I yield back.
    Chairman Perlmutter. The gentleman yields back.
    The gentleman from Kentucky, Mr. Barr, is recognized for 5 
minutes.
    Mr. Barr. Thank you, Chairman Perlmutter, and thanks to our 
witnesses.
    One of the pieces of feedback I receive frequently from my 
constituents in the banking business is that it is difficult to 
invest in low- to moderate-income communities when there is a 
lack of clarity in the examination process for CRA.
    Let me start with Dr. Getter. Do you believe that banks 
will best serve and invest in communities when they have a 
clear understanding of expectations from regulators, where it 
is objective, as opposed to subjective, in the exams?
    Mr. Getter. Sure. And also with credit histories from the 
borrowers in those communities, so income alone is not the only 
underwriting criteria. Credit history is important, and there 
are also fair housing laws and equal credit opportunities.
    Mr. Barr. Back to the point, it is the lack of clarity that 
is a problem. And to Mr. Leighty's testimony--and I will just 
quote directly from his written testimony--``Community banks 
experience inconsistencies in the examination process. The 
inconsistent manner in which loans receive CRA credit occurs 
between examinations within an agency, as well as between 
agencies. This makes it incredibly difficult for community 
banks to plan and implement their CRA requirements 
responsibly.''
    Dr. Getter, do you believe that this interagency proposal 
sufficiently addresses that concern?
    Mr. Getter. It definitely addresses that concern. Now, 
again, if a bank wanted to partner, let's say, with a CDFI, 
they would not get as much credit as if they held that loan on 
the books.
    Mr. Barr. Let me get specific. And I will ask Mr. Leighty 
to comment on this, too.
    I think it is great that the interagency proposal adopts 
former Comptroller Otting's proposal that an investment could 
receive a binding decision or a proposed investment or proposed 
loan could receive a binding decision about whether or not that 
loan or investment would be eligible for CRA credit. I think 
that provides the certainty that we need.
    However, on this illustrative list of activities, which I 
think is a good idea, a safe harbor, one of the problems that 
one of my constituent banks has brought to my attention, a bank 
that does a great job with CRA and invests in low- and 
moderate-income communities quite a bit, is this issue on 
revitalization.
    And what my constituent said to me, and this is the 
compliance officer, the CRA compliance officer of a bank who 
was concerned that the revitalization among the 11 categories 
that were listed in the proposal only counts if it is under a 
government program.
    And she said there are a lot of private groups or projects 
that revitalize areas, especially in rural areas. Most of our 
current community development activities in the revitalization 
bucket would no longer count.
    Do you believe, Dr. Getter and Mr. Leighty, that this is a 
flaw in the proposal?
    Mr. Getter. I would have to review that. I wouldn't call it 
necessarily a flaw.
    Mr. Barr. Mr. Leighty, what do you think?
    Mr. Leighty. I would have to look at the details, but I 
would say a lot of the CRA lending we do is direct without 
government programs. We had a great example--
    Mr. Barr. Right. That is the problem. I think the proposal 
should revise that. There should be an opportunity for credit, 
even when a government program is not involved.
    Let me also ask Mr. Leighty a question about an alternative 
to CRA. Rather than breathing new life into an antiquated 
mechanism like CRA, why not supercharge Opportunity Zones and 
incentivize capital formation in underserved areas through tax 
relief?
    Tax relief for community banks' retained earnings can 
promote lending to the underserved in rural areas, and this tax 
relief would strengthen community banks' capital and their 
ability to lend and to create a more level playing field in the 
financial ecosystem and increase capital in underserved areas 
around the United States.
    Mr. Leighty, would providing tax relief for community 
banks' retain earnings increase access to capital in 
communities that are traditionally underserved?
    Mr. Leighty. Absolutely, it would. If we have more capital 
to deploy, we want to efficiently deploy that. And so, that 
would certainly help us have more to disburse, no question.
    Mr. Barr. I am exploring legislation to do just that. I 
think it is a suitable alternative or at least a supplement to 
CRA, and I am going to be introducing legislation to that 
effect.
    Final feedback and this is--I don't have to time elicit a 
comment. But one of my constituent bank compliance officers 
said that the proposal's multiple new tests, subtests, and 
factors would subject numerous discrete areas of bank 
operations to evaluation, and the complexity and vast new data 
collection reporting requirements would not facilitate the 
issue of determining whether or not an activity would result in 
CRA credit.
    That is why there needs to be a longer implementation 
period for this, and certainly a longer comment period. This is 
a highly complex proposal and we need more time to--
    Chairman Perlmutter. Your time is up, speaking of needing 
more time. The gentleman's time has expired.
    Mr. Barr. Thank you.
    I yield back.
    Chairman Perlmutter. And he yields back.
    I will now yield to the gentleman from California, Mr. 
Sherman, who is also the Chair of our Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets, for 5 
minutes.
    Mr. Sherman. Thank you.
    The last questioner put forward the idea that we should cut 
taxes on banks or certain banks. And I would just say that at a 
time when we have an enormous Federal budget deficit, for us to 
do that, unless the gentleman has some pay-fors, would simply 
expand that deficit further.
    Mr. Leighty, the rules that we have now tend to be somewhat 
vague, and it tends to matter what a particular examiner 
decides to give you credit for, count against, et cetera.
    Do the changes that are being proposed eliminate examiner 
roulette, where what matters is which examiner you get? And do 
they provide the clarity necessary so that you know what the 
rules are and that the rules are published and not just 
something kind of everybody knows but they are not in the 
written rules?
    Mr. Leighty. We think it would be very helpful. That list 
would just release some of that uncertainty. And then, this 
accountability, when we--if we had a channel to get in front of 
our regulators and say, hey, we are looking at this project, 
what is your perspective, would that qualify for CRA? And to 
have a time period where they have to respond back would be 
very helpful for us to march forward. In most cases, we are 
going do those loans anyway, but it is helpful from the 
efficiency standpoint to make sure we are documenting those 
appropriately and have them as part of our report.
    Mr. Sherman. So, you are saying that the rules are unclear 
and you would like loan-by-loan advice from your regulatory 
agencies, because you can't just look at the rules and 
determine what is and is not going to qualify?
    Mr. Leighty. I think there are just some that are in the 
gray area, and those are ones that would come into effect. We 
would want to have that dialogue and know the timeframe when we 
will hear back. I wouldn't say that is the average loan, but I 
would say there are circumstances where it would be good to 
have that clarity on the front end, especially when we are 
looking for participant banks to come into the deal as well, so 
they could know that they would have a CRA component to that.
    Mr. Sherman. Okay. And I would just say democracy works 
better where rules are published, and the rules are clear, 
rather than there are things in a gray area and an individual 
bank getting an individual nod or ruling on an individual loan.
    I have another question for you. The new types of qualified 
activities specifically outlined in the framework are 
activities that help communities prepare for natural disasters. 
Given the increased frequency and severity of wildfires in the 
West--and as the planet warms, those are only going get worse--
do you believe there will be an increased demand for loans 
designed to improve resiliency? And do you see banks like yours 
able to fill that need?
    Mr. Leighty. I think we are well-positioned to help with 
the fire mitigation, to help with some of the new equipment 
that helps them more efficiently fight fires. A lot of our 
communities are very small, and so we have volunteer fire 
departments only in several of our communities. And we play a 
really crucial role in making sure that they have the equipment 
they need and the financing at a low price so that they can 
afford to continue to grow, and that includes the Black Forest 
area of the Colorado Springs market as well.
    Mr. Sherman. I'm going to squeeze in one more question for 
Ms. Genao-Estrella. We have seen the number of bank branches 
decrease, some 13,000 closing between 2008 and 2020, and 
another 4,000 during the pandemic era. So, we see an awful lot 
of banking taking place by banks that either have no branches 
or that service the vast majority of their customers online. 
The branches are irrelevant to most of their customers.
    Does the proposed rule do enough to make sure that these 
increasingly-important online-mostly or online-only banks are 
meeting their CRA responsibilities? And I am particularly 
concerned that we say, well, you have a responsibility in the 
areas in which you lend, but there may be online banks that 
only lend in well-to-do areas.
    How do these rules properly meet that objective?
    Ms. Genao-Estrella. Thank you so much for the questions.
    We see that in our communities as a problem, and we also 
see it as being able to have--we really want to make sure that 
financial institutions have a responsibility, and also that we 
see it in different nonbank activities in the communities.
    And we want to be able to have regulators that increase 
access to banking and address the digital divide on all 
banking, not just banks over $10 billion, and we want to be 
able to--
    Chairman Perlmutter. I--
    Ms. Genao-Estrella. I'm sorry.
    Chairman Perlmutter. I am going to cut you off, because the 
gentleman's time has expired.
    Mr. Williams from Texas is now recognized for 5 minutes.
    Mr. Williams of Texas. Thank you for that nice 
introduction.
    Chairman Perlmutter. He is also a small business owner.
    Mr. Williams of Texas. You are bleeding into my time.
    Chairman Perlmutter. And he has owned a car dealership for 
a long time. He coaches the soft--the baseball team. I was 
going to say the softball team.
    The gentleman from Texas is recognized for 5 minutes.
    Mr. Williams of Texas. I reclaim my time. Thank you.
    I will have a short question. But I am sitting here and 
thinking we should be talking about the things that I am 
hearing from my people back home in Texas, including out-of-
control inflation, border issues, interest rates, crime, and 
food. And today, the Consumer Price Index (CPI) numbers came in 
at over a year increase of 9.1 percent. I am one of the few 
today in this hearing who remembers 1981, when we had runaway 
inflation heading toward these numbers.
    This is not simply a transitory problem like the Fed 
claimed, or the high-class problem that the White House wants 
to deflect it to. This is having a real impact on all 
Americans, even the ones we are talking about. Main Street 
America is being affected, and this is eating away at wages for 
workers, and profit margins for businesses. And this is going 
to force the Federal Reserve to once again hike interest rates 
to reverse this inflationary cycle.
    These actions will make the cost of capital increase. And 
that will leave small businesses, homeowners, home buyers, and 
anyone who is looking to get a line of credit in worse 
financial shape than they were.
    So, I think we should be doing everything we can to help 
people right now with the inflation crisis instead of 
discussing a proposed rule, for example, that is still being 
developed as we debate it here today, because it is still about 
these issues I am talking about. It is about inflation. It is 
about the border. It is about crime. It is about food. And we 
need to fix that.
    I just have a quick question for you, Mr. Getter. When we 
talk about this rule--as the chairman said, I am a 
businessperson; I employ people. And costs going up can 
sometimes hurt service to your customers, can hurt margins, and 
so forth.
    So when we talk about this rule, do you think the way it is 
currently drafted, it would impose a relatively large new cost 
on banks that, again, could drive up rates to try to offset the 
heavy costs? What do you think this is going to do to the banks 
and their daily budgets with which they deal?
    Mr. Getter. The data collection requirements will 
definitely increase. Now, how that translates into rates, I am 
not sure. It depends on the competition or when the borrowers 
shop. But the data collection requirements definitely--
    Mr. Williams of Texas. So, we are going to see a higher 
cost to do this, which could come back and hurt the consumer. 
In my time that is left, I would ask our private sector banker 
from Colorado, Mr. Leighty, what he thinks.
    Mr. Leighty. There is no question that more regulation 
flows down and costs the consumer. And regulation is important. 
We are all for it, and we know that this market needs to have 
regulation. But it does get to a level where it is cost-
prohibitive, and it kind of contradicts trying to take care of 
the communities that we serve.
    Mr. Williams of Texas. In your industry--and in my 
industry, too--you have had to hire, I am sure, many more 
regulators and loan officers, haven't you?
    Mr. Leighty. We have enhanced our audit side of things and 
compliance side, for sure.
    Mr. Williams of Texas. Well, anytime there is more cost and 
regulation, it affects the consumer. And in my business, I have 
even had to hire--my business is built on commissions, the car 
business, as you have heard. And I have even had to hire 
compliance officers, and I haven't found a compliance officer 
yet who will work on commission.
    So, anyway, Mr. Chairman, I have some time left that I will 
yield back to you.
    Chairman Perlmutter. I thank the gentleman for yielding 
back.
    The Chair will now recognize Mr. Casten from Illinois, who 
is also the Vice Chair of our Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets, for 5 
minutes.
    Mr. Casten. Thank you, Mr. Chairman.
    I am generally very supportive of the CRA, but it has 
always struck me that it has some sort of inherent structural 
flaws.
    Ms. Crosby, I would like to start with you, and just see if 
you can confirm my judgment and then sort of get to some 
possible fixes.
    Let's say that I am a bank, and I have someone I can 
provide a $300,000 mortgage to, who is in an LMI community. 
They qualify for the CRA credits. Do I get any CRA credits if I 
forgave $300,000 of debt to that same individual? I think you 
are muted.
    Chairman Perlmutter. Yes, you need to do whatever you did 
before.
    Ms. Crosby. I am on my phone and the internet, so I get 
confused. I apologize about that.
    You get CRA credit for activity that is in an LMI track, as 
well as what is made to an LMI individual. If I understand your 
question correctly, if there is a loan made in an LMI track, 
the bank would get credit for that. In terms of loan 
forgiveness, I will have NCRC staff follow up than.
    Mr. Casten. Let me give you another example.
    Same track, same individual, I give them a $100,000 student 
loan. What if I gave that individual a $100,000 scholarship? 
Would I get any CRA credit for that?
    Ms. Crosby. I am going to defer to NCRC staff. But I 
believe if that falls--if that is in an LMI area, the loan 
would not or the grant would not get CRA credit. But I will 
have NCRC staff--I have them with me and they will follow up 
with a response to that.
    Mr. Casten. We could go on to other examples. My 
understanding to both of those is that the answer is no, and I 
say that because I am fortunate enough that I do not live in an 
LMI community. A lot of my neighbors, like me, were fortunate. 
We made the best life choice we ever could have made: We were 
born to wealthy parents. And so, I didn't come out of college 
with a lot of student debt. A lot of my neighbors got help 
getting their first home, and we have built equity.
    And we use CRA to try to invest in LMI communities by 
giving debt to people who in some cases are already 
overindebted. And we don't give them--we are not giving banks 
the incentive to get them out from under debt traps. We are 
giving banks incentives to give them more debt. And I am not 
saying we should mandate. I understand how banks make money.
    But I am wondering, Ms. Crosby, if we were to change the 
CRA so that banks had the option to give people more equity, do 
you think that would be an effective way to meet the goals of 
the CRA and make our LMI communities stronger, and more 
fiscally independent? And how might we do that?
    Ms. Agnani, I would love to get your take on this with the 
2 minutes I have left as well.
    But I will start with Ms. Crosby.
    Ms. Crosby. I am going to actually have NCRC staff follow 
up with a response on that.
    Mr. Casten. Okay. Ms. Agnani, any thoughts from you?
    Ms. Agnani. In terms of loans versus equity investments, I 
think it depends on who the beneficiaries are of those equity 
investments and whether the affordable housing and/or 
investment in small businesses are really reaching low- and 
moderate-income communities and communities of color. So, I 
think it would depend on the type of investment and who would 
ultimately benefit.
    Mr. Casten. Okay. With the time left, does anybody else 
have any thoughts on this?
    And, again, I understand that banks make money by loaning 
money. And I am not suggesting that we mandate charity, but it 
does strike me that the communities that have a lot of wealth 
in this country are not the ones that have accumulated a lot of 
debt. They are the ones that have accumulated a lot of equity.
    And if any of you have thoughts, either in the time here or 
in follow-up, of how we might put sort of appropriate scoring 
in the CRA to give banks another tool, I would welcome your 
thoughts.
    Ms. Agnani. If I may, Congressman, I think a lot of these 
conversations we are having, really at the end of the day it is 
about the quality of the investments and lending versus 
quality--quantity--quality over quantity.
    And this is really why we need better data and to use 
datasets like HMDA that actually disaggregate and include 
racial subgroups. Without that ability to really evaluate 
investments in lending, we won't be able to solve for these 
problems.
    Mr. Casten. Thank you.
    And I yield back.
    Chairman Perlmutter. The gentleman's time has expired.
    Votes have been called, but I want to see how many more 
Members we can get through.
    Mr. Loudermilk from Georgia is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    And I will try to be brief.
    Under the proposed rule, for a bank to receive an 
outstanding rating, its CRA performance would have to be at 
least 125 percent of the median. Over the last 3 years of 
banking activities, not one bank with more than $50 billion of 
assets would have achieved an outstanding rating. And less than 
2 percent of banking assets are in banks that would currently 
be considered outstanding.
    Mr. Getter, if it is almost impossible for banks to receive 
an outstanding rating, would that incentivize them to do more 
or less CRA activity?
    Mr. Getter. It could incentivize them to do less or just 
maintain the status quo.
    Mr. Loudermilk. Okay. Thank you. That is what I think most 
people would perceive, because if there is no reason for a bank 
to invest more resources, if there is a chance of achieving a 
higher rating, I agree with you. I think it could cause them to 
do less.
    One of the biggest problems that we have with the current 
CRA regime is that regulators often do not deliver exam results 
for years back to the banks. Unfortunately, it appears that 
this rule would only make the problem worse because results 
would be based on backward-looking, peer metric comparisons.
    So, Mr. Getter, if banks do not find out how they did until 
years later, doesn't that cause significant delays with getting 
CRA investments where they are needed most?
    Mr. Getter. I don't know if the results would cause delays. 
I have heard complaints that the results are slow. But again, 
if there is money to be made, I don't see the bank just walking 
away from it, waiting for a past CRA exam. But you are right. 
Banks have complained about not getting feedback quickly.
    Mr. Loudermilk. Okay. I have one other area of concern. I 
have heard about the proposed rule that some of the compliance 
deadlines like the first quarter, that is, at least 60 days 
after the final rule, are very short.
    Mr. Leighty, is that a concern for you? And can you share 
why that could be a challenge for community banks?
    Mr. Leighty. It is a concern. We wear a lot of hats, and we 
are serving our communities, too. We are investing a lot of 
time out in the community. And anytime we have added 
regulation, it is just helpful for us to have more time to get 
our arms around what exactly it means without having to go hire 
a bunch of service providers to get us there quickly.
    With the 700-page change to CRA, there is just going to be 
a lot of things that we need to make sure we are covering. So, 
the more time we could have, the better, for sure.
    Mr. Loudermilk. Okay. Thank you, Mr. Chairman.
    I yield back.
    Chairman Perlmutter. The gentleman has yielded back. Thank 
you for cutting your questioning a little short.
    I now recognize Mr. Foster, who is also the Chair of our 
Task Force on Artificial Intelligence, for 5 minutes. If you 
can do the same, then we can get to Mr. Rose, and maybe to Mr. 
Garcia.
    Mr. Foster. I will speak rapidly if we can get the lawyers 
to stop talking.
    As part of my role as the Chair of this Committee's AI Task 
Force, we have been looking at how AI technology can improve 
all aspects of the financial services industry, including 
achieving equity goals.
    The Community Reinvestment Act was passed by Congress in 
1977 with the explicit goal of responding to redlining and 
discrimination against communities of color. And still, decades 
later, in part because the law was written in a race-neutral 
way, a 2018 report by the Center for Investigative Reporting 
found that redlining effectively persists in 61 cities 
throughout the country.
    New technologies such as artificial intelligence and 
machine learning have the ability to automate loan underwriting 
and can make credit decisions and process thousands of 
applications at an unprecedented rate. This will lower costs, 
and does lower costs, but can also make credit more available 
to LMI communities. But it comes with risks, and these risks 
have been highlighted by our AI Task Force.
    I guess to all of the witnesses here: How can banks utilize 
artificial intelligence or are they also utilizing artificial 
intelligence in a way so that it actually benefits low- and 
medium- and moderate-income families and people of color in 
developing and revitalizing their communities instead of just 
exacerbating it? Is there good news here in relation to AI?
    Anyone?
    Mr. Getter. It is my understanding that banks are not using 
the machine learning to make the actual credit decision, 
because if the regulators ask them, how did you get to this 
decision, and it is so much data and they don't understand it, 
then they can't answer that question.
    So just from my understanding, machine learning may be 
valuable. They may take in the application or something like 
that, but the actual credit decision is made so that the bank 
can explain it.
    Mr. Leighty. I can speak from the community bank 
perspective. Our business model at the office is that it may be 
lacking in efficiency but very strong in the relationship base. 
And so, we sit down at the table and get to know each other, 
and make sure that we understand the exact needs, and custom-
make products for our customers.
    Artificial intelligence certainly has a place, and we are 
heading in that direction, but that is something that we have 
not spent a lot of time focusing on, given our business model.
    Mr. Foster. Do you end up using it implicitly just in your 
advertising and outreach? There are examples of people using 
Facebook-driven stuff. And whether they plan to or not, they 
end up using AI for good or ill. How do you handle that one?
    Mr. Leighty. We do have some marketing efforts that use the 
digital platforms, and I am sure there is a lot of AI going on 
in that background. That has been less than 12 months for us. 
So we are new to that space, but we are certainly heading in 
that direction.
    Ms. Crosby. And just to add to the comments, we have heard 
of some AI-driven members using a type of college that someone 
attended or an Ivy League school in their underwriting 
decision. So the further the AI strays from variables used in 
traditional underwriting, the riskier it becomes from a fair 
lending perspective.
    Agencies must subject AI to rigorous fair lending reviews 
to ensure than no racial, ethnic, or gender disparities arise 
that are not justified by business necessity, which is the 
standard established by the Equal Credit Opportunity Act.
    Ms. Agnani. If I can just add, unfortunately, I can follow 
up with specific research. I believe women of color are 
disproportionately negatively impacted by machine learning in 
lending, and so we need to proceed with caution.
    Mr. Foster. Yes, one of the tough things is when you end up 
using an algorithm that makes it better for everyone, but some 
are helped more than others. Is that an acceptable thing or 
not? And that is one of the things we have been struggling with 
on the AI issue for a long time.
    Ms. Genao-Estrella. Yes, I will agree with my fellow 
panelists and witnesses. Definitely, this is something for the 
future, but we also need it right now. For the communities that 
we serve, right now, it has a negative impact, because we need 
to go back to the basics. And if we have a structural problem, 
racial disparity, there is very little that is going to, that 
artificial intelligence, especially when we are not sitting at 
the table making those decisions and who will be there. It is 
definitely going in the right direction, but we need to do 
more. Thank you.
    Chairman Foster. Okay. My time is up.
    And I yield back.
    Chairman Perlmutter. Thank you. The physicist's time is up.
    Mr. Rose from Tennessee is now recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Perlmutter. Another lawyer to 
talk now.
    And, Ranking Member Luetkemeyer, thank you for holding this 
hearing. And thank to you our witnesses for being here.
    I would just like to make a comment at the outset that we 
need to stop with these gimmicky titles to hearings that 
foreshadow a specific bias to the subject to be examined. 
Today's hearing is entitled, ``Better Together: Examining the 
Unified Proposed Rule to Modernize the Community Reinvestment 
Act.''
    Is it better together? It might be. But how can we approach 
the hearing with an eye towards neutrality or objectivity if 
the very title of the hearing already reflects a certain type 
of bias and appears to be a jab at former Comptroller Otting?
    The public has not even had time to weigh in on this issue. 
Indeed, the comment period is still open. And individuals, 
financial institutions, and other interested parties are still 
combing through the rulemaking. They have also asked for an 
extension of the comment period, which was ultimately denied, a 
common trend among Biden's financial regulators.
    Imagine being a financial institution right now, spending 
hours on the Federal Register, trying to figure out how these 
new rules and regulations will impact your business, and in 
many cases, trying to do so within the confines of an 
abbreviated comment period. Now as my time is limited, I will 
dive right into questions.
    Mr. Leighty, are you worried about the complexity and 
length of this 679-page rulemaking? And are you confident that 
community banks will be able to comply with it?
    Mr. Leighty. Ultimately, we will be able to comply with it 
because our business model hasn't changed because of it. We do 
take care of our communities. In two of the communities we 
operate in, we are the only bank in town. There wouldn't be a 
bank without us. And so, that is our mission.
    But, yes, a 700-page change will certainly take a lot of 
time, effort, and a lot of resources to get up to speed with 
and a lot of help from the Independent Community Bankers of 
America (ICBA )and others.
    Mr. Rose. Dr. Getter, Mr. Green just stated a few moments 
ago that he is working on a proposal to raise the Federal Funds 
Rate on banks that are in noncompliance with the CRA. You don't 
have to comment on what impact this would have perhaps on 
individual banks, but what impact do you think this would have 
on the banking system?
    Mr. Getter. It does increase the cost of funds, especially 
if they are using deposits to fund their loans. Actually, it 
may even increase the cost of--for the entire banking system, 
it could increase the wholesale funding and the cost to get the 
funds to make the loans. So, that would be an issue.
    Mr. Rose. Thank you.
    I think that would be a terrible idea, frankly, and not 
helpful at all.
    But Dr. Getter, I would like to discuss the retail lending 
assessment area test and the inclusion of indirect lending in 
that test. We usually think of indirect lending as auto dealer 
lending, but this will also sweep in dealer-initiated lending 
in the equipment and transportation financing sectors. Banks 
have very little input on these loans, since they are generally 
acquired through partnerships with dealers. And the banks have 
almost no control over the geographic distribution or the 
marketing of these loans to customers.
    Equipment and transportation finance are unique in that 
there are fewer dealerships that originate these types of 
loans. Further, there is an even more unique customer base that 
isn't comparable to the overall aggregate of small business 
lenders or demographics.
    The proposed changes could result in banks leaving markets, 
creating less opportunities and healthy competition for loans 
in low- and moderate-income census tracks or to low- and 
moderate-income borrowers or businesses with revenues of $1 
million or less.
    Dr. Getter, if the goal of the CRA is to encourage lending 
by banks to low- and moderate-income communities and 
individuals, why is it logical to include categories of loans 
where the bank has no say in the communities or individuals 
they serve?
    Mr. Getter. It is my understanding that they are supposed 
to do oversight over their indirect lenders. They are supposed 
to pay attention to that, according to what I have heard from 
various regulators. And if banks decide they want out of it, my 
guess is that the nonbanks might step in and take up some of 
that business. So, I don't want to speculate; I am not 100 
percent sure. All I can say is that having the automobile data 
might shed some light on where some real discrimination may or 
may not be.
    Mr. Rose. Thank you, Mr. Chairman.
    I yield back.
    Chairman Perlmutter. The gentleman's time has expired.
    Now, I am trying to figure out who I am going to go to 
next.
    Mr. Garcia, you are not on the subcommittee, so you are 
last. You are going close us out.
    Mr. Timmons?
    Mr. Timmons. Yes, sir.
    Chairman Perlmutter. Mr. Timmons from South Carolina is 
recognized for 5 minutes.
    And then, I think we will have to take a break and go vote.
    Mr. Timmons. Thank you, Mr. Chairman. Thank you, my friend. 
I appreciate you holding this hearing.
    And thank you to each of the witnesses for joining us 
today.
    Dr. Getter, part of this new Community Reinvestment Act 
overall is that banks will be evaluated in so-called retail 
lending assessment areas, which is any location where the bank 
makes 250 or more small business loans or 100 or more mortgage 
or small farm loans.
    Is it possible a bank might reconsider and even limit 
lending in a particular area to avoid meeting what seems to me 
to be extremely low thresholds in these retail lending 
assessment areas?
    Mr. Getter. It depends on if it is one of the banks that 
were complaining that they were not getting enough of their 
loans evaluated for CRS. So, I guess it really depends on the 
uniqueness of the banks. Some banks are probably glad to have 
it, and maybe there could be some banks that won't be glad. But 
it would be captured under the community development test.
    Mr. Timmons. This could be an unintended consequence. And 
we need to make sure we are structuring this in a manner that 
would avoid that, if possible.
    Would you agree with that?
    Mr. Getter. I'm sorry. Would you just say that one more 
time?
    Mr. Timmons. This could be an unintended consequence, and 
we need to make sure that we are doing everything to avoid that 
outcome.
    Would you agree with that?
    Mr. Getter. I guess maybe the community development test 
would pick up on what is not happening. The community 
development test is supposed to pick up anything that is not 
necessarily included in the retail lending test, is my 
understanding, is improper. So, the regulators will catch it.
    Mr. Timmons. Okay. Thank you.
    Dr. Getter, can we talk about the data collection aspect of 
this? Because I have started to chat with banks about the 
proposed rulemaking. One common concern has been the new data 
collection piece of this. The biggest banks do not really care 
about this and the smallest banks are written out, but is that 
potentially a huge burden for midsized banks?
    Can you explain to us the new compliance burden that would 
be leveled on banks for data collection?
    Mr. Getter. The automobile loans, I believe for the banks 
that are $10,000 and over--oh, that is more the digital 
collection thing. They have to respond to that.
    It is a blessing and a curse. It is a double-edged sword 
because there are a lot of complaints that banks are not doing 
enough lending. At some point, the data will be needed to 
either confirm or deny how much lending is being done by the 
banking system. It will be costly, but at least we can go off 
of evidence at some point once we have the data.
    Mr. Timmons. Could you talk about what kind of information 
is required to be submitted, how often, and any guesstimate on 
cost and time required for it?
    Mr. Getter. The regulators are going to try to harmonize it 
with HMDA and with Section 1071. And the CRA examinations, let 
me just say, 3 to 5 years. My guess is they are just going to 
have to collect data constantly and have it ready, because if 
they are doing mortgages, they are definitely collecting HMDA 
data every year. And then, we will wait and see what Section 
1071 requires.
    So, data collection is just a new way of life, I suppose, 
in a world of technology and digital modernization.
    Mr. Timmons. Sure. Which regulators would be in charge of 
collecting the data and going through it?
    Mr. Getter. Who is going in be charge?
    Mr. Timmons. Which regulators?
    Mr. Getter. For CRA, it will be the banking regulators. For 
the HMDA and the Section 1071, it is the Consumer Financial 
Protection Bureau (CFPB).
    Mr. Timmons. One final question. Where would this data, 
which would be pretty sensitive, be stored? Is there any 
concern with cybersecurity investments, costs associated with 
that? The compliance cost alone is going to be large because of 
additional individuals and time that will be required. But do 
you have any cybersecurity concerns, and is this going to 
create another layer of sensitivity?
    Mr. Getter. Yes, there are cybersecurity concerns. And I 
believe that is the reason why the small banks will be able to 
stay under the regular CRA tests, and that is part of the 
reason why Section 1071 has taken so long, based on my 
understanding. We need the data on kind of the smallest 
institutions served by some of the smallest banks. But because 
of the data collection requirements and the cybersecurity 
risks, it has been taking some time.
    Chairman Perlmutter. Okay. The gentleman's time has 
expired.
    Mr. Timmons. Thank you, Mr. Chairman.
    I yield back.
    Chairman Perlmutter. We are going to go to Mr. Garcia of 
Illinois for 5 minutes.
    We have no time on the clock for voting on the Floor; 286 
Members have yet to vote.
    If Mr. Norman wants to go, we are going to end up 
reconvening for him.
    But, Mr. Garcia, please go ahead.
    Mr. Garcia of Illinois. Thank you, Chairman Perlmutter, and 
Ranking Member Luetkemeyer, for hosting this important 
discussion on the Community Reinvestment Act. This is a very 
timely hearing.
    And of course, I want to thank our witnesses who have 
shared their time and expertise on the Community Reinvestment 
Act with us. I come from Chicago and the story of the CRA runs 
deep through my City and our community. It was in the Austin 
neighborhood near my community where a community organizer 
named Gale Cincotta led the fight against discriminatory 
lending practices, and earned the nickname, ``Mother of the 
CRA.''
    So it is fitting that last year, our governor signed 
Illinois' CRA in the nation with its own protection against 
redlining and discrimination in lending. That is important to 
immigrant communities like those that I represent on the 
northwest and southwest sides of Chicago in suburban Cook 
County, because the CRA isn't working for us.
    For every dollar lent into majority White neighborhoods, 
only 13 cents goes to Hispanic neighborhoods like mine, and the 
investments we do receive fuel gentrification and displacement 
all too often. I am heartened that our Federal regulators are 
taking up the task of modernizing the CRA because real change 
in lending practices is a nationwide problem and needs a 
nationwide solution.
    Ms. Agnani, from Gail Cincotta's day until now, our 
communities have been clear about our needs. In the face of 
redlining, discrimination, underinvestment, and displacement, 
it is clear that our existing financial system wasn't built for 
us. We need protections.
    Do you think it is important for the Federal regulators to 
receive community input as they revise CRA, and what should 
that process look like, and do agencies like the CFPB have 
anything to teach us about how regulators can consult with our 
communities?
    Ms. Agnani. Thank you, Congressman. Yes. Absolutely.
    I also originally come from the Chicago area, and have 
worked in Queens, so both Cities that are in focus in this 
hearing are really critical. Absolutely. Focusing in on the 
displacement issues, our communities need investments in 
lending which will ensure that residents can stay in the cities 
that they live in and work in and have helped to build.
    And so, CRA credits should be given only if existing 
residents are able to stay in their cities, and the small 
businesses are allowed to thrive. That needs to be part of the 
evaluation of whether CRA investments are effective. Sorry. I 
am not sure if I answered the specific question.
    Mr. Garcia of Illinois. That is fine. Thank you so much.
    Ms. Crosby, since the CRA was last revised, new players 
like non-bank mortgage lenders and fintecs have revolutionized 
finance. And if our laws don't catch up with them, we risk 
predatory behavior and possible financial collapse. One issue 
that I am focused on is industrial loan company (ILC) charters, 
which not only allow for underregulated parent companies to own 
a bank, but raise questions about a bank's responsibilities to 
its community.
    What do you think Congress and regulators can do to make 
sure that a revised CRA adequately covers these new industry--
    Ms. Crosby. ILCs have CRA obligations like traditional 
banks. NCRC is not supportive of ILCs since the ILC parent 
companies can be nonfinancial companies. This introduces 
potential conflicts of interest the ILC can be pressured to 
make unsound loans to its parent or cut off credit to the 
parent company's competitors. BMW bank is an example of an ILC 
that has a CRA exam, but the CRA exam evaluates an inadequate 
strategic plan despite being a lender offering billions of 
automobile loans across the country.
    BMW bank created a strategic plan in which it has 
designated Salt Lake County to be its only assessment area, 
because that is where they are headquartered. The strategic 
plan does not create goals for automobile lending, but only for 
community development financing and services. While the 
community development is important, lending should also be 
examined and should be examined across the country.
    Mr. Garcia of Illinois. Thank you very much. I see my time 
is up, so, Mr. Chairman, I yield back.
    Chairman Perlmutter. The gentleman's time has expired.
    Mr. Norman may have questions for the panel, but I think I 
am going to take the Chair's prerogative, and I would like to 
thank our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I want to thank you all for your time and for your 
testimony today. We appreciate it. And again, I want to thank 
our panelists.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:07 p.m., the hearing was adjourned.]

                            A P P E N D I X

                             July 13, 2022

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