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HFSC Economic Inclusion Hearing

House Committee on Financial Services Subcommittee on Diversity and Inclusion

Unfinished Business: A Review of Progress Made and a Plan to Achieve Full Economic

Inclusion for Every American

Tuesday, December 6, 2022

Topline

  • The hearing discussion centered on current and potential diversity and inclusion efforts undertaken by the financial services industry.
  • Democrats called for greater regulation of the fintech industry.

Witnesses

  • LeRoy Cavazos-Reyna, Vice President of Government and International Affairs, United States Hispanic Chamber of Commerce
  • Debra Gore-Mann, President and Chief Executive Officer, Greenlining Institute
  • Carolynn Johnson, Chief Executive Officer, DiversityInc
  • Marc Morial, President and Chief Executive Officer, National Urban League
  • Daniel Garcia-Dias, Managing Director, Financial Markets & Community Investment, U.S. Government Accountability Office

Opening Statements
Rep. Sylvia Garcia (D-Texas)

In her opening statement, Garcia said the Subcommittee uncovered the stark inequities present in asset management, noting that only 1.4% of the $82 trillion in assets under management are managed by minority or women-owned firms. Garcia added diverse asset managers perform just as well, if not better, than non-diverse managers and that there are clear barriers to market entry for minority or women-owned firms. Garcia concluded by discussing several areas of concern the Subcommittee has yet to explore, including climate equity, the impact of crypto on people of color, and financial inclusion for veterans, immigrants, and the elderly. She said she expects Republicans to continue where Democrats left off, noting diversity enhances performance and elevates integrity.

Subcommittee Ranking Member Ann Wagner (R-Mo.)

In her opening statement, Wagner noted many corporations are actively addressing diversity and inclusion and said she is encouraged by the voluntary actions industry stakeholders are taking. She noted companies are providing financial literacy training, employee resource groups, unconscious bias training, and flexible work hours for working mothers but said more can be done.

Testimony

LeRoy Cavazos-Reyna, Vice President of Government and International Affairs, United States Hispanic Chamber of Commerce 

In his testimony, Cavazos-Reyna said the Hispanic Chamber of Commerce urged the Senate to restore funding for the State Small Business Credit Initiative (SSBCI) that was cut and stressed the importance of the SSBCI to Hispanic-owned small businesses. He discussed the importance of Community development financial institutions (CDFIs) in allowing minorities, women, disabled veterans, and rural entrepreneurs the ability to start and scale their businesses and called on Congress to sustain and affirm the importance of funding CDFIs and other institutions that serve the most vulnerable people who drive our economy. He asked the Subcommittee to consider H.R. 4112, the Clarity and Credit Score Formation Act, which would strengthen the CFPB, and concluded by affirming the importance of modernizing the Community Reinvestment Act (CRA).

Debra Gore-Mann, President and Chief Executive Officer, Greenlining Institute 

In her testimony, Gore-Mann called for greater diversity at all levels of financial institutions, noting our financial system perpetuates an uneven playing field. Gore-Mann said we cannot address inequity in financial services if we are not prepared to address the future of the entire industry. Gore-Mann discussed the effects of bank consolidation, noting two-thirds of bank institutions disappeared since the 1980s, with a substantial portion of the loss due to mergers and acquisitions. She called on consolidated financial institutions to commit to diversifying their management and to community benefits agreements. Gore-Mann noted entrepreneurship is on the rise and represents a bright spot in the industry. She called for fintech to be monitored and regulated and added that we have reached a tipping point on climate finance.

Carolynn Johnson, Chief Executive Officer, DiversityInc 

In her testimony, Johnson discussed the expected growth of the financial management industry’s employment, noting it is expected to grow much faster than the labor market as a whole. She explained the fast rate of growth is due to the increasing demand for financial management services. Johnson noted that while the workforce makeup is changing and becoming more diverse, white men still manage 98.7% of assets in the U.S. investment management sector. She said there is a close relationship between workforce fairness and business success, concluding that fairness and access will always be more profitable than racism, sexism, and classism.

Marc Morial, President and Chief Executive Officer, National Urban League 

In his testimony, Morial saluted House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) for her lifetime work on closing the racial wealth gap. He said if we fail to promote economic diversity and inclusion, the U.S. will not remain the world’s economic power. He concluded by encouraging Republicans to retain the Diversity and Inclusion Subcommittee when they are in the majority next Congress.

Daniel Garcia-Dias, Managing Director, Financial Markets & Community Investment, U.S. Government Accountability Office

In his testimony, Garcia-Dias noted that some firms recruit from the same academic programs and institutions. He said relying on the same sources for recruiting and hiring will not enhance diversity and encouraged firms to recruit students from a range of academic disciplines and schools. He concluded by noting effective use of employee data can help firms meet their full potential and ensure that opportunities for hiring and advancement remain available to all.

Question & Answer

Fintech Industry

Rep. Stephen Lynch (D-Mass.) said the fintech industry claims it is a mechanism for inclusion, but Committee investigations have found that those claims are not justified. He asked the witnesses to discuss fintech’s claims. Morial warned that as long as fintech operates outside of established norms and regulations, it has the opportunity to engage in practices that can deceptive or misleading and called for fintech to be placed under the regulatory umbrella. Morial added that fintech can increase access, but it can cause serious damage if it is not subject to the same guardrails as non-fintech. Lynch said crypto and fintech products are luring people to put their hard-earned savings into speculative products, and asked witnesses to discuss further. Gore-Mann said access to fintech is easier because the barriers to entry are lower, that fintech is only as good as its technology and algorithms, and that predatory practices will occur if there is no oversight.

Home Ownership

Waters said owning a home is a primary driver of wealth, adding any efforts to reduce the racial wealth gap require addressing bias in the housing market. Morial said banks should be encouraged to offer people second mortgages versus refinancing an existing mortgage at a higher interest rate. He called for the reform of the credit scoring system and said Congress should pay close attention to the discriminatory practices in automated underwriting. Rep. Rashida Tlaib (D-Mich.) asked if giving lenders credit on their CRA exams for originating mortgages under $100,000 would be an effective incentive for banks to make more loans of that size. Gore-Mann agreed that it would. Tlaib asked how witnesses thought the housing affordability crisis was impacting the racial wealth gap in America and if they had specific policy recommendations. Morial said lower cost housing stock creates an opportunity for people to become homeowners, which rebuilds neighborhoods and equity. He also called for more down payment assistance programs.

Diversity

Garcia asked about ways to increase diversity in senior leadership at financial institutions and why that increase is important for both businesses and consumers. Johnson replied that data will help to understand how to increase diversity. She explained increasing diversity is important because a diverse workforce allows employers to better understand the marketplace and ensure the fair treatment of consumers.

Wagner asked how private sector initiatives to collect and distribute data on diversity and inclusion have improved diversity and inclusion efforts. Garcia-Dias discussed the hesitation expressed by some firms about disclosing diversity information. He explained the firms were worried their potentially unimpressive diversity data could serve as a deterrent for potential employees. He concluded by encouraging firms to undertake these efforts.

Rep. Madeleine Dean (D-Penn.) asked witnesses to expand on how increasing diversity improves a company’s performance and profitability. Morial said the evidence is overwhelming that companies who made commitments to diversity and inclusion are more profitable. Cavazos-Reyna said companies need to make a concerted commitment to diversify their ability to procure from minority communities. He noted if corporate America makes a substantial investment in minority and women-owned businesses, it will create jobs and avenues of wealth for communities.

Hiring Efforts

Rep. Jake Auchincloss (D-Mass.) asked witnesses to discuss how job candidates could best leverage entry-level or gateway roles in the financial services sector and how firms could hire for skills rather than for signaling. Gore-Mann said signaling is part of an organization’s cultural competency. She explained an organization’s intent comes from setting their goals, collecting data, and being transparent. Gore-Mann concluded that by not doing those things, organizations are signaling that diversity and inclusion is not important.

Auchincloss asked if witnesses knew of companies or specific industries within the financial services sector doing anything particularly noteworthy on degree screens or with a resume sorting algorithm. He asked if companies screen for skills rather than a paper ceiling. Gore-Mann noted there is an algorithmic bias. She said the coding and screening used by many companies and industries involves existing biases, including for zip code, education, or language. She said companies should include Historically Black Colleges and Universities (HBCU) and community colleges in their algorithms or searches.

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