Back to General Resources

House Financial Services Committee Hearing on the Community Reinvestment Act

House Financial Services Subcommittee on Consumer Protection and Financial Institutions

“The Community Reinvestment Act: Reviewing Who Wins and Who Loses with Comptroller Otting’s Proposal”

Tuesday, January 14, 2020

Key Topics & Takeaways

  • Data and Analysis: Asked whether more analysis should be undertaken to understand the impacts of the proposal, Levi replied that the public needs more time to assess the proposal, specifically pointing to concerns about financing gaps and the outlined incentives. Rep. David Scott (D-Ga.) asked whether any proposed changes should be grounded in data and analysis to avoid unintended consequences. Gonzalez-Brito agreed, noting that the Fed has made their data regarding the anticipated impacts of their proposal public while the OCC has not.
  • Impact on Mortgage Lending: Meeks asked how the proposal impacts mortgage lending in low-income communities and communities of color. Levi explained that the retail lending distribution test in the proposal is weaker and will make addressing problems like the racial wealth gap more difficult. She noted that a bank can fail on half of its local assessment areas and still pass its CRA exam at the bank level.
  • CRA-Qualifying Activities: A number of committee members asked a wide array of questions about activities that qualify for CRA credit. Bautista said the proposal outlines 200 CRA-qualified activities. Levi said that under the proposal banks will get more partial credit for activities that are not targeted to LMI people and areas, and the proposal favors quantity over quality. Rodriguez agreed that there is no longer a test for the quality of investments.

Witnesses

  • Gerron Levi, Director, Policy & Government Affairs, National Community Reinvestment
    Coalition
  • Eric Rodriguez, Senior Vice President, Policy and Advocacy, UnidosUS
  • Paulina Gonzalez-Brito, Executive Director of California Reinvestment Coalition
    Institute
  • Hope Knight, President & CEO, Greater Jamaica Development Corporation
  • Faith Bautista, President & CEO, National Diversity Coalition

Opening Statements

Chairman Gregory Meeks (D-N.Y.)

In his opening statement, Meeks noted that the Community Reinvestment Act (CRA) is at its core a civil rights bill, enacted in 1977 as a direct response to structural discrimination, redlining and the economic suppression of racial minorities. He continued that the CRA was intended to hold banks accountable for rampant discrimination in lending, and any reforms must hold true to this legacy. Meeks said the CRA needs to be updated to account for online banking and other FinTech developments, and this is an important opportunity to build on the experience of the 25 years since it was last updated. Meeks said the core framework put forward by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) is inconsistent with the original civil rights intent of the CRA, noting that even banks have expressed concerns about the proposal. He said the proposal increases the likelihood that Congress and individual states will have to legislate on the issue, resulting in a fragmented regulatory landscape. He applauded the Federal Reserve (Fed) for its methodical, data-driven approach and encouraged the Fed to publish a rule and solicit comments. Meeks also encouraged the OCC and the FDIC to allow as much time as necessary to consider public comments on the proposal.

Ranking Member Blaine Luetkemeyer (R-Mo.)

In his opening statement, Luetkemeyer said the CRA was originally enacted to ensure banks appropriately serve their communities but said it has become an outdated and onerous regulation that does not reflect today’s banking sector. He said that establishing assessment areas based on geographical location is an outdated notion in a world with mobile banking and FinTech, noting that the OCC and FDIC proposal would include additional assessment areas based on deposits. He added that the OCC reviewed 1,500 comments before issuing the proposed rule, and the 60-day comment period will allow for more information to be collected from stakeholders.

Rep. Patrick McHenry (R-N.C.)

In his opening statement, McHenry applauded the OCC and FDIC for the proposed reform package, adding his disapproval that the Fed is “dragging its feet.” He noted that the CRA was last updated before most people had dial-up internet and well before mobile and online banking had helped serve so many Americans. He noted the branching strategy of banks has greatly changed since then and the proposal considers such changes.

Testimony

Gerron Levi, Director, Policy & Government Affairs, National Community Reinvestment
Coalition 

In her testimony, Levi said that in the OCC and FDIC proposal, the nation’s largest banks would have easier ways to meet their CRA obligations while low and moderate income homebuyers, renters, small businesses, small farms and their communities would suffer as a result. She explained that in passing the CRA, Congress aimed to reverse the disinvestment associated with years of government policies that deprived low income areas and communities of color of credit via redlining, adding that lending discrimination still continues today. She continued that the CRA regulatory framework has aimed to cure for market failures and unmet credit needs that are both safe and sound, saying that the OCC and FDIC proposal is a “stealth gutting” of the CRA that significantly changes the incentives under the law and creates new benchmarks and thresholds. She said that in the interest of fairness and transparency, the agencies should extend the public comment period, release the missing data and analyses on the impact of the proposal on bank ratings and performance, as well as complete and finalize the agency request for information.

Eric Rodriguez, Senior Vice President, Policy and Advocacy, UnidosUS

In his testimony, Rodriguez said that limiting access to credit has consistently undermined the vitality and mobility of communities of color and the neighborhoods in which they live, but the CRA helped to revitalize such neighborhoods by increasing access to mortgages and small business lending. He said that from 2014 to 2018, the CRA bolstered home lending for Latinos and facilitated between 15-35 percent of home loans to Latinos in low to moderate income (LMI) census tracts. Though he agreed the CRA should be modernized, Rodriguez expressed concerns that the proposal expands the approach for delineating assessment areas at the expense of the consideration of physical branch locations, saying that physical presence still has an impact on whether LMI communities have access to mainstream banking and the availability of credit. He said that the proposal would allow for community development activities that are both outside the original intent of the CRA and do not serve the credit needs of communities. He also noted that the proposal does not articulate how the regulatory agencies would solicit review and weigh the public comments of community organizations. Rodriguez said a better approach to modernizing the CRA would be for regulators to negotiate with the civil rights community and lawmakers, as well as work with the Fed to ensure there is one uniform set of rules for financial institutions to follow that are flexible enough to meet the challenges of a changing marketplace while continuing to effectively address disparities.

Paulina Gonzalez-Brito, Executive Director of California Reinvestment Coalition
Institute

In her testimony, Gonzalez-Brito said that while the CRA can be improved, the OCC proposal is a deregulatory scheme designed to help the largest and most powerful banks. She said the proposal will weaken CRA rules, undermine the purpose of the statute, and ultimately harm low income communities and communities of color. She noted a number of statistics regarding CRA activities during Comptroller Otting’s tenure as CEO of OneWest Bank, saying the proposal is written to allow banks to “ace” their CRA tests while doing little reinvestment in communities. She said the proposal benefits banks by loosening the rules regarding small business lending and devaluing the importance of LMI branches. She concluded that this will lead to a return to redlining and harm communities of color and low-income communities.

Hope Knight, President & CEO, Greater Jamaica Development Corporation

In her testimony, Knight raised concerns that the proposal would significantly weaken the CRA and hurt communities, discussing the impact the CRA has had on her community in Jamaica, New York. She said that due in part to their interest in securing CRA credit, banks have financed transformative development projects in her community, including ones that bring more affordable housing and good jobs to Jamaica. She noted, however, that many areas remain “banking deserts,” and if changes are made to the CRA that dilute its impact, such communities will struggle against economic headwinds and recent progress will be put at risk. She expressed concern about several elements of the proposal, noting that in order to be effective in spurring equitable economic development, regulations must have clear and well-defined geographic targets, but the proposal greatly expands where banks can get CRA credit. She said this would allow for investment outside of local assessment areas, making it less likely financial assistance will flow to the communities and projects that need it most. She also noted the importance of retail banking in communities, saying that without bank branches many residents turn to high cost alternatives like corner store ATMs and check cashing services, expressing concern about the elimination of the current large bank service test. Knight also noted that moving forward on changes without the Fed would create a two-tiered regulatory system that would add complexity and confusion to an already complex sector.

Faith Bautista, President & CEO, National Diversity Coalition

In her testimony, Bautista said she believes the CRA has failed because CRA-qualifying lending and investments are not measured, saying this is harmful to communities. She said the current approach to the CRA provides no way of measuring the number of loans or the volume of dollars being invested in underserved minority neighborhoods, adding that such information is necessary to conduct a serious, data-driven analysis of its impact and that without it there can be no accountability. Bautista said underserved communities will only win when there is real transparency that measures each bank’s CRA activity objectively, discloses it timely and publicly, and allows comparison against peers and regulatory targets. She said that while the proposal is not perfect, it does improve upon the current approach to CRA and provide a new paradigm able to break the cycle of poverty. She said the proposal would improve the system by clarifying what qualifies for CRA credit, updating where a bank receives credit for CRA activity by recognizing the role of mobile banking and the internet, and providing timely and transparent reporting that measures CRA-related activities using standard metrics.

Question & Answer

Origins of CRA

Meeks asked whether the CRA is a civil rights bill, to which Rodriguez replied it is, saying there was a major movement that shined a light on inequalities in the banking system that needed to be remedied by Congress through passage of the CRA. In response to a question from Rep. Rashida Tlaib (D-Mich.), Levi said the CRA was enacted to correct for the disinvestment that resulted from government policies and racial discrimination. She continued that the evidence of those redlining policies is still visible today and racial discrimination is still ongoing. Asked by Rep. Nydia Velazquez (D-N.Y.) about the impact the CRA has had on Latino communities, Rodriguez said that data shows significant increases in CRA investments in Latino, African America and other communities that have been historically discriminated against, and those communities still benefit from the CRA and its core mission. He noted that there are still significant disparities in economic indicators by race and ethnicity that need to be addressed, and the CRA can continue to be an important part of the solution.

Data and Analysis

Meeks asked whether more analysis should be undertaken to understand the impacts of the proposal. Levi replied that the CRA is complex and interconnected, saying that the public needs more time to assess the proposal, specifically pointing to concerns about financing gaps and the incentives outlined in the proposal. Rep. David Scott (D-Ga.) asked whether any proposed changes should be grounded in data and analysis to avoid unintended consequences. Gonzalez-Brito agreed, noting that the Fed has made their data regarding the anticipated impacts of their proposal public while the OCC has not.

Impact on Mortgage Lending

Meeks asked how the proposal impacts mortgage lending in low-income communities and communities of color. Levi explained that the retail lending distribution test in the proposal is weaker and will make addressing problems like the racial wealth gap more difficult. She noted that a bank can fail on half of its local assessment areas and still pass its CRA exam at the bank level.

Rep. Al Lawson (D-Fla.) asked how the proposal will affect minority groups that were affected by the financial crisis. Levi responded that the CRA covers about one-third of the mortgage market, and 98 percent of banks are currently passing their CRA exams. She said the retail lending distribution test is pass/fail under the proposal, which should concern underserved communities. Rodriguez said that the home ownership rate in the Latino community nationwide is currently four percentage points lower than it was a decade ago, saying CRA can be an important part of the solution to this problem it reforms are “done right.” In response to a question from Tlaib, Gonzalez-Brito said that the CRA plays an important role in home ownership for low-income communities, but the proposal will lessen homeownership in those communities.

CRA-Qualifying Activities

A number of committee members asked a wide array of questions about activities that qualify for CRA credit. In response to a question from Luetkemeyer about clarifying what qualifies under CRA, Bautista said the proposal outlines 200 CRA-qualified activities.

Rep. Bill Foster (D-Ill.) expressed concern that many CRA-qualifying activities will be dollar-based, which could incentivize a small number of “mega deals” in areas that qualify rather than helping more individuals and small businesses. Levi agreed that under the proposal banks will get more partial credit for activities that are not targeted to LMI people and areas, and the proposal favors quantity over quality. Rodriguez agreed that there is no longer a test for the quality of investments. Foster also asked whether there is merit in having more clarity about which activities qualify. Gonzalez-Brito said clarity is important, but not at the expense of impact. Levi said that it is possible to achieve clarity for banks and communities without the dominant single metric in the proposal that incentivizes dollar volume, saying this is a one-size-fits-all approach that disregards community needs.

Rep. Bill Posey (R-Fla.) asked how the proposal will help institutions demonstrate their work to meet the needs of their depositors and communities. Bautista said that the proposal bolsters accountability and transparency and will provide guidelines for banks to increase their CRA activities.

Reps. Andy Barr (R-Ky.) and Roger Williams (R-Texas) asked about the impact of the proposal on rural communities. Bautista replied the proposal is flexible enough to serve both urban and rural communities.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.