HFSC Hearing on Redlining
House Financial Services Subcommittee on Consumer Protection and Financial Institutions
“Field Hearing: Modern-Day Redlining: The Burden on Underbanked and Excluded Communities in New York”
Friday, March 6, 2020
Key Topics & Takeaways
- OCC Proposal: Asked what aspects of the proposals are beneficial, Marks noted the transparency regarding what activities financial institutions can receive credit for will be useful. Saunders agreed that the transparency aspects of the proposal are positive, saying the list of qualifying CRA activities is helpful. She also noted there is a multiplier effect for activities that will be most impactful, as well as a proposed mechanism to vet new, innovative activities in advance. In response to a question from Maloney, Saunders added that one of the most impactful things a CRA reform proposal could do would be to incentivize investing capital into MDIs. Poyo added that the Federal Reserve has a well-developed proposal as an alternative to the “fundamentally flawed” OCC proposal. Asked how the lack of consensus among the banking regulators will erode the CRA’s impact, Weisberg said banks will be operating under different standards, noting that this would harm communities and create uncertainty.
- Jaime Weisberg, Senior Campaign Analyst, Association for Neighborhood and Housing Development (ANHD)
- Annetta Seecharran, Executive Director, Chhaya CDC
- Cathie Mahon, President and Chief Executive Officer, Inclusiv
- Noel Andrés Poyo, Executive Director, National Association for Latino Community Asset
- Bruce Marks, Chief Executive Officer, Neighborhood Assistance Corporation of America (NACA)
- Kim Saunders, President and Chief Executive Officer, National Bankers Association (NBA)
Chairman Gregory Meeks (D-N.Y.)
In his opening statement, Meeks said the Community Reinvestment Act (CRA) seeks to address the harmful legacy of redlining by requiring banks to open branches in, lend to, and invest in low- and moderate-income (LMI) communities and communities of color. He said that while topline economic growth numbers have been strong, LMI families have struggled to get by and many families have still not fully recovered from the effects of the 2008 financial crisis. Meeks noted that a growing share of the population lives in banking deserts, making it difficult to access financial services including mortgages and small business loans. He said that this perpetual cycle of financial exclusion contributes to poverty and the racial wealth gap, which will never close if minority communities continue to be discriminated against, adding that the structural hurdles that impede wealth accumulation in these communities undermine their potential.
Rep. Carolyn Maloney (D-N.Y.)
In her opening statement, Maloney expressed the need to preserve the CRA, as access to banking services can be very fragile in already underserved communities. She said the CRA is essential to preventing financial institutions from redlining. Maloney criticized the CRA reform proposal issued by the Office of the Comptroller of the Currency (OCC), calling is “haphazard and misguided.”
Rep. Emanuel Cleaver (D-Mo.)
In his opening statement, Cleaver highlighted the importance of Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) in addressing discrimination in access to financial services. He noted that the current OCC proposal weakens the standards banks must meet in order to comply with the CRA and asked the witnesses to address this in their testimony.
Jaime Weisberg, Senior Campaign Analyst, Association for Neighborhood and Housing Development (ANHD)
In her testimony, Weisberg called the CRA a key civil rights law and explained that “modern-day redlining” refers to the challenges LMI communities and communities of color continue to face in accessing loans, banking services, and other financial products. She said that despite the OCC’s stated goals, the proposal is less transparent, more complicated, and will lead to less meaningful investment in LMI communities, adding that it will do nothing to improve the CRA or address modern-day redlining. She highlighted that the proposal does not take into consideration the comments of community groups, values quantity over quality CRA activities, contains no analysis of the types of products offered, and eliminates the portion of the CRA test that examines loans in LMI communities.
Annetta Seecharran, Executive Director, Chhaya CDC
In her testimony, Seecharran explained that South Asian and other immigrant communities are often targeted by predatory lenders, noting that in 2008 50 percent of foreclosures in key neighborhoods were on South Asian households as a direct result of predatory lending practices. She noted that homeownership is the primary way that families build wealth, and for immigrants it is often their first point of engagement with the U.S. system of credit. Seecharran said there is a critical role for Congress to play in oversight of regulations like the CRA, calling on the Committee to ensure that banks are lending to LMI families, not just in LMI neighborhoods.
Cathie Mahon, President and Chief Executive Officer, Inclusiv
In her testimony, Mahon explained that communities in New York are suffering from disinvestment and banking deserts, noting that data from 2017 shows that New York City has a higher percentage of unbanked and underbanked households than the U.S. as a whole. She added that the neighborhoods experiencing these trends track with the neighborhoods that have been historically redlined, and that many of these neighborhoods rely on high-cost service providers for many of their banking needs. Mahon said that residents of these neighborhoods are also more likely to have no or sub-prime credit scores, hold delinquent debt, or be unable to make payments on the services they access. She said consumer protections must be strengthened to ensure all financial services are delivered in a safe and responsible manner and any attempts to weaken the CRA must be resisted.
Noel Andrés Poyo, Executive Director, National Association for Latino Community Asset
In his testimony, Poyo explained that redlining is a systemic, place-based approach to lending that limits asset-building and opportunities for communities of color. He said it is important to recognize that the future strength and competitiveness of the U.S. economy is dependent on achieving greater financial inclusion, and a failure to address this challenge will cost the U.S. in terms of its economic growth and global economic competitiveness. Poyo said that it is important to establish and enforce clear norms for responsible lending, support innovation, and invest in robust systems for community development, adding that the CRA is the centerpiece of ensuring fairness. He said the OCC proposal would undermine the CRA but noted that the Federal Reserve has laid out a more balanced approach.
Bruce Marks, Chief Executive Officer, Neighborhood Assistance Corporation of America (NACA)
In his testimony, Marks noted a number of current roadblocks to homeownership in the U.S. including the need for significant down payment savings, unaffordable mortgage terms, restrictive underwriting, racism and biases. He noted that when mortgage loans are made on affordable terms, “working people make their mortgage payments.” Marks noted that over 50 percent of mortgages today are provided by nonbanks not covered by the CRA, saying that they should be brought under the CRA.
Kim Saunders, President and Chief Executive Officer, National Bankers Association (NBA)
In her testimony, Saunders noted that the purpose of the CRA is to ensure that regulated financial institutions demonstrate they serve the needs of the communities in which they are chartered to do business, saying it has been instrumental in ensuring that LMI communities have access to credit and financial services. She noted that the last significant overhaul of the CRA was two decades ago, expressing her strong support for modernization that ensures the CRA does not lose its effectiveness but creates a regulatory framework that streamlines the ability of financial institutions to comply. She said the success of CRA reform can be measured by whether it will result in more credit and services in LMI communities in a manner that does not create unnecessary regulatory burdens. She said the most impactful change would be for regulators to specifically provide for a multiplier for capital investment in MDIs, saying this would directly support the community development work the CRA seeks to encourage.
Question & Answer
Maloney noted that under the OCC’s proposal, a financial institution could receive CRA credit for investing in a stadium and asked the witnesses how this would help underserved communities. Marks agreed that such an investment would not be beneficial and that mortgage loans are the most impactful investment for communities. Asked by Cleaver what aspects of the proposal are beneficial, Marks noted the transparency regarding what activities financial institutions can receive credit for will be useful, adding that even if an institutions gets credit for investing in a stadium, the public will be able to examine that practice and hold the institution accountable. Saunders agreed that the transparency aspects of the proposal are positive, saying the list of qualifying CRA activities is helpful. She also noted there is a multiplier effect for activities that will be most impactful, as well as a proposed mechanism to vet new, innovative activities in advance. In response to a question from Maloney, Saunders added that one of the most impactful things a CRA reform proposal could do would be to incentivize investing capital into MDIs.
In response to Maloney, Poyo added that the Federal Reserve has a well-developed proposal as an alternative to the “fundamentally flawed” OCC proposal. Asked how the lack of consensus among the banking regulators will erode the CRA’s impact, Weisberg said banks will be operating under different standards, noting that this would harm communities and create uncertainty.
Rep. Yvette Clarke (D-N.Y.) asked about CRA oversight and whether any punitive actions have ever been taken. Poyo said that the regulation is built to incentivize and recognize good behavior rather than take punitive action. Marks noted most CRA action is taken during merger and acquisition processes. Clarke asked whether more rigorous oversight and enforcement would incentivize large banks to invest in formerly redlined communities, to which Saunders replied that she agreed that a more rigorous enforcement environment would help.
Meeks asked about challenges to securing small business loans. Seecharran noted that access to credit has been one of the top three responses in studies regarding challenges faced by small businesses, saying it limits the ability to grow these small businesses.
Asked by Meeks about the role of MDIs in communities, Saunders said that MDI presence helps communities.
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