WASHINGTON — Most stakeholders agree that the Community Reinvestment Act needs to be reformed, but a congressional hearing featuring the regulator leading the reform effort showed just how contentious the process has become.
During tense exchanges between Comptroller of the Currency Joseph Otting and Democrats on the House Financial Services Committee, the two sides were often talking past each other. Lawmakers charged that Otting's recent reform proposal undermines the mission of the civil rights law, while Otting said much of the criticism of his plan is based on misinformation.
House Democrats said the proposal by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. would take CRA resources out of low-to-moderate-income communities, reward banks for financing projects lacking real community benefit such as sports stadiums, and lead to regulatory arbitrage since the Federal Reserve did not back the plan.
“Your proposal decouples CRA from outcomes for intended communities, discounts the value of direct lending mortgages to low-to-moderate-income communities and communities of color, cuts out community organizations that work directly with these communities and is just not supported by data,” Rep. Gregory Meeks, D-N.Y., said at the hearing Wednesday.
Chairwoman Maxine Waters, D-Calif., said the proposal would turn the law into the “Community Disinvestment Act.”
“Unfortunately, the OCC has put out a rule that runs contrary to the purpose of CRA and would lead to widespread bank disinvestment from low- to moderate-income communities across the country,” Waters said in opening remarks.
But Otting held firm under the sharp questioning by the panel, responding in a defiant and at times defensive tone. Despite criticism of a single measure in the proposal that would consolidate various CRA tests into a straightforward metric, Otting said observers are underestimating the effect of other measurement factors. He also argued the plan would not award new CRA credit for financing stadiums since banks have been able to receive credit since the early '90s.
"Let me describe what the proposal does not do because there is a lot of misunderstanding about its intent," he said in a prepared statement. "One of the key claims against the proposal is that it would permit redlining. This is blatantly false. Nothing in this proposal changes the agencies’ authority to enforce fair lending laws to prevent discrimination and redlining."
Partisan divide
While there has been consensus on the need to reform CRA for several years, Otting kicked the process into high gear upon his arrival at OCC. Despite the Fed's lack of support, the OCC and FDIC released it in December. The plan would expand CRA efforts beyond banks' traditional branch networks, establish a new metric for CRA activity that combines various tests into a single ratio and provide banks' with an "illustrative" list of eligible CRA projects.
Republicans on the committee were generally supportive of Otting and his effort to reform the CRA. Early in the hearing, they called for civility and focused on the need for the law to be updated.
“The current CRA regulations are outdated and technologically ineffective — it is an analog approach to a digital world,” said Rep. Patrick McHenry. R-N.C., the committee's ranking member. “That needs to change; your proposal moves us in the right direction.”
Rep. Blaine Luetkemeyer, R-Mo., took issue with the aggressive nature of Democrats' questioning.
“I’m certainly disappointed that we’ve allowed the credibility of our witness to be questioned,” he said.
But Democratic members criticized Otting for what they saw in the proposal as a disregard for the civil rights history attached to the CRA, and the lack of consensus among stakeholders.
“You are not a dictator of our financial system,” said Rep. David Scott, D-Ga. “The reason I say that is, your attitude reflects that.”
'My intent is to strengthen CRA, not weaken it'
Otting spent much of the hearing on the defensive, saying at one point that he found Scott’s comments accusing him of being a dictator “somewhat appalling,” which was echoed by Republicans who called for civility.
“I’m doing this in the best interest of communities around America,” he said.
In prepared remarks, Otting sought to counter “misinformation” about the proposal, and said he is familiar with communities that benefit from the law, including his hometown in Iowa.
"When I talk about low- and moderate-income communities, I am not talking about an esoteric concept. On the contrary, I am talking about an area where I grew up," Otting said. "Because I know, and care about, these communities, my intent is to strengthen CRA, not weaken it."
Rep. Andy Barr, R-Ky., commended Otting, saying he was “not only ... bringing the CRA into the 21st century and modernizing it, making it more objective and less subjective for the banks, but more importantly you’re bringing the CRA into the 21st century in a way that will much better help low-to-moderate- income communities.”
Tough questions from progressives
But the hearing grew particularly tense as Otting drew tough questions from progressive members in the Democratic caucus.
Rep. Rashida Tlaib, R-Mich., took issue with the proposed list of eligible CRA activities, which critics say inappropriately codifies projects such as sports stadiums for CRA credit under the law even though they can lead to gentrification.
“We have a serious problem with you giving credit for these kinds of activities that have nothing to do with access to affordable housing," Tlaib said.
But Otting countered that the proposal's list reflected historical practices that have been recognized under CRA for decades.
“You say it’s me, but it’s been in place since 1993. … You’ve even become aware of it because I put a list out,” he said.
“I actually appreciate the interest on people in this item because it goes to prove that getting that list out and getting people's feedback is important of what really works for communities," he added later. "It’s been done since 1993, so we’re not doing anything new with this proposal other than identifying … historical practices.”
Rep. Ayanna Pressley, D-Mass., blasted the new scoring methodology in the proposal that community groups say would award banks for investing in costlier projects and reduce incentive to make smaller loans.
“If, hypothetically speaking, you ran a bank that loaned to people of color, would you choose originating 300 small-business loans over making one $300 million investment?” Pressley said.
But Otting objected to Pressley's characterization, saying the proposal does not provide such an incentive.
“I think you’re confused on the issue. We do not have a single metric,” he said.
“I’m not confused and I’m not the only one that believes you have a single metric,” Pressley responded.
Later in the hearing, Rep. Katie Porter, D-Calif., said Otting was wrong to suggest in press reports that critics of the plan were either benefiting economically from the current CRA regime or simply did not understand the proposal.
“I would encourage you to understand that some people who don’t agree with the OCC’s CRA proposal simply have read the CRA, have studied it, are economic experts or have been on this committee … and simply have a different vision of the CRA than you do and I would ask you to please be respectful particularly in the press about how you talk about those who disagree with you," Porter said. "Rulemaking is a collaborative public process to each of us, whether we’re a congressperson or just a member of the public."
