Otting should strengthen, not weaken, CRA

At a House Financial Services Committee hearing in June, Rep. Mike Capuano asked Comptroller of the Currency Joseph Otting if he believes discrimination exists in America today. Otting responded, “I have personally never observed it, but many of my friends from the inner city across America tell me that it is evident today.”

Given more than half a dozen opportunities to clarify his statement, Otting repeatedly refused to directly acknowledge the existence of discrimination. Apparently to him, it’s just hearsay.

But discrimination remains pervasive in finance and elsewhere in society — and Otting has an opportunity to do something about it.

Historic discrimination in federal government programs, including Federal Housing Administration loans, excluded African American borrowers and other people of color. This redlining has been a key culprit in the racial wealth gap, as white families were provided the government-sponsored opportunity to become homeowners and build equity while black families were shut out. White families today have 12 times the wealth of black families.

Andrew Harrer/Bloomberg

Regardless of whether Otting has personally experienced discrimination, his position requires that he effectively enforce fair-lending laws, including the Community Reinvestment Act — a law that was enacted to address divestment in communities comprised of low-to-moderate income families, people of color and rural residents. The CRA has done important work to drive financial equity and ensure banks serve all communities where they have a financial footprint.

In conducting CRA evaluations, the OCC provides a necessary check on unlawful discrimination in lending.

But this check has been weakened.

The agency under Otting’s predecessor, acting Comptroller Keith Noreika, eased criteria for evaluating bank performance in low-income communities, even while the Federal Deposit Insurance Corp. and the Federal Reserve did not. This change occurred shortly before Otting joined the agency — and, to his credit, during testimony before the Senate, he committed to review it.

Yet Otting is still considering what he calls “a transformational CRA framework,” perhaps in partnership with the other banking agencies.

The OCC released a bulletin in June announcing changes to its CRA evaluations that could further relax the policing of discrimination — what looks to be just the start of his overhaul of the law.

This is a pivotal moment for the comptroller.

Instead of moving full-speed ahead, Otting should take time to learn about our nation’s storied history of lending discrimination, including the federal government’s role in fostering it. It would also be great for him to recognize that many people of color reside outside of the “inner city.” One-fifth of Americans in rural areas are people of color.

The comptroller should work collaboratively with civil rights, housing policy and consumer groups on any changes to the CRA to ensure he accounts for the harsh realities of discrimination that still plague today’s financial marketplace.