SAN FRANCISCO, Dec 13, 2019 — Today the Trump administration’s appointed banking regulator, Joseph Otting of the Office of the Comptroller of the Currency (OCC) has spearheaded changes that will significantly weaken the landmark anti-redlining law and harm low-income communities across the country. The Community Reinvestment Act (CRA), the law aimed at combating redlining, or racial bias in lending, requires banks to meet the needs of local communities where their branches are based, including low and moderate-income communities.
The changes proposed today by Otting’s OCC stand to benefit Wall Street banks, by making it easier for the big banks to pass their regulatory exams, while resulting in less lending, investments, and economic development in low-income communities.
Joseph Otting has a long history with the CRA, having led OneWest Bank, which community groups labeled one of the worst performing CRA banks in California. His comments to the public about the CRA have foretold the weakening of CRA. As Comptroller, Otting has since reiterated his goal to refashion CRA. Otting previously explained at a 2018 banking conference, “I went through a very difficult period with some community groups that…tried to change the direction of our merger. And so I have very strong viewpoints.”
After many months of back and forth, the Federal Reserve did not join the OCC in the rulemaking proposal or NPR, while the Federal Deposit Insurance Corporation (FDIC) did, but only while allowing some banks to opt in to the new regulatory scheme.
This creates confusion for communities and banks alike, and leaves all three regulators, who have traditionally acted in unison, divided. Under the CRA, banks are regulated and examined by one of three federal regulators: The OCC, FDIC or the Federal Reserve.
The FDIC is joining the OCC in the proposed CRA changes but their vote was not unanimous. FDIC Member Martin Gruenberg remarked on the OCC proposed rule before his board, “The NPR before the FDIC Board today would seek to address these issues. However it would do so in a misconceived, unworkable, and damaging way to the CRA.”
The CRA has ushered trillions in reinvestment for low-income communities and neighborhoods of color across California and the nation. This proposed rule significantly undermines community development and housing access for low-income communities in rural, suburban and urban communities across the country.
The OCC is currently proposing three major changes. One includes adopting a version of a ‘one-ratio’ approach that rates banks on the ratio of their total volume of lending and investments as compared to their deposits. Ultimately, this change translates to less reinvestment in low-income communities that is responsive to local community needs.
Another change would expand what counts as CRA credits for low-income areas, such as allowing much larger business lending to count, thereby diluting banks’ reinvestment impacts in low-income communities and on small business development. Lastly, another major change is expanding the areas in which CRA investments count without an analysis of impact to ensure low-income communities stand to gain from reinvestment commitments.
All told, these changes will drive less investments into California communities of color and low and moderate neighborhoods, working at odds with the intent of the Community Reinvestment Act.
California Reinvestment Coalition experts and members made the following statements regarding today’s proposed notice for rulemaking:
“Comptroller Otting, in keeping with the entire Trump administration, has had it in for Black and Brown communities ever since assuming the role as America’s top banking regulator, or should I say deregulator, emboldening Wall Street at the expense of everybody else. This latest effort to “modernize” the CRA has very little to do with bolstering investments and is more about gutting a crucial law that brings resources and long-denied home ownership opportunities for low income people and people of color. As the OCC opens up this rule for public comment over the holidays, our members serving underserved communities will be sure to rally and denounce the direction of this rule and the remaking of this law” – California Reinvestment Coalition, Executive Director Paulina Gonzalez-Brito.
“The release of the NPR from the OCC authored by Otting, is discouraging and disappointing. The recommendations further dilute and lessens transparency as it relates to regulated institutions investment in underserved communities. As an affordable housing HUD approved counseling agency we are concerned by the negative impact these proposed recommendations will have for people of color in low socio-economic areas; potentially eliminating access to capital and wealth through homeownership and investments in small businesses; widening the wealth gap in communities that need the assistance the most.” – Nikki Beasley, Executive Director, Richmond Neighborhood Housing Services
“Low-income Asian Americans throughout California stand to lose with this proposed rule. Access to credit remains a significant challenge for our clients to attain homeownership, grow their businesses and build wealth. Details of this proposed rule makes life harder for the families we work with. Banking regulators must take note of public feedback that focuses on the needs of the communities that groups like ours serve as the weeks unfold.” – Hyepin Im, President/CEO, Faith and Community Empowerment
“The one-ratio change and encouragement for banks to invest more broadly will drastically curtail reinvestments for Fresno and other rural counties across California where banks already have, but are failing, their reinvestment obligations. In a time when it’s so hard to access capital for our small business owners long overlooked by major financial institutions, it’s imperative the OCC and other banking regulators observe feedback from cities like Fresno and focus on our needs, not big banks with no interest in investing in us.” – Eric Payne, Executive Director, Central Valley Urban Institute