[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
  UPHOLDING THE SPIRIT OF CRA: DO CRA RATINGS ACCURATELY REFLECT BANK 
                               PRACTICES? 

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 24, 2007

                               __________

                           Serial No. 110-159

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                     http://www.oversight.house.gov

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

49-624 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 
































              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
TOM LANTOS, California               DARRELL E. ISSA, California
ELIJAH E. CUMMINGS, Maryland         DAN BURTON, Indiana
DIANE E. WATSON, California          CHRISTOPHER SHAYS, Connecticut
CHRISTOPHER S. MURPHY, Connecticut   JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
BRIAN HIGGINS, New York              BRIAN P. BILBRAY, California
BRUCE L. BRALEY, Iowa
                    Jaron R. Bourke, Staff Director






















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 24, 2007.................................     1
Statement of:
    Bradford, Calvin, Board member, National Training and 
      Information Center; James H. Carr, chief operating officer, 
      National Community Reinvestment Coalition; Dr. Richard 
      Marsico, professor of law, New York Law School, and 
      director, Justice Action Center; and Hubert Van Tol, 
      director, Economic Justice, Rural Opportunities, Inc.......   113
        Bradford, Calvin.........................................   113
        Carr, James H............................................   161
        Marsico, Richard.........................................   173
        Van Tol, Hubert..........................................   188
    Thompson, Sandra L., Director, Division of Supervision and 
      Consumer Protection, Federal Deposit Insurance Corporation; 
      Sandra F. Braunstein, Director, Division of Consumer and 
      Community Affairs, Board of Governors of the Federal 
      Reserve System; Montrice Godard Yakimov, Managing Director 
      for Compliance and Consumer Protection, Office of Thrift 
      Supervision; and Ann F. Jaedicke, Deputy Comptroller for 
      Compliance Policy, Office of the Comptroller of the 
      Currency...................................................    16
        Braunstein, Sandra F.....................................    35
        Jaedicke, Ann F..........................................    60
        Thompson, Sandra L.......................................    16
        Yakimov, Montrice Godard.................................    51
Letters, statements, etc., submitted for the record by:
    Bradford, Calvin, Board member, National Training and 
      Information Center, prepared statement of..................   116
    Braunstein, Sandra F., Director, Division of Consumer and 
      Community Affairs, Board of Governors of the Federal 
      Reserve System, prepared statement of......................    37
    Carr, James H., chief operating officer, National Community 
      Reinvestment Coalition, prepared statement of..............   163
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................    86
    Jaedicke, Ann F.,Deputy Comptroller for Compliance Policy, 
      Office of the Comptroller of the Currency, prepared 
      statement of...............................................    62
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Prepared statement of....................................     6
        Prepared statement of Mr. Irvin Henderson................   109
    Marsico, Dr. Richard, professor of law, New York Law School, 
      and director, Justice Action Center, prepared statement of.   175
    Thompson, Sandra L., Director, Division of Supervision and 
      Consumer Protection, Federal Deposit Insurance Corporation, 
      prepared statement of......................................    18
    Van Tol, Hubert, director, Economic Justice, Rural 
      Opportunities, Inc., prepared statement of.................   190
    Yakimov, Montrice Godard,Managing Director for Compliance and 
      Consumer Protection, Office of Thrift Supervision, prepared 
      statement of...............................................    53


  UPHOLDING THE SPIRIT OF CRA: DO CRA RATINGS ACCURATELY REFLECT BANK 
                               PRACTICES?

                              ----------                              


                      WEDNESDAY, OCTOBER 24, 2007

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Cummings, and Davis.
    Staff present: Jaron R. Bourke, staff director; Noura 
Erakat, counsel; Jean Gosa, clerk; Natalie Laber, press 
secretary, Office of Congressman Dennis J. Kucinich; Leneal 
Scott, information systems manager; Kristina Husar, minority 
counsel; and Larry Brady, minority senior investigator and 
policy advisor.
    Mr. Kucinich. The committee will come to order. The 
Domestic Policy Subcommittee of the Oversight and Government 
Reform Committee will now come to order.
    Today's hearing will examine the Community Reinvestment 
Act's rating system. Specifically, this hearing will 
investigate how accurately CRA ratings reflect bank practices.
    Now, without objection, the Chair and the ranking member 
will have 5 minutes to make opening statements, followed by 
opening statements not to exceed 3 minutes by any Member who 
seeks recognition.
    And, without objection, Members and witnesses will have 5 
legislative days to submit a written statement or extraneous 
materials for the record.
    At the outset, I want to point out that Mr. Issa has been 
called to California concerning the fires that are devastating 
so much of the south part of the State. And so, our thoughts 
and our prayers are with the people of California and with Mr. 
Issa and his constituents as they endure this severe threat of 
fire.
    I want to thank Mr. Issa's staff for their cooperation. 
And, certainly, any Member from the Republican side who shows 
up will be invited to fully participate.
    I thank you.
    And, with the consent of Mr. Issa and his office, we are 
going to start this hearing.
    I want to welcome the witnesses. I am going to proceed with 
an opening statement, and then we will invite you to join in 
the discussion.
    This is the third in a series of hearings on subprime 
lending and the response of regulators. Our first hearing in 
March examined the subprime mortgage industry and the problem 
of foreclosure, the pay-day lending industry and the 
enforcement of the Community Reinvestment Act.
    In our second hearing, the subcommittee took a closer look 
at the foreclosure crisis in Cleveland and its relationship to 
the Federal Reserve Board.
    And in this hearing, ``Upholding the Spirit of the 
Community Reinvestment Act: Do CRA Ratings Accurately Reflect 
Bank Practices?'', we are exploring the coincidence of 
persistent discrimination in lending and a 98-percent passing 
rate among banks on their CRA exams. We hope, by the end of 
this hearing, we can identify a few solutions that will enhance 
the CRA and its enforcement by the regulators so that it better 
reflects discriminatory practices by regulated banks.
    Congress enacted the Community Reinvestment Act in 1977 to 
combat redlining practices by the banks. As Mayor of Cleveland 
at the time, I was one of the first mayors to sign a Community 
Reinvestment Act agreement to hold banks to account for their 
history of discrimination. CRA made illegal the banking 
practice of arbitrarily and systematically refusing service to 
low- and moderate-income and minority communities.
    The CRA applies to federally insured depository 
institutions and is enforced by regulatory review. Enforcement 
is delegated to four Federal agencies: the Federal Deposit 
Insurance Corporation, the Federal Reserve System, the Office 
of Thrift Supervision and the Comptroller of the Currency.
    The regulatory banking agencies have a powerful enforcement 
tool: the authority to deny or approve a banking institution's 
application for a new charter, a new branch, a merger or an 
acquisition. Banking regulators exercise this authority based 
on an institution's CRA rating, which measures the bank's 
performance to meet the credit needs of its communities. 
Failure to meet the credit needs of its communities can 
translate, via the CRA and its rating, into a missed 
opportunity for the bank to acquire more wealth, making the CRA 
rating a critical incentive for banks to serve its minority and 
low- and moderate-income communities.
    But, since 1990, the banking regulators gave failing grades 
in just 225 of 60,194 CRA exams.
    Take a look at the slide. The staff has put up a slide on 
the board. I don't know how your vision is, but if you can see 
that, you are better than I am.
    But, today, 98.4 percent of all regulated banks passed the 
CRA. Compare this to 1990, when only 90.4 percent of regulated 
banks received a passing CRA rating. Does this significant rise 
of the number of banks that passed the CRA suggest that, in 
2007, banks are improving their lending practices? Does a 
passing grade accurately reflect bank lending practices? Well, 
not necessarily.
    Let us look at slide two.
    According to a recent study conducted by the National 
Coalition for Community Reinvestment, 24 of the 25 largest U.S. 
metropolitan municipalities and their surrounding areas have 
fewer banking branches in densely populated urban centers than 
the less populated suburbs. Today, nearly 14 million 
households, or 21 percent of all U.S. households, are unbanked, 
meaning they have no relationship to a bank or credit union. 
Other households are underbanked, in that they have deposit 
accounts but often seek services from pay-day lenders and check 
cashers.
    Not only do minority communities have less access to banks, 
but, according to the 2004 HMDA data, when they do have access, 
African American and Latino populations receive a 
disproportionate share of higher-rate home loans.
    Slide three.
    Even after accounting for differences in risk, borrowers of 
color were more than 30 percent more likely to receive a 
higher-rate loan than white borrowers.
    So our question is this: How can banks be passing the CRA 
at such high rates while the HMDA data shows statistically 
significant racial discriminatory lending practices and while 
bank services for low- and moderate-income communities are 
diminishing? We invited Federal banking regulators here today 
to help us answer that question.
    In exploring this conundrum, this subcommittee identified 
several regulatory and statutory issues that raised red flags. 
These include the discretionary latitude exercised by banking 
regulators, the lack of transparency of the CRA exam process 
and incongruency of the 1999 Gramm-Leach-Bliley Act and the 
CRA.
    The regulations surrounding the review of banks are broad 
and undefined. Although the regulations stipulate that evidence 
of discrimination adversely impacts a bank's CRA rating, the 
regulators do not stipulate a mandatory downgrade in the face 
of such evidence. As we dug deeper into the matter, we found 
cases where the Department of Justice prosecuted a bank for 
Fair Housing and Equal Credit Opportunity Act violations while 
simultaneously the Federal regulator issued a bank a passing 
CRA rating.
    Case in point: In 2006, the Department of Justice filed 
suit against Old Kent Bank for violating the FHA and the ECOA. 
In its complaint, the Department of Justice alleged that, in 
spite of regulation, Old Kent Bank circumscribed its lending 
area in the Detroit metropolitan statistical area to exclude--
to exclude--most of the majority-African American neighborhoods 
by excluding the city of Detroit.
    Between 1997 and 2001, the Federal Reserve Bank not only 
gave Old Kent passing CRA ratings, but it also approved Old 
Kent's significant branching activity. In January 1996, Old 
Kent had 18 branches in the Detroit MSA. Not a single one was 
in the city of Detroit. By March 2000, it had expanded to 53 
branches located in every county of the Detroit MSA except for 
the city of Detroit, which, at that point, was 81 percent 
African American.
    Now, how can the Fed see this map, refer the case to the 
Department of Justice for prosecution and give Old Kent Bank a 
passing CRA rating? We asked the Fed that question, and we were 
told, in the Fed's discretion, the bank's practices were 
reasonable and legal. If discretionary latitude is broad enough 
to deem this donut hole reasonable, then perhaps it is too 
broad.
    But regulatory discretion does not explain everything. 
Something in the regulations makes it possible for the CRA 
rating to not reflect discriminatory practices.
    Now, in 1999, the Sixth Circuit Court of Appeals upheld a 
finding against Flagstar Bank for discrimination against 
minority borrowers. In 2001, a Federal court in Indianapolis 
found a written pricing policy developed by Flagstar so overtly 
discriminatory that it ruled against Flagstar on summary 
judgment. During the period of Flagstar's violations, the 
Federal regulator, the Office of Thrift Supervision, conducted 
five CRA examinations. It awarded Flagstar four satisfactory 
ratings and one outstanding rating. Significantly, the 
outstanding rating was awarded after the summary judgment 
finding in 2003.
    Now, how can Flagstar be awarded with passing CRA grades 
while it is being prosecuted for its discriminatory practices?
    We learned that one way a bank can mitigate a low CRA 
rating is by agreeing to take corrective action to address its 
discriminatory practices. Discriminatory practices are found 
during a fair lending exam, the findings of which are not made 
public, unlike the CRA exam. Not only is the fair lending exam 
secret, but so, too, are the negotiations on corrective actions 
between the regulatory agency and the bank. This, I think, 
flies in the face of the CRA spirit, which was borne out of 
public protest and sustained by public participation.
    According to the Treasury Department, CRA-related home 
lending in low- to moderate-income communities increased in 
Metropolitan areas in which lending institutions and community 
groups negotiated CRA agreements. An informed public and a 
participating public is a hallmark of the CRA. By negotiating 
corrective actions behind closed doors, banks and the 
regulators create generic solutions that may not be appropriate 
for all. In exchange for generic solutions and the exclusion of 
public participation, banks like Flagstar maintain their good 
reputations and are afforded the privileges associated with 
passing CRA grades.
    Then there is another problem that has nothing to do with 
the regulations at all but instead is a problem with the law. 
In March 2000, the Gramm-Leach-Bliley Act effectively allowed 
financial institutions to merge with insurance companies, 
security underwriting firms and mortgage lending companies for 
the first time in history. But the CRA was not amended to 
reflect this financial development.
    As a result, while a loan offered by a bank or thrift is 
subject to CRA review, that same loan evades CRA scrutiny if it 
is offered by that bank or thrift's affiliated mortgage 
company, finance company or nondepository affiliate. This 
loophole enables banks to move their financial assets to 
noncovered affiliates to reduce their CRA obligations.
    Subprime borrowers are especially vulnerable to these 
unregulated lenders. According to RealtyTrac, Inc., which 
compiles statistics on home ownership, last month foreclosures 
totaled 225,538, double the number a year ago. Would the 
numbers be different if these companies were the subject of CRA 
obligations? Has this legal loophole enabled a surging 
foreclosure crisis? And if this is indeed the case, has 
Congress allowed the CRA to become obsolete in certain 
respects?
    We hope that, with the insight of Federal banking 
regulators as well as community groups and advocates, we can 
answer some of these questions and find a way to restore the 
Community Reinvestment Act and uphold its spirit.
    With that, my opening statement is concluded.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Kucinich. And any Member who shows up will be given an 
opportunity to participate in the questions.
    The subcommittee is now going to receive testimony from the 
witnesses before us. I want to start by introducing our first 
panel.
    Ms. Sandra Thompson is director of the Federal Deposit 
Insurance Corporation's Division of Supervision and Consumer 
Protection, where she directs risk management and consumer 
protection examination activities relating to approximately 
5,200 FDIC-supervised institutions. Ms. Thompson previously 
served as the FDIC's deputy to the vice chairman and led the 
Corporation's Bank Secrecy Act and anti-money laundering 
supervisory activities. Prior to joining the FDIC in 1970, Ms. 
Thompson was an associate at Goldman Sachs and Co. in New York 
City. She holds a degree in finance from Howard University.
    Welcome. I appreciate your presence here.
    Next, I would like to introduce Ms. Sandra Braunstein, who 
I had the privilege of having come to Cleveland to participate.
    And I appreciated your presence there, as well as here.
    Ms. Braunstein is director of the Division of Consumer and 
Community Affairs for the Board of Governors for the Federal 
Reserve System. She currently oversees the implementation of 
the Federal Reservice System polices and programs regarding 
community and economic development. Ms. Braunstein also serves 
as the board's liaison to the Consumer Advisory Council and 
provides leadership to various consumer education and research 
activities. Before joining the Federal Reserve Board in 1987, 
Ms. Braunstein held positions in economic and community 
development for nonprofit, Government and private-sector 
organizations. She is a graduate of American University.
    Thank you, again, for being here.
    Ms. Montrice Yakimov--is that correct?
    Ms. Yakimov. Yakimov.
    Mr. Kucinich. Yakimov--is the managing director for 
compliance and consumer protection at the Office of Thrift 
Supervision. Ms. Yakimov coordinates the agency-wide compliance 
and consumer protection programs at the Office of Thrift 
Supervision, including overseeing the agency's Community 
Reinvestment Act program. Prior to becoming the FRB in 2005, 
Ms. Yakimov served as senior vice president and director of 
regulatory affairs at the Conference of State Bank Supervisors. 
She has advised the Federal Financial Institutions Examination 
Council Supervision Task Force on a broad range of State 
banking issues and has extensive knowledge of Federal and State 
consumer protection statutes and regulations.
    I appreciate you being here.
    Finally, Ms. Ann Jaedicke is the Deputy Comptroller for 
Compliance Policy for the Office of the Comptroller of the 
Currency. Ms. Jaedicke is responsible for policy and 
examination procedures relating to consumer issues and anti-
money laundering. She chairs the FFIEC's Consumer Compliance 
Task Force and sits on its Bank Secrecy Act Task Force. Earlier 
in her career, Ms. Jaedicke served as the director for the 
OCC's Large Bank Division and also managed its Problem Bank 
Division. 2001 to 2002, she led projects to restructure OCC's 
six districts in OCC's Washington, DC, headquarters.
    Thank you for appearing.
    I want to, again, thank all the witnesses.
    Before we begin, it is the policy of the Committee on 
Oversight and Government Reform to swear in our witnesses 
before they testify. I would ask that you would rise and raise 
your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Let the record reflect that the witnesses 
have answered in the affirmative.
    And you may be seated.
    I ask that each of the witnesses now give a brief summary 
of their testimony and keep the summary under 5 minutes in 
duration. I would like you to bear in mind that your written 
statement will be included in the hearing record.
    So, Ms. Thompson, let us begin with you.

    STATEMENTS OF SANDRA L. THOMPSON, DIRECTOR, DIVISION OF 
SUPERVISION AND CONSUMER PROTECTION, FEDERAL DEPOSIT INSURANCE 
   CORPORATION; SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF 
   CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE 
   FEDERAL RESERVE SYSTEM; MONTRICE GODARD YAKIMOV, MANAGING 
  DIRECTOR FOR COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF 
THRIFT SUPERVISION; AND ANN F. JAEDICKE, DEPUTY COMPTROLLER FOR 
  COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF THE CURRENCY

                STATEMENT OF SANDRA L. THOMPSON

    Ms. Thompson. Thank you.
    Chairman Kucinich and members of the subcommittee, I am the 
director of supervision and consumer protection for the Federal 
Deposit Insurance Corporation. In this role, I oversee the 
agency's bank supervision activities, including both safety and 
soundness and compliance with consumer protection and fair 
lending laws.
    I appreciate the opportunity to testify today on behalf of 
the FDIC regarding the enforcement of the Equal Credit 
Opportunity Act and the Fair Housing Act and how the FDIC 
considers compliance with the fair lending laws in assigning 
CRA ratings to financial institutions.
    As you stated, the purpose of CRA is to encourage banks to 
serve the credit needs of their entire communities. At the time 
CRA was enacted, there was a severe shortage of credit 
available to low- and moderate-income neighborhoods and concern 
about racial redlining and discrimination. While CRA and the 
Federal fair lending laws have had significant positive impact, 
there still remains much work to be done.
    This afternoon, I would like to focus my statement on a few 
key points.
    First, the FDIC is committed to protecting consumers and 
ensuring that the institutions under our supervision adhere to 
the letter and spirit of the fair lending laws. When the FDIC 
finds practices that violate these laws, we take action to 
ensure that the practices cease and that harm to consumers is 
remedied, using a range of supervisory and enforcement tools. 
Where the violation appears to involve a pattern or practice of 
discrimination, the FDIC refers the case to the Department of 
Justice.
    Second, from January 1, 2002, through September 30th of 
this year, the FDIC cited banks for substantive fair lending 
violations in 237 examinations. Although most fair lending 
violations cited had already been corrected by the bank or were 
promptly corrected at the direction of examiners, more serious 
violations were addressed through informal and formal 
enforcement actions. In all cases, banks were required by the 
FDIC to remedy the harm experienced by affected consumers and 
to advise the consumers of their right to pursue legal action. 
And they were ordered to stop engaging in discrimination. 
During the same 5-year period, the FDIC has referred 181 
findings of illegal discrimination to the Department of 
Justice.
    Third, in addition to performing fair lending reviews, as 
part of every compliance exam FDIC examiners separately 
evaluate the CRA performance of the approximately 5,200 
institutions we supervise. Fair lending violations are one of 
the factors considered in determining CRA ratings. Since 2002, 
fair lending violations have resulted in several CRA rating 
downgrades.
    In conclusion, CRA was adopted to address redlining and, 
over its 30-year history, has made a significant contribution 
to the revitalization of many low- and moderate-income 
communities in both urban and rural areas. Fair lending 
examinations are critical to achieving complete and accurate 
CRA reviews. The FDIC is committed to using CRA and fair 
lending laws in the continuing effort to address the credit 
needs of low- and moderate-income areas and individuals.
    That concludes my statement, and I would be happy to 
respond to any questions the subcommittee might have.
    [The prepared statement of Ms. Thompson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Mr. Kucinich. Thank you very much.
    Ms. Braunstein.

               STATEMENT OF SANDRA F. BRAUNSTEIN

    Ms. Braunstein. Thank you, Chairman Kucinich and members of 
the subcommittee. I appreciate this opportunity to discuss the 
implementation of the Community Reinvestment Act and the 
enforcement of fair lending laws by the Federal Reserve System.
    The Federal Reserve has a longstanding commitment to 
ensuring that every bank it supervises complies fully with 
Federal financial consumer protection laws, including fair 
lending laws, and that every bank meets its obligations under 
the CRA.
    Consumer compliance supervision, which includes the 
administration of CRA and fair lending laws, has been a 
separate function at the Board and the Federal Reserve Banks 
for more than 30 years. The Federal Reserve Banks are 
instrumental in carrying out the Board's mission of consumer 
protection through their supervision of the approximately 900 
State member banks for which the system has regulatory 
responsibility.
    Federal Reserve consumer compliance examiners focus 
exclusively on consumer compliance supervision and are required 
to complete a comprehensive training program that includes 
specialized intensive coursework on CRA and fair lending. A 
specialized fair lending enforcement section at the Board works 
closely with Reserve Bank staff to provide guidance on fair 
lending matters and to ensure that the fair lending laws are 
enforced consistently and rigorously throughout the system.
    When conducting fair lending examinations, consumer 
compliance examiners perform two distinct functions. First, 
examiners make sure that management is committed to fair 
lending and has the appropriate system, policies and staff in 
place to prevent violations.
    Second, examiners determine if the bank has, in fact, 
violated the fair lending laws. Because the Federal Reserve 
requires the banks we supervise to devote significant resources 
to fair lending and because we examine them routinely for fair 
lending compliance, we expect fair lending violations to be 
rare among the banks we supervise. Such violations are, indeed, 
rare. But when they do occur, we do not hesitate to take strong 
action, including referrals to the Department of Justice.
    Our record of referrals to Justice demonstrates our firm 
commitment to enforcing the fair lending laws. In 2007, thus 
far we have referred six institutions. These referrals included 
matters of ethnic and racial discrimination in mortgage 
pricing, racial discrimination in the pricing of automobile 
loans, restrictions on lending on Native American lands, and 
restrictions on row-house lending that discriminated on the 
basis of race.
    Discrimination and other illegal credit practices will 
adversely affect a bank's CRA evaluation. In our evaluation of 
a bank's CRA performance, we take into account evidence that a 
bank engaged in illegal lending discrimination or other illegal 
credit practices. At the conclusion of CRA examinations, the 
examiners prepare a separate CRA public performance evaluation 
that describes a bank's record of helping to meet the lending 
service and investment needs of their communities.
    Examiners assign a CRA rating that reflects the 
institution's overall CRA performance. If examiners find fair 
lending violations or find other illegal credit practices, 
examiners seriously consider such findings when they determine 
the appropriate CRA rating. Examiners consider the nature and 
extent of discriminatory practices, the policies and procedures 
in place to prevent such practices, and corrective action taken 
by the bank.
    Examiners may downgrade the rating otherwise earned to 
``needs to improve'' or ``substantial noncompliance.'' However, 
examiners assess the totality of the bank's record in the 
community in making this determination. Whether or not the 
examiner lowers the rating, they report their findings of 
discrimination in the public performance evaluation.
    The Federal Reserve is committed to safeguarding consumer 
rights in financial services. The key to this commitment is 
ensuring that every bank that the Federal Reserve supervises 
meets the credit needs of its community and complies fully with 
fair lending laws. Our supervisory process evaluates each 
bank's compliance with the fair lending laws and takes that 
record into account when evaluating its CRA performance.
    Thank you very much.
    [The prepared statement of Ms. Braunstein follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Mr. Kucinich. Thank you, Ms. Braunstein.
    Ms. Yakimov.

              STATEMENT OF MONTRICE GODARD YAKIMOV

    Ms. Yakimov. Good afternoon, Chairman Kucinich and members 
of the subcommittee. Thank you for the opportunity to present 
information regarding the activities of the Office of Thrift 
Supervision on issues related to the Community Reinvestment Act 
and fair lending enforcement.
    In my testimony today, I will describe how OTS examines for 
CRA compliance, compliance with fair lending laws, and how 
violations of fair lending laws and other illegal credit 
practices affect the CRA ratings we assign to savings 
associations.
    The Community Reinvestment Act calls for insured depository 
institutions covered by the act to help meet the credit needs 
of the communities in which they operate. The Office of Thrift 
Supervision's implementing regulation requires the agency to 
assess a savings association's record of helping to meet the 
credit needs of its entire community, including low- and 
moderate-income neighborhoods, consistent with safe and sound 
operation.
    Additionally, the CRA requires OTS to consider each 
institution's record when evaluating an application for new 
branches or relocation of an existing branch, mergers, 
consolidations and other corporate activity. The regulations 
and examination procedures require examiners to consider such 
factors as the volume of mortgage and small-business lending 
within the savings association's designated assessment area, 
the volume in dollar of lending to low- and moderate-income 
people, small-business lending, small-farm lending and mortgage 
lending in low- and moderate-income geographies. Additionally, 
in some instances, performance is based on a savings 
association's community development lending and investments, 
along with the ability to provide retail services to low- and 
moderate-income individuals.
    OTS assigns savings associations one of four ratings to 
meet the credit needs of the communities they serve: 
outstanding, satisfactory, needs to improve, or substantial 
noncompliance.
    So, through the CRA examination function, OTS reviews 
thrift institutions' record of meeting the financial needs of 
the communities they serve, including their record of lending 
to low- and moderate-income individuals.
    Separately, fair lending reviews are an integral part of 
the OTS supervision to determine compliance with consumer 
protection laws and regulations. OTS examiners conduct a fair 
lending assessment during each comprehensive exam, every 12 to 
18 months. In addition to HMDA, data examiners also use other 
information in their investigations, including consumer 
complaints, risks associated with the savings association's 
business channels, and the adequacy of the institution's 
compliance risk management system.
    Through fair lending exams, OTS examiners seek to detect 
all forms of discrimination, such as redlining, as well as 
discrimination relating to pricing, marketing and underwriting. 
If unlawful discrimination is found, OTS will make a referral 
to the Department of Justice or the Department of Housing and 
Urban Development in accordance with Federal fair lending laws.
    Depending on the outcome of the referral and the nature of 
the violation, OTS may also take other actions to fully resolve 
the matter. For example, when applicable, the OTS directs the 
institution to cease violative activity, provide remedies to 
harmed parties, and improve its fair lending compliance 
controls and policies.
    Additionally, and notably for today's hearing, the Office 
of Thrift Supervision's CRA regulations indicate that a finding 
of discrimination or other illegal credit practice will 
adversely affect the savings association's CRA performance. 
Such evidence includes, for example, certain violations of 
Equal Credit Opportunity Act, Fair Housing Act, Real Estate 
Government Procedures Act, Section 5 of the FTC Act and the 
Homeowners Equity Protection Act. The extent to which the 
finding of discrimination or other illegal practice affects the 
CRA rating is determined by factors such as the nature and 
extent of the evidence, the policies and procedures that the 
savings association has in place to prevent discrimination or 
other illegal credit practices, and corrective action that the 
savings association has undertaken or has committed to take, 
including volunteers.
    Since 1990, in 37 instances OTS has reduced the CRA rating 
of an institution in response to evidence of discriminatory or 
other illegal credit practices. In five cases, the downgrade 
was from ``outstanding'' to ``satisfactory.'' In 29 cases, the 
rating declined from ``satisfactory'' to ``needs to improve.'' 
And in three cases, the rating declined from ``needs to 
improve'' to ``substantial noncompliance.''
    Both CRA and fair lending are critical parts of our 
compliance examination function at OTS. While we believe the 
regulation examination procedures equip us to monitor both of 
these critical areas, we note that refinements to our processes 
are certainly something that we consider on an ongoing basis. 
We have taken such steps as building new econometric models, 
adding additional training and additional resources here in 
Washington to support our subject-matter experts in the field.
    Ensuring that CRA ratings accurately reflect not only how 
effectively thrifts serve the communities they serve but that 
they are doing so in compliance with fair lending laws and in 
the spirit of the Community Reinvestment Act are key priorities 
at OTS. Thank you for raising this important issue, and I look 
forward to answering your questions.
    [The prepared statement of Ms. Yakimov follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Kucinich. Ms. Yakimov, thank you for your testimony.
    I have been informed that there is a vote on, and so what 
we are going to do is this. I am going to recess the committee 
for 20 minutes, and that would bring us to about 5 minutes 
before the hour. We will begin with Ms. Jaedicke's testimony, 
and then we will go to questions of the witnesses.
    So I would ask that you return in 20 minutes, and we will 
start again. Thank you so much. And thank you for your 
testimony. Thank you.
    The committee is in recess.
    [Recess.]
    Mr. Kucinich. The committee will now come to order.
    I want to thank the witnesses for their patience. The House 
has just completed its business for the day, so I don't think 
we will have any other interruptions.
    We will hear from Ms. Jaedicke, and then we will go to 
questions of the witnesses. And, again, I thank you for your 
indulgence.
    The Chair recognizes Ms. Jaedicke.

                  STATEMENT OF ANN F. JAEDICKE

    Ms. Jaedicke. Chairman Kucinich, I am Ann Jaedicke, deputy 
comptroller for compliance policy at the Office of the 
Comptroller of the Currency. I am pleased to appear before you 
today to discuss the OCC's fair lending and Community 
Reinvestment Act examination processes. I will also discuss how 
a national bank's CRA evaluation and rating can be adversely 
affected by evidence of unlawful discrimination.
    Let me begin by saying there is no room for unlawful 
lending discrimination in the national banking system, and the 
OCC fully expects banks to serve the credit needs of their 
communities, including needs in low- and moderate-income areas. 
The OCC has a comprehensive and rigorous fair lending oversight 
program, which is the foundation for ensuring that national 
banks comply with fair lending laws.
    We also conduct examinations of national banks to evaluate 
whether they are meeting the credit needs of their communities 
as required by the Community Reinvestment Act. At each CRA 
examination of a national bank, the examiner not only evaluates 
the manner in which the bank is meeting the credit needs of the 
community, but the examiner also considers the nature and 
extent of any unlawful discrimination or other illegal credit 
practices in which the bank may have engaged.
    The joint CRA regulations of the Federal banking agencies 
provide that evidence of unlawful discrimination or other 
illegal credit practices has an adverse effect on a bank's CRA 
evaluation. Therefore, if there is evidence of unlawful 
discrimination, that information is taken into account in the 
bank's CRA evaluation, and the examiner's findings are 
discussed in the public performance evaluation [PE].
    The interagency CRA rules further provide guidance on the 
factors that will be considered in determining whether a bank's 
CRA rating should be adjusted as a result of such evidence. 
These factors include, among other things, the nature of the 
violation, the extent of the problem, whether the bank self-
identified the issue, and whether the bank has initiated 
corrective action.
    Let me assure you that the OCC treats evidence of fair 
lending violations as a negative factor when assessing the CRA 
performance of national banks, and we have lowered the CRA 
ratings of national banks in several instances based on such 
evidence. For example, ratings have been lowered from 
``outstanding'' to ``satisfactory'' and from ``satisfactory'' 
to ``needs to improve'' based on discriminatory or other 
illegal credit practices. In other instances, the OCC has 
described the violations in the CRA PE and has taken them into 
account in evaluating the CRA performance but has determined 
that lowering a rating was not appropriate based on an 
assessment of the applicable factors in the regulation.
    In addition to conducting CRA examinations, the OCC has a 
fair lending supervisory program designed to assess the level 
of fair lending risk in every national bank. As part of this 
process, the OCC assesses compliance with fair lending laws and 
regulations; we obtain corrective action when significant 
weaknesses or deficiencies are found in a bank's policies, 
procedures and controls related to fair lending; and we ensure 
that enforcement action is taken when warranted, including 
referrals to the U.S. Department of Justice and notifications 
to the U.S. Department of Housing and Urban Development.
    Our fair lending supervisory process has several features 
that, in combination, result in a risk-based approach to our 
fair lending supervision. We combine our examiner's knowledge 
of the bank and its products and markets with analytical 
information about loans made by the bank and with information 
from consumers and community groups. Using this information, we 
focus our fair lending examinations on banks that show the 
greatest potential for fair lending issues.
    I appreciate the opportunity to discuss the important nexus 
between fair lending and helping to meet community credit 
needs. The OCC is committed to ensuring that our evaluation of 
national bank CRA performance appropriately reflects any 
evidence of unlawful discrimination consistent with the 
interagency CRA regulations. Along with our robust fair lending 
examination and enforcement process, the CRA process is an 
important tool in Federal law that we use to address and to 
prevent unlawful discrimination.
    I will be pleased to answer any questions that you may 
have.
    [The prepared statement of Ms. Jaedicke follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Kucinich. Thank you very much for your testimony, Ms. 
Jaedicke.
    We are pleased to be joined by Mr. Davis of Illinois. Thank 
you for being here and for your participation.
    I want to start off with Ms. Thompson.
    Ms. Thompson, in a meeting, FDIC representatives told my 
staff that they are not proud of their failure to note 
Centier's discriminatory practices. Would you agree that this 
is the FDIC's general attitude toward the Centier example?
    Ms. Thompson. Mr. Chairman, as the head of supervision and 
consumer protection, I can assure you that is the FDIC's 
position on how we handled that particular situation.
    Mr. Kucinich. And, Ms. Braunstein, my staff's experience 
with the Fed was a lot different. During their meeting, a Fed 
representative told my staff that the Fed did not make any 
mistakes in their CRA examination of Old Kent Bank. This is 
despite the Department of Justice prosecution against Old Kent 
Bank for FHA and ECOA violations.
    I was reading Bloomberg news accounts of this meeting 
today, and you are quoted as saying, if this quote is accurate, 
that banks can always do more.
    Is your position that Old Kent Bank could have done more--
that is, by following the law--or that, in the Fed's view, Old 
Kent Bank was compliant with the CRA?
    Ms. Braunstein. Congressman, that incident took place 8 
years ago, and the institution no longer exists. The people who 
were involved in that matter at that time no longer work for 
the Federal Reserve. And it is, frankly, impossible for me to 
reconstruct what took place at that time to really opine one 
way or another.
    I will tell you that, based on the circumstances that 
ensued, we find the situation to be very troubling. And we do 
take redlining very seriously, and we have proven that with our 
record of referrals to Justice for redlining cases. We are not 
hesitant to pull the trigger when we identify redlining.
    It is very difficult--it is basically impossible for me to 
address the specific facts.
    Mr. Kucinich. But you are familiar with the case?
    Ms. Braunstein. I am familiar with what we know at this 
time about the ratings. I don't have the benefit of talking to 
the examiners to find out how they made their judgments.
    Mr. Kucinich. Can you say that Old Kent Bank was misgraded?
    Ms. Braunstein. I would have to try to reconstruct how they 
came to that conclusion. And I don't think that I can 
reconstruct their thought processes from 8 years ago.
    Mr. Kucinich. Well, you said a moment ago it was troubling.
    Ms. Braunstein. I also don't think that it is a fair 
representation to take one case out of thousands of bank exams 
we use and try to characterize our entire record.
    Mr. Kucinich. This isn't about characterizing your entire 
record, although your entire record is in question here. It is 
about trying to see how the Fed responds when questioned about 
a specific case which seems to be quite an egregious example of 
a lack of oversight.
    Now, I will take into consideration that this was 8 years 
ago, that the institution is gone, that the players are gone. 
But it would be instructive for this committee to be able to 
learn from the Fed should it have been done differently, would 
you do it differently, or don't you know enough about it to 
make an assessment, which, to me, would mean that we still are 
in the category of lessons to be learned. So help us out, 
please.
    Ms. Braunstein. Well, I don't think I know enough about 
that specific case to make a determination. However, I will 
tell you that we are constantly looking at ways to improve our 
processes around examinations for Community Reinvestment Act as 
well as fair lending. We constantly tweak our procedures. We 
constantly try to find ways to improve. As I said this morning, 
there is always room for banks to improve; there is certainly 
always room for us to improve.
    Mr. Kucinich. So the Fed can always do more?
    Ms. Braunstein. And I will commit to you we will continue 
doing that.
    Mr. Kucinich. Would you then agree with the statement the 
Fed could always do more?
    Ms. Braunstein. Absolutely, absolutely.
    Mr. Kucinich. Thank you.
    My 5 minutes has expired. I want to go to Mr. Davis for the 
next round of questions.
    The Chair recognizes Mr. Davis. Thank you.
    Mr. Davis. Thank you very much, Mr. Chairman.
    And I want to thank the witnesses for being here and for 
participating.
    The Department of Justice filed a complaint against First 
National Bank of Pontotoc, MS, in April 2006, alleging that 
First National's former vice president violated the Equal 
Credit Opportunity Act and that the bank is responsible for the 
discriminatory conduct during the vice president's tenure. The 
complaint alleged that while he was serving as the vice 
president at First National in 2003 and 2004, he had sought 
sexual favors in return for favorable loan decisions. He left 
the bank in May 2004.
    During this time between 1993 and 2003, the OCC gave First 
Bank passing scores, even as the vice president in question was 
stepping down. In fact, the 2004 CRA exam of First National 
states that in the, ``fair lending or other illegal credit 
practices review,'' an analysis of public comments and consumer 
complaint information was performed according to the OCC's 
risk-based fair lending approach. Based on its analysis of the 
information, the OCC decided that a comprehensive fair lending 
examination would not need to be conducted in connection with 
the CRA evaluation this year. The latest comprehensive fair 
lending examination was performed in 1998.
    I would like to ask you, Ms. Jaedicke, you did not conduct 
a fair lending exam of First National because your agency felt 
that the risk-based approach that you use--as a result, there 
was no need for an exam. Is that correct?
    [The prepared statement of Hon. Danny K. Davis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Jaedicke. Yes, sir, at the time, based on the 
information we had during our 2004 CRA exam.
    And let me add that the issues at First National Bank of 
Pontotoc are quite disturbing to us, but the allegations 
surrounding the bank emerged contemporaneously with the exam 
that we were doing in 2004. Shortly thereafter, the Department 
of Justice opened up an investigation and asked us to stand 
down. So when the Department of Justice finishes their 
investigation and we have their findings, we will take them 
into account as part of the next CRA examination.
    Mr. Davis. Could you explain to us what your risk-based 
approach is?
    Ms. Jaedicke. Certainly. Our fair lending supervision 
process really has three features.
    The first is the knowledge and experience that our bank 
examiners have with the banks that they supervise. And that 
involves the bank's products and services, its customer base, 
the type of communities they operate in, the type of complaints 
they are receiving from consumers or community groups. 
Examiners process that information as they receive it. And if, 
based on any of that information, they decide that they are 
concerned about a fair lending issue, they can initiate a fair 
lending exam. That is the first feature.
    The second feature of our fair lending supervisory process 
is really analytically based. We process information from the 
HMDA data submitted by banks each year and additional 
information that lets us screen the population of national 
banks to look for banks that may have disparate issues or 
issues that cause us concern, raise questions about fair 
lending. If we find that, we will put those banks on a list to 
be examined in the coming year.
    And the third feature is a random sample. We select a group 
of banks to be examined in the coming year each year, so that 
there are banks that, if we perhaps have no other reason to 
look at those banks for fair lending issues, are examined 
anyway.
    Mr. Davis. And is the fair lending exam meant to be 
complaint-based, that, as a result of complaints, you 
determine----
    Ms. Jaedicke. No, sir, it is not solely complaint-based. 
But, certainly, if we had complaints or information from 
community groups that caused us concern, it could initiate a 
fair lending exam.
    Mr. Davis. So the purpose of the exam to regulate the banks 
and ensure that they are in compliance with fair lending laws 
like the FHA and the ECOA, if you wait for a consumer to tell 
you that they are in violation of those laws, then it is your 
job just to followup. I am saying, if you get complaints and 
the consumers are saying, ``We think that they are violating 
thus and so,'' is it your task to just followup?
    Ms. Jaedicke. We certainly would followup if we had 
complaints like that. But that is not the sole basis that might 
lead to a concern on our part around fair lending issues.
    I will give you another example. If a national bank were to 
choose to enter a new market that would involve lending to a 
Hispanic customer base or an African American customer base and 
we had reasons to be concerned about the products they were 
offering, that might cause an examiner to initiate a fair 
lending exam.
    Again, if we saw information in the HMDA data filed by 
national banks every year that caused us to be concerned--and 
we analyze that information every year--that could cause us to 
initiate a fair lending exam.
    So, a variety of different things could occur that would 
cause us to initiate a fair lending exam.
    Mr. Davis. And, finally, let me just ask you, is it 
possible that because there has not been a fair lending exam in 
6 years for this particular bank before the case was brought to 
the Department of Justice's attention, that First National may 
be violating other lending laws but you just weren't aware of 
them because there was no examination of the bank?
    Ms. Jaedicke. I think in the situation of First National-
Pontotoc--which is a bit unusual because it involves sexual 
harassment, and sexual harassment, by its very nature, is 
surreptitious--it would be an issue that would be quite 
difficult for us to uncover as part of a bank examination.
    Nonetheless, once the Department of Justice concludes its 
investigation, we will review the findings of that 
investigation, take them into consideration in our next CRA 
exam. And if there are other indications in that investigation 
of something we feel like we need to look at at First National 
Bank of Pontotoc from a fair lending standpoint, we will do 
that.
    Mr. Davis. So there may be others, but you just really 
wouldn't know, because of the nature of the examination.
    Ms. Jaedicke. Yes, sir.
    Mr. Davis. Thank you very much.
    And, Mr. Chairman, I want to thank you for your indulgence. 
I know that my time has ended.
    Mr. Kucinich. We are going to go to another round of 
questions.
    I continue to be concerned about the Fed's approach to 
enforcement. We have just reviewed the fact that the Old Kent 
Bank case was 8 years old. The Fed has had 8 years, a lot of 
time to learn from experience.
    Now, the 1997, 1999 and 2001 exams had virtually the same 
language on Old Kent's compliance with anti-discrimination 
laws. Here is how it reads: ``the bank is in compliance with 
the substantive provisions of anti-discrimination laws and 
regulations, including the Equal Credit Opportunity Act [ECOA], 
and the Fair Housing Act. No substantive violations were noted. 
The bank is also in compliance with the technical requirements 
of the Community Reinvestment Act. The public file and CRA 
notices were reviewed and deemed to be in compliance.''
    Ms. Braunstein, who oversaw the work of this CRA examiner?
    Ms. Braunstein. The CRA examination was done by the Federal 
Reserve Bank of Chicago. All the exam work is done by the 
Reserve Banks. And there are various layers of management over 
those examiners. There are certainly layers of management at 
the Reserve Bank itself, as well as examinations are a 
delegated function in the Federal Reserve System, so ultimately 
reported to Washington, DC.
    Mr. Kucinich. So the structure of oversight, you have the 
examiner and then someone who reviews the work of the examiner. 
Who would that be?
    Ms. Braunstein. Correct. That would be probably a reviewing 
person at the Reserve Bank.
    Mr. Kucinich. And then who would check that work?
    Ms. Braunstein. I would imagine their management, whether 
it is a vice president of the Reserve Bank, a manager or 
assistant vice president, depending--each Reserve Bank has a 
different hierarchy.
    Mr. Kucinich. So is there an oversight body involved here 
in reviewing an examiner's conclusion?
    Ms. Braunstein. Well, yes, absolutely, on every 
examination. Also, I will add that the examinations ultimately 
come into Washington and that people at the Board do review a 
portion of those examinations, looking for consistency and 
making sure policies are being enforced.
    Mr. Kucinich. Now, in this particular case, the record 
shows that the examiner's conclusion was not questioned by a 
Federal oversight body and it basically concurred. Why was this 
examiner's conclusion, which I had recited to you earlier, not 
questioned by a Fed oversight body?
    Ms. Braunstein. Well, I don't know that it wasn't. If a 
conclusion is questioned, it doesn't mean that would 
necessarily show up in the report. What you see in the report 
is the final conclusion. That doesn't preclude that there was 
some discussion. And there, again, it is nothing that I can 
reconstruct, to tell you whether that happened or not.
    But I also just want to add that our examiners undergo very 
rigorous training, specifically in CRA and fair lending. That 
is a specialty at the Fed. These examiners are doing consumer 
compliance work. They are not doing safety and soundness work. 
They are trained. There is always a degree of subjectivity and 
judgment that goes into these examinations. And we train our 
examiners. We continue to--we have continuing training for 
them. And, at some point, we have to trust their judgment.
    We do discuss--management does discuss conclusions with 
them. And so, that would not necessarily show up in the report, 
but it doesn't mean it didn't go on.
    Mr. Kucinich. I would like you to look at this map now. And 
we had described the map to you earlier. Would you call this 
reasonable?
    Ms. Braunstein. Well, I can't see what the legend is over 
there, what the different colors mean.
    Mr. Kucinich. The red area represents no branches. And it 
also happens to be the city of Detroit.
    Let me refresh your memory about the context of this, OK? 
You see a donut hole around the city of Detroit, which is 81 
percent African American. The Department of Justice filed suit 
against Old Kent Bank in 2004 for violating the Fair Housing 
Act and the Equal Credit Opportunity Act. The Department of 
Justice cited a Section 228 violation and said, ``Instead of 
defining its assessment area in accordance with Regulation BB, 
Old Kent Bank circumscribed its lending area in the Detroit MSA 
to exclude most of the majority-African American neighborhoods 
by excluding the city of Detroit. And as of March 2000, Old 
Kent still did not have a single branch in the city of 
Detroit.''
    Now, I am contrasting that with the statement that the Fed 
made with regard to Old Kent's compliance with anti-
discrimination laws. These are quotes from the 1997, 1999 and 
2001 exams. ``The bank is in compliance with the substantive 
provisions of anti-discrimination laws and regulations, 
including the Equal Credit Opportunity Act and the Fair Housing 
Act. No substantive violations were noted. The bank is also in 
compliance with the technical requirements of the CRA.''
    The public file and CRA notices were reviewed and deemed to 
be in compliance. I am going to ask you again, look at the map. 
Would you call it reasonable?
    Ms. Braunstein. I find it very troubling, but, again, there 
are other things that go into the consideration of an 
assessment area, such as the banks, what is reasonable for the 
bank to be serving, considering the location of its branches. 
Like I say, I don't have----
    Mr. Kucinich. I'm going to have to stop you a minute. I 
want you to look with your eyes, OK? Then I want you to look 
with your heart and see if you can tell me, when you look at 
that, everything--you have an African American population there 
in the city of Detroit. It corresponds neatly with what's in 
red. Then you have the rest of the area in terms of 
assessments. And you see where the CRA it said that they are in 
compliance; and they are clearly not, if you look at the map.
    Ms. Braunstein. Well, like I say, I find this very 
troubling. And I will say this. If this were to come before me 
today on an exam that we were doing, I would have serious 
questions about it.
    Mr. Kucinich. Would you say this is what red-lining looks 
like?
    Ms. Braunstein. It certainly could, yes.
    Mr. Kucinich. Did the Fed refer the Old Kent case to the 
Department of Justice?
    Ms. Braunstein. No, it did not.
    Mr. Kucinich. Why didn't the Fed take any of its 
enforcement actions before then?
    Ms. Braunstein. That I cannot answer.
    Mr. Kucinich. And why didn't the Fed at least hold the 
public hearing during any one of its CRA exams?
    Ms. Braunstein. Well, are you talking about applications?
    Mr. Kucinich. I'm talking about during the process of an 
examination, review of the CRA.
    Ms. Braunstein. We don't hold public hearings during 
examinations.
    Mr. Kucinich. That's the point.
    Ms. Braunstein. We hold public meetings during 
applications.
    Mr. Kucinich. Well, OK, I am talking about applications.
    Ms. Braunstein. OK. We hold--and I will tell you in that 
sense I know in terms of the Fifth Third application.
    Generally in any application we are looking most closely at 
the record of the acquiring institution. Because especially if 
there are problems with the target and the acquiring 
institution has a good record, we have conversations with them 
to make sure that they are going to bring the target 
institution up to the standards that they currently have.
    Mr. Kucinich. Now your enforcement authority under the CRA 
is the ability to assign a low rating, which would impede a 
banking institution's ability to expand by merging with other 
banks, acquiring other companies and branching. You didn't 
exercise that authority when you examined Old Kent, but you had 
another chance to exercise your authority when Old Kent applied 
to merge with Fifth Third Bank. Did you hold a public hearing 
to discuss the merger?
    Ms. Braunstein. No, we did not.
    There are a couple of things there. One is, the Justice 
Department investigation was still under way so we had 
absolutely no idea of what their findings were at that time. 
Also, as I said before, we are looking much more closely at the 
acquiring institution rather than the target, and Fifth Third 
was the acquiring institution.
    Mr. Kucinich. Did you see the map, though? Did anybody look 
at the map, and--I mean, let's set aside the Department of 
Justice for a minute.
    Ms. Braunstein. During an application, we generally look at 
the exams. The exams figure into the process, the previous 
examinations.
    Mr. Kucinich. And so you didn't hold--you did or didn't 
hold a public hearing?
    Ms. Braunstein. We did not hold a public----
    Mr. Kucinich. Did you condition Fifth Third's acquisition 
on serving Detroit?
    Ms. Braunstein. As far as I know, we did not.
    Mr. Kucinich. Why didn't you do that?
    Ms. Braunstein. I don't know. I can't answer that.
    Mr. Kucinich. All right. You could have done that; is that 
correct? You have the power to do that?
    Ms. Braunstein. We do have the power to condition.
    Mr. Kucinich. An acquisition. So you had the power to 
condition an acquisition on serving a population, which, by 
just a quick look at a map, you could tell that there was red-
lining going on and you didn't do it. Now did you solicit 
feedback from the community to decide what the acquiring bank 
would need to do to better serve the community?
    Ms. Braunstein. With any application we have a public 
comment process.
    Mr. Kucinich. And what about the public comment process on 
that particular case? Did you go out to the community? You 
didn't hold hearings, you said, but how was the public able to 
know that there was an opportunity to come?
    Ms. Braunstein. Anytime there's an application, it is 
advertised in community groups or anybody--citizens, whoever, 
other financial institutions--anybody can file public comments 
with us.
    Mr. Kucinich. And how are people advised of that?
    Ms. Braunstein. We--its--there's a newspaper notice. There 
is--you know, generally, it's never been a problem for people 
to know about that.
    Mr. Kucinich. Did you take out newspaper ads in the African 
American community to let people know that they could comment?
    Ms. Braunstein. I am not aware of exactly where it was 
advertised at that time. That was a number of years ago.
    Mr. Kucinich. I think it would be instructive.
    Let me make clear something for those who are in the 
audience and may be watching, that staff has met with the Fed 
and there really aren't any surprises, that we're going in-
depth here into talking about Old Kent. This is not something 
that we're just pulling out of a hat. This is a very serious 
question that is quite blatant.
    And, of course--as a personal concern, I know Mr. Davis, 
who represents Chicago, has a personal concern here; and I 
share it. But we also have a situation in Cleveland where we 
see people couldn't get loans. They are thrown into subprimes, 
they end up not being able to meet the requirements, they lose 
their homes, and we've got whole neighborhoods that are being 
decimated.
    And, you know, the public policy issue here, frankly, is 
one where if banks are permitted to avoid the requirements of 
the CRA and then people can't get the loans, they then get 
thrown into the clutches of subprime lenders, the most 
predatory of lenders out there; and then they are going to get 
destroyed financially and lose their homes.
    So, to go back to the Fed, do you understand why this 
committee feels the Fed has not only a legal obligation here 
but a moral obligation to the people of the United States to 
exact oversight in a manner which insists on compliance with 
the letter of the law? Do you understand why this committee has 
a concern about the imperative of Fed enforcement here?
    Ms. Braunstein. Congressman, we share that concern. We take 
these matters extremely seriously, and we have shown that 
through our fair lending record, our record of referrals to 
Justice. Like I say, I cannot explain how this case happened, 
but we have not hesitated to pull the trigger when we have 
found red-lining in other financial institutions. It is not 
like we have no record of pulling the trigger on cases like 
this.
    Mr. Kucinich. Well, you know, when you look at the wreckage 
that subprime loans are leaving in neighborhoods across America 
and when you look at the lack of the apparent lack of effective 
oversight of CRA--because if people had the money, if they got 
the loans from the prime lenders whose responsibility it is 
under CRA, they wouldn't have been thrown into the arms of the 
subprime lenders. That's the point.
    With all due respect--and, again, I am very grateful that 
you are here; we couldn't do this hearing without you--but we 
also can't have an effective oversight without the Fed's active 
participation. And at this point, notwithstanding your 
profession of concern, a quantitative assessment does not rest 
in your favor. And while the Fed and all the members of the Fed 
can go home tonight and rest easy in their townhouses and their 
apartments and in their homes, as they should be able to do, 
there are millions of Americans who maybe are losing their 
homes and are out of their homes and some of them on the 
street. This is not a small matter.
    The Chair recognizes Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Ms. Braunstein, let me ask about voluntary corrective 
action. Does this regulation suggest that if a bank corrects 
its discriminatory behavior, then the regulator will not 
reflect the discriminatory practice in the CRA exam?
    Ms. Braunstein. No, it does not suggest that at all. In 
fact, even if a bank corrects its behavior, if there was a 
pattern of practice of discrimination, we have reason to 
believe that there was, despite a correction, we will make a 
referral to Justice. We also will reflect the discrimination in 
the public evaluation of the CRA report.
    Mr. Davis. So you're not grading the bank based on its 
performance exactly, are you? Or is it some performance and 
some of what it says it's going to do?
    Ms. Braunstein. Well, there's a difference between--I'm 
trying to--I'm not sure I understood your question, but there's 
a difference between the CRA rating that is given and the 
public evaluation report. The rating is part of the report. So 
I think what we're saying, and this is true of all of us, is 
that in some cases a finding of discrimination may not result 
in a downgrading of the rating. However, even if that happens, 
it will be reflected in the written report on CRA.
    Mr. Davis. Let me ask you, if a bank like Old Kent says, in 
2001, we're sorry, we'll open up a branch in the city of 
Detroit, even though we haven't done so as of yet, we're 
legally mandated to do for the past 5 years, would this bank 
get a lower CRA rating or would this satisfy the requirement?
    Ms. Braunstein. If we find a red-lining violation, first of 
all, we would be mandated to refer that to Justice; and, second 
of all, something that egregious would likely result in a 
downgrade in this hearing rating.
    Mr. Davis. And let me go to other members of the panel.
    Of course, we have data that reveals a disproportionate 
share of African American assessments, African American and 
Latinos receiving higher-rate home loans, notwithstanding 
location, income. We see non-disclosure in fair lending exams 
and lack of transparency, thereby compromising entire 
communities of their right to participate in public 
negotiations; and CRA's lack of uniform standards where 
reasonableness of assessment areas, as well as nature, extent 
and strength of evidence of discriminatory practices are at the 
discretion of the examiner.
    I guess what I'm really trying to arrive at is this 
business of when is enough or how do you decide? The question 
then becomes, what level of evidence is sufficient to adversely 
impact an agency's CRA valuation?
    Ms. Thompson, perhaps I would----
    Ms. Thompson. Well, a couple of things. At the FDIC, 
consumer protection is very important. Not only do we look at 
access to credit, which was very relevant 30 years ago and it 
is just as relevant today, we look at cost of credit. Because 
in many of the low-income and moderate-income neighborhoods, 
they are proliferated by high-cost credit products that may or 
may not be offered by financial regulated entities such as 
financial institutions.
    At the FDIC, we are encouraging unbanked and underserved 
persons to come into the banking sector. And through our 
examination process we think one violation is one too many, and 
we always advise the bank to take corrective action.
    To the extent that we find patterns and practices of either 
denial of credit or high-cost credit, we take action relatively 
quickly; and we take that information and we factor it into the 
rating for the compliance exam for that institution and also 
the CRA rating. This year alone the FDIC has made 13 referrals 
to the Department of Justice for fair lending issues, and we've 
also downgraded two institutions in 2007 with respect to their 
CRA rating. This is something very important to the FDIC, it is 
important to our chairman, and we want to ensure that our 
examiners take corrective action where appropriate.
    Mr. Davis. Thank you.
    Ms. Yakimov, how would you respond to that?
    Ms. Yakimov. We look at the fair lending record of our 
institutions very closely. We look at the HMDA data. We combine 
it with factors that aren't included in the HMDA data like loan 
to value, the broker compensation, credit score. And fair 
lending reviews take place at every comprehensive exam, every 
12 to 18 months. We do target reviews. We've, as I said, built 
some additional models and tools to run the data through.
    And, again, if we see evidence of discrimination or other 
illegal credit practices, that will have an impact. Not only 
will that be reflected in the fair lending evaluation, but it 
will also have an impact on the CRA rating. And we look again 
at the scope of the evidence, we look at the CRA performance of 
the institution in its totality, but that's a significant 
factor if we do find those concerns.
    Mr. Davis. Ms. Jaedicke.
    Ms. Jaedicke. Congressman, findings of illegal credit 
practices of discrimination adversely affect the CRA ratings of 
national banks. Equally important, a poor lending record by a 
national bank or a bank that is not serving the credit needs of 
its community, including low- and moderate-income areas, is 
equally likely to get an adverse CRA rating.
    Mr. Davis. You know, I'm always amazed that, in spite of 
the fact that we've had CRA now for 30 years, and yet, when we 
look at certain communities in certain areas, we don't seem to 
get a tremendous amount of difference in some of those. The 
same groups continue to have the most difficult time, still 
continue to pay the most for credit, still seem to not be able 
to acquire, in many instances, decent credit.
    Is there something else that any of you might be able to 
think of that might be missing? I mean, I happen to actually 
live in the community that was a hotbed of the generation of 
activity that resulted in CRA. A woman named Gail Cincotta used 
to live in the same neighborhood where I lived. As a matter of 
fact, I was a member of Gail Cincotta's first organization, the 
Organization for a Better Austin, before she left and came to 
Washington and organized the National Training and Information 
Center. So I've kind of seen this over the period of time.
    What else could perhaps--if there's anything?
    Ms. Thompson. Congressman, I happen to have been privileged 
to have been born and raised on the south side of Chicago, 
which is the home of CRA, as you well know, but I can tell you 
that at the FDIC we take a very proactive approach to economic 
inclusion.
    We have within our organization a concerted effort to try 
to bring the unbanked and underserved persons that the chairman 
referenced in his opening statements into the banking sector. 
In eight territories we have formed alliances with community 
groups, financial institutions and other regulators to try to 
find out why people are not coming into the banking system, and 
we are trying to figure out ways to encourage them to 
participate more fully in the financial services that are 
offered by regulated entities. Because, again, so often in 
these communities many of the occupants are subject to higher-
cost products, whether it is financial services or not.
    This is a very important initiative to our chairman, and we 
do take proactive steps to try to encourage the regulators to 
work with community groups and financial institutions to try to 
better address this issue.
    Mr. Davis. Ms. Braunstein.
    Ms. Braunstein. Congressman, I would add to that we don't 
lose sight of the fact of the accomplishments of CRA over the 
last 30 years. It has been documented differently in different 
places, but I don't think anyone would argue that CRA has 
brought billions of dollars into neighborhoods that previously 
had very little, if any, bank investment or bank participation.
    I do believe there is a lot more to be done and needs to be 
done both on the part of the regulators as well as on the part 
of the financial institutions. I also think that, 
unfortunately, CRA is not the panacea or the answer to 
everything, all the problems that exist economically in low-
income communities, and it will never be able to solve all the 
problems.
    Ms. Yakimov. I would add we have seen a real 
democratization in credit, and I think it is incumbent upon us 
for both sides of our houses to function effectively. So we're 
talking a lot about CRA and the provision of credit 
particularly to low- and moderate-income people. We want the 
types of credit that are sustainable, that allow people to stay 
in their homes. So we need to make sure that underwriting is 
what it ought to be. That's another part of what we're called 
upon to do. And I think we issued guidance in the last--
recently going back to 2006 that really began to move the 
industry to what our expectations were in terms of sound 
underwriting. They are both important.
    Ms. Jaedicke. I would add that I think it is very important 
for us as regulators to help keep the dialog going between 
banks and community groups. I know at the OCC in the last 5 
years we've held a thousand meetings with different community 
groups around the country, trying to understand what the needs 
are so that we can make better assessments in our CRA exams and 
we can help banks understand what communities need.
    I also think financial literacy is always an important 
issue, and to the extent that we can contribute as regulators 
in those areas I think we should. And I think we need to 
closely look at what's happening in the subprime market and the 
environment we are working in now to see if we can learn how 
people are being affected by the current environment.
    Mr. Davis. Well, let me thank you again, Mr. Chairman. Let 
me thank all of you. I will have to dash away to something 
else.
    But I do want to say that I would certainly agree, relative 
to some of the impact that CRA has actually had, even from a 
personal experience, I actually sat on the board of a bank for 
10 years as a result of my community being engaged to the 
extent that we held up the purchase of a bank until there was 
an agreement with our reinvestment policy, and it has been a 
good experience. And I actually sat there with no personal 
interest in the bank, I didn't own any of the stock and only 
left after I got elected to Congress because I wouldn't have 
time to go to the meetings at all. So I think that CRA has had 
some impact, can have even more; and I think an activated 
community is probably one of the best things that I really can 
think of to help make sure that the concepts really work.
    So I thank you all; and I thank you, Mr. Chairman, again 
for your indulgence.
    Mr. Kucinich. Mr. Davis, it's an honor to have you on this 
subcommittee, because you and I share a passionate commitment 
to people in urban areas, and these economic issues are 
fundamental to people's survival.
    I just heard Ms. Jaedicke talk about financial literacy; 
and, you know, it's a generally accepted provision in the 
marketplace to say caveat emptor, let the buyer beware. People 
buy credit. When you consider the fact that bankruptcies are at 
an all-time high in the United States, that foreclosures are at 
an all-time high, this isn't just a question of financial 
literacy. This really goes to the heart of why we've asked the 
regulators to come before this committee. This is a question of 
your responsibility.
    No one questions the efficacy of the Community Reinvestment 
Act. I was one of the first mayors in the United States to use 
the Community Reinvestment Act almost 30 years ago to benefit--
29 years ago--to benefit a neighborhood in the city of 
Cleveland. You know the efficacy of the Community Reinvestment 
Act is not at issue here.
    We have a crisis in America with people getting tricked, 
having their lives ruined by predatory lenders and by prime 
lenders who are not fulfilling their obligations under the 
Community Reinvestment Act because the regulators don't make 
them do it.
    Now, I just want to go down--so, thank you, Mr. Davis. I 
just want to go down the panel. Ms. Thompson, when is it 
discriminatory practice egregious enough to result in a CRA 
failure? What does it take?
    Ms. Thompson. Well, we think one discrimination is one too 
many. And we do look at the institution's record with regard to 
their lending practices to persons, and we try to determine 
whether or not it is a pattern or practice, and we do require 
institutions to take corrective action.
    At the FDIC, we do have a number--we have four institutions 
that are substantially not complying with regard to their CRA 
rating, and we have about 31 are in the needs-to-improve 
category.
    Lending and discrimination is something that we take very 
seriously at the FDIC. We have an extensive training program 
where we train our examiners to look at fair lending issues, to 
look at community reinvestment, to talk to people in 
communities and get as much information as we can.
    The CRA rating is a huge reputational issue for an 
institution, and we want to make sure that we have all the 
facts that we possibly can to make a decision. Again, we take 
pride in our examination program, and even one violation is one 
too many.
    Mr. Kucinich. I appreciate your saying that.
    I'm going to ask staff here in light of some of these 
comments, and maybe you are already working on doing this, to 
look at the issue of mergers and acquisitions, the growth of 
the value of banks during the period that's under study here to 
see how banks have been able to increase their wealth, their 
holdings while we have seen a commensurate decline in the 
ability of people in the inner cities to get credit. I want to 
take a look at that.
    I would like--I want to go back to Ms. Braunstein. What 
takes an applicant to the point of failure? When is a 
discriminatory practice egregious enough to result in a CRA 
failure? What does it take?
    Ms. Braunstein. Well, I can't--there is no specific 
measurement of that, but I will tell you when we look at their 
CRA evaluation, we are looking at the totality of them serving 
the convenience and needs of their communities.
    As part of that, we do look at whether or not there are 
findings of discrimination. There are cases--we're talking here 
in the case of a red-lining case where there is--that would be 
a very egregious case. However, we find discrimination on 
things like spousal signatures that were required that 
shouldn't have been, which is also serious and we make 
referrals to Justice on this, and that may show up in the 
evaluation. But if it took place in a very small part of the 
institution, maybe with a rogue loan officer, and it is a 
larger institution and otherwise it is doing a good job of 
serving its community, it could be that CRA rating is not 
downgraded in that case.
    Mr. Kucinich. Spousal signatures, OK. What about race?
    Ms. Braunstein. Racial discrimination, we would look at 
very closely and see--I would think that would result in a 
downgrading. I can't sit here--I was sworn in--and say that 
there was no other--there is no possibility of a case where 
that would not--where that would not be----
    Mr. Kucinich. Yeah. Students in class, sorry, your work is 
not good enough. We can't give you a C. We are going to 
downgrade you to a D. Or students in class, sorry, you fail. 
There is a world of difference, is there not, between an 
institution being downgraded and failed on a CRA examination?
    Ms. Braunstein. There is absolutely a big difference.
    Mr. Kucinich. Do you want to explain to the committee what 
the difference is between being downgraded and failed?
    Ms. Braunstein. You can be downgraded from an outstanding 
to a satisfactory, and you are still getting a passing rating.
    Mr. Kucinich. Right.
    Ms. Braunstein. Like from an A to a B.
    Mr. Kucinich. If you failed--somebody fails a test in a 
school, they don't pass the grade, what happens when someone 
fails a CRA examination?
    Ms. Braunstein. Well, it is publicly available information, 
so it causes, you know, a problem for them in that area.
    Mr. Kucinich. Like for example?
    Ms. Braunstein. Well, for one thing, it's an embarrassment 
to the institution publicly. It also does cause them problems 
in the application process, which I'm sure is what you're 
getting at.
    Mr. Kucinich. Right, right, right. So if it causes someone 
a problem in their application process, what does that mean? 
Spell that out a little bit. What would be the implications?
    Ms. Braunstein. Well, the implications would be it would be 
much more difficult for them to expand their operation.
    Mr. Kucinich. To?
    Ms. Braunstein. Expand their operations.
    Mr. Kucinich. Right. And so really would limit their 
growth, correct?
    Ms. Braunstein. It would be a factor that would be 
considered, and it make the hurdle rate much higher for them to 
get an application approved.
    Mr. Kucinich. Right. So what would it take, what would 
someone have to do to really fail?
    Ms. Braunstein. I--every bank is--for one thing, we don't 
do CRA on a bell curve, so we look at each bank in and of 
itself----
    Mr. Kucinich. So it is pass/fail? Is it pass/fail?
    Ms. Braunstein. No, it could be, as is the case, most 
people pass. We're not guaranteeing that there are going to be 
so many failures and so many As on the other end of the curve. 
And it is--this is a rating that is done by looking at the 
totality of the banks serving their community credit needs; and 
depending on the size of the institution, that would also make 
a big difference.
    Mr. Kucinich. OK.
    Ms. Braunstein. If you have one of these huge national 
institutions and they have a problem in one little market and 
then in the other 150 markets they are serving they are doing 
just fine, how much do you weigh that? I mean, there are 
subjective judgments.
    Mr. Kucinich. That's very interesting. Because let's say an 
institution had a little problem in Detroit, let's say, an 81 
percent African American population in the city. All of a 
sudden, the credit dries up. They are serving the rest of the 
area very well nationally with interstate banking. Conceivable. 
Someone could look at an inner city area and be out of it, 
serve every place else very well. Well, we just move on.
    This is what I'm concerned about because everyone on the 
panel here, you only failed 225 banks out of 60,000 plus banks 
evaluated in the past 17 years; and here we have a massive wave 
of foreclosures going on. There's a connection. This committee 
is determined to get to the connection, and someone has to take 
responsibility here. We have all the regulators here.
    Now, I want----
    Ms. Braunstein. Taking discrimination out of it, it is not 
surprising that most banks pass CRA, considering it has been 
around for 30 years, and they know what it is that they are 
supposed to do at this time. In that sense, that is not a 
surprising statistic. When they are told the same thing over 
and over again, most banks get it in terms of CRA at this point 
in time.
    Now, you could postulate that there is something inherently 
wrong with CRAs that banks should, you know, could pass, but it 
is what it is, and most banks do get it. And after 30 years, as 
with most other parts of the examination, whether it is safety 
and soundness or otherwise, banks know what they are supposed 
to do.
    Mr. Kucinich. We are going to move on, but I just want to 
make a comment. This is a copy of the Constitution of the 
United States. Now taking the 13th and 14th amendment out of 
this, there is a lot of people that could pass muster in a lot 
of reviews, but there's a reason why we have protection under 
the law, there is a reason why the Department of Justice will 
inevitably have to go after someone. Because the underpinnings 
of someone's failing a review is a violation of someone's civil 
rights.
    So I want to go to Ms. Yakimov here. What is a 
discriminatory practice? When is it egregious enough to result 
in a CRA failure?
    Ms. Yakimov. We would look at the institution's fair 
lending record. We would look at whether or not we found a 
pattern of practice for material fair lending concerns. That 
would be assessed in our fair lending exam, which is kind of a 
separate function from the CRA exam, but they connect at the 
point we are looking at the institution's record of meeting the 
credit needs, financial services needs of its community.
    So we look at its lending performance, its penetration. How 
much lending does it do in the assessment area, how many 
investments and how many services, depending upon the size of 
the institution. We look at the CRA performance within all of 
that context and then look at whether or not we found problems 
with fair lending and other illegal credit practices. And if we 
find that, in 37 cases since 1990 at OTS we have had these 
downgrades, many needs-to-improve or even worse. So it's----
    Mr. Kucinich. You don't want to fail them, though, do you?
    Ms. Yakimov. Well, no, I don't think that's the case. I 
think our examiners, if they identify failure to meet the needs 
of the community within the CRA context, failure to abide by 
the fair lending laws, that absolutely is something that we 
wouldn't hesitate to act upon and to downgrade the institution. 
So we would look at their whole record and we try to take all 
of that into context.
    Mr. Kucinich. You know, see, what strikes me in this 
testimony so far is that there seems to be an aversion to 
talking about failure. That could be one of the underlying 
reasons why we've ended up with so many foreclosures. With the 
proliferation in the subprime market, with prime lenders not 
having to abide by the letter of the CRA, that this all fits in 
together. Because you just don't want to talk about failure. 
Because there is some kind of a culture here that regulators 
have.
    And this isn't, by the way--this isn't to cast aspersions 
on this group of regulators, because we know in many areas that 
industries have enormous influence in the regulatory process 
all across the economy. So it isn't just like there's a massive 
disconnection here. In a sense, there is a consistency; and we 
appreciate you being forthcoming as you are to try to help us 
work it out.
    Now, I would like to----
    Ms. Braunstein. Congressman, we did downgrade First 
American Bank for red-lining to substantial noncompliance, 
which is the lowest rating.
    Mr. Kucinich. There is a difference between downgrading and 
failing, because what happens is----
    Ms. Braunstein. That failed them. That's the failing grade.
    Mr. Kucinich. OK, that was a failure. Thank you.
    Ms. Braunstein. Yes, yes.
    Mr. Kucinich. Thank you.
    I want to go back to Ms. Yakimov. I want to ask you about 
the Flagstar case. You had a CRA examiner award Flagstar a 
satisfactory grade when a court found Flagstar liable for 
discriminatory practices against minority borrowers. Now is 
that true?
    Ms. Yakimov. Yes.
    Mr. Kucinich. How was your CRA examiner able to give a 
satisfactory grade to Flagstar? How did that happen?
    Ms. Yakimov. Right, it is a more than legitimate question. 
I will share with you what I pieced together as we looked 
through the exam reports and so forth. This is in the public 
performance evaluation. I have a little feedback here.
    Here--our examiners identified a strong record in Flagstar. 
I will give you a couple of examples of the things that they 
identified in the performance evaluation. One was, they 
originated $23.6 million in community development loans. They 
exceeded their peers in lending to low and moderate income 
census tracks and low to moderate income individuals. They made 
significant qualified investments, $2.3 million in 2001; $9.6 
million in 2004. They expanded their branch network, including 
in low and moderate income census tracks; 13 percent expanded 
their branch--their footprint in low and moderate income census 
tracks.
    So we looked at all of that and still--we looked at all of 
that; and our examiners felt that their record, because of--
those were just some examples--and looked at their peers based 
on asset size and determined that normally that institution 
would have been awarded an outstanding CRA rating but because 
of the concern about the litigation we downgraded the rating in 
2001 to satisfactory.
    So our CRA reg--and we are sure the same reg is on this 
point--is that a finding of discrimination or other illegal 
credit practice has an adverse effect. It has an adverse 
impact. It doesn't go as far as--it doesn't go as far as to put 
parameters around there.
    In other words, if you meet the overall spirit of CRA and 
all in the lending, investment and services, the reg doesn't 
take--from the statute doesn't take you from here, outstanding, 
to all the way to substantial noncompliance. It does say it has 
an adverse effect, impact; and that's what happened in this 
instance.
    Mr. Kucinich. And Flagstar was--appealed the decision, 
right?
    Ms. Yakimov. That's my understanding.
    Mr. Kucinich. Even if Flagstar was appealing the decision, 
didn't your examiners find the discriminatory practices we are 
talking about during the CRA examination?
    Ms. Yakimov. The evaluation of fair lending would have been 
dealt with in a fair lending exam, as opposed to a CRA exam per 
se where we bring all the tools and the models to bear in 
assessing fair lending.
    Mr. Kucinich. If I may, wasn't it true that OTS found it? 
It is just a different division.
    Ms. Yakimov. Oh, yes. Oh, yes, absolutely. That's right.
    Mr. Kucinich. So what I'm wondering, if you could help this 
subcommittee, how could your examiners overlook this 
discriminatory practice? Was there deficiency in the 
examination process itself? Was your CRA examiner 
underqualified? Could you let this committee know?
    Ms. Yakimov. Sure. The reg calls upon us to look at the 
extent of the evidence, the quality of the evidence, the 
corrective actions that were taken, the policies and procedures 
to prevent illegal discrimination. Those are all the factors 
that we consider when we determine the extent of a downgrade, 
and so our examiners looked at all that.
    I'm not an attorney, and I especially don't want to say 
anything that's not quite right. But my understanding of the 
litigation in Flagstar's case was that there were two cases, 
one fairly small in terms of a class action, a fairly small 
number of litigants. Most of those litigants were dismissed in 
the first area of litigation. I believe it was 1994.
    The second case again resulted in--resulted from a policy 
that Flagstar put in place to prevent charging minorities more 
than nonminorities. So they had a policy in place that said, to 
my understanding--I am happy to firm this up more, if you like, 
after the hearing, but my understanding in looking at this was 
they said, you know, we want to make sure that we don't charge 
minorities more than nonminorities. So we have a policy where 
we're going to cap the overage, the amount that can go into 
broker compensation, basically, the overall cost of the loan 
for nonminorities at--they are going to potentially be paying 
more than minorities. So it was a case of reverse 
discrimination.
    And so the second case was about reverse discrimination, 
where I think a Caucasian couple had alleged this problem.
    And so, in some instances, you have an institution that has 
maybe made a judgment to change their policy to make sure that 
they didn't discriminate against in minorities and it resulted 
in this policy.
    But to your broader point, we did look at the litigation, 
we looked at the scope of it, we examined their fair lending 
policies, procedures, their HMDA data, and, based on all that, 
we determined that a downgrade was called for, and it did take 
place.
    Mr. Kucinich. I want to ask something. Because we are right 
on this case, and this is somewhat mystifying, and perhaps you 
could help explain it to the subcommittee. Instead of 
downgrading Flagstar, you gave it an outstanding rating. You 
actually gave them a higher grade after a court ruled on 
summary judgment that its written policy was discriminatory.
    Ms. Yakimov. The policy I just mentioned of reverse 
discrimination?
    Mr. Kucinich. I want to know how could that happen? Could 
you explain how that could happen, that they actually failed, 
but they passed?
    Ms. Yakimov. I'll attempt to. We downgraded in the prior 
CRA exam. The 2004 CRA exam did not reflect the 2003 class 
action suit, again a fairly limited scope of affected 
borrowers. What we did look at was the corrective action the 
institution had took, we looked at their overall CRA 
performance, their loan penetration and low moderate income 
census tracks, their service activities, their investments; and 
based on all of that, some of the data that I mentioned 
earlier, we----
    Mr. Kucinich. So you're saying the written vio--their 
written policy was not enough of a violation, is that what 
you're saying?
    Ms. Yakimov. I'm saying that the examiners looked at the 
totality of Flagstar's CRA performance and determined in this 
instance there wasn't a second downgrade. You are right. It 
was--an outstanding rating was given. I would say, Chairman 
Kucinich, that in our examination process there is a level of 
judgment where well-intended, skilled and trained people may 
arrive at different conclusions. I wasn't privy to this case.
    Mr. Kucinich. I understand.
    Ms. Yakimov. But----
    Mr. Kucinich. In retrospect, what does it look like to you? 
You've got someone who--you have a summary judgment, written 
policy was discriminatory. Instead of a downgrade they got an 
upgrade, an outstanding.
    Ms. Yakimov. Right.
    Mr. Kucinich. How does--what does that say?
    Ms. Yakimov. I think it is a legitimate question that 
you've asked.
    My read of the exam reports and talking with the examiners, 
the reason they arrived at the conclusion to award an 
outstanding rating was based on totality of how----
    Mr. Kucinich. And that they promised to take corrective 
action.
    Ms. Yakimov. Well, it was a rendering of their--for 
example, an expansion of their branch network, their overall 
lending activity, their service activity. The sense was that 
this institution, based on its asset size, had an outstanding 
CRA performance. A matter of judgment, given the litigation, 
should there have been a second downgrade? You know, it's--I 
think it's a fair question.
    Mr. Kucinich. Well, do you think that it's a fair 
observation to say that, in this case, the bank wasn't graded 
on its performance; instead, it was graded on what it promised 
to do?
    Ms. Yakimov. No, I don't. I think we looked at their 
performance leading up to that examination cycle. We looked at 
the data, not a promise, but we looked at the data.
    The correction action--corrective action had taken place 
prior to that exam report, the second CRA exam rating.
    Mr. Kucinich. Didn't Flagstar expand its banking operations 
to an additional State as well as to an added metropolitan area 
in the States it was in at this time? And shouldn't Flagstar 
lose its privilege to open new branches, to acquire other 
holdings or merge with other banks, given their record?
    Ms. Yakimov. The CRA rule says a noncompliance needs to 
improve. A failing CRA rating is the trigger point for impact 
with respect to applications. The assessment of Flagstar CRA 
performance did not rise to that level. It was downgraded once. 
It wasn't downgraded a second time.
    And, yes, they had taken corrective actions. For example, 
they eliminated that policy. They made--they reimbursed 
borrowers that were impacted by that reverse discrimination 
policy. And, again, they looked at--our examiners looked at the 
institution's full record with respect to CRA, and that's the 
determination that we came to.
    You mentioned--you asked before about levels. And, yes, the 
examination comes in, there's a review at the regional office, 
there was a determination made that, looking at the totality of 
the performance, that was the appropriate rating.
    Mr. Kucinich. So Flagstar gets an upgrade. Are you ever 
concerned that a case like this could send a signal to the rest 
of the industry: Don't worry, practice discrimination, the 
worst thing that can happen is you get caught, get a slap on 
the hand, higher grade maybe. Does that concern you?
    Ms. Yakimov. What concerns me is that we carry out our 
responsibility with respect to fair lending, with respect to 
CRA and compliance across the board in an effective way that 
looks at the totality of the circumstances. In 37 cases, we 
have made downgrades to our institutions' CRA rating.
    Again, I take your point, though. I don't want to sound 
overly defensive. I think----
    Mr. Kucinich. What we're trying to do is to look at the 
relationship between the role of the regulators, the 
enforcement of the CRA or lack thereof, its implications for 
access to credit, for people in low- and moderate-income 
areas----
    Ms. Yakimov. Right.
    Mr. Kucinich [continuing]. The impact of discriminatory 
lending----
    Ms. Yakimov. Uh-huh.
    Mr. Kucinich [continuing]. The growth of subprime loan 
products----
    Ms. Yakimov. Uh-huh, uh-huh.
    Mr. Kucinich [continuing]. In those same areas, 
implications for predatory lending, the rise in bankruptcies 
and foreclosures.
    Ms. Yakimov. Uh-huh.
    Mr. Kucinich. This is all part of the whole, and we have 
regulators here who I think could play a role in starting to 
give the public a little bit more protection.
    So I'm looking, for example, Ms. Yakimov, between 1999----
    Ms. Yakimov. Right.
    Mr. Kucinich [continuing]. And 2006, according to the 
information the committee has----
    Ms. Yakimov. Uh-huh.
    Mr. Kucinich [continuing]. You only referred two cases to 
the Department of Justice, once in 2001 and once in 2004. Now, 
this could on one hand suggest that the banks that you regulate 
are fair lenders, which is clearly not the case in light of the 
Flagstar case, or it could suggest you are enforcing sanctions 
left and right, or it might suggest that your threshold for 
discrimination is very high and perhaps inconsistent with the 
Fair Housing Act and the Equal Credit Opportunity Act. Which 
one is it?
    Ms. Yakimov. Well, if I may, I'm happy to address that, but 
I did want to go back to----
    Mr. Kucinich. You know what? First answer my question. Then 
go back to what you want to talk about.
    Ms. Yakimov. Sure, that's fine.
    You asked about our record of referring fair lending 
violations to the Department of Justice. The Director, John 
Reich, has been on board at OTS for about 2 years and has made 
it a real commitment in bringing on a team, including myself, 
to take a robust look at how we examine compliance. We've made 
some changes to further strengthen our compliance examination 
program, including a recent action to make sure that our 
compliance examiners are focusing on compliance, making sure 
that we do--we add more tools to look at fair lending, more 
models, more data to manipulation.
    I believe that those actions will result in even more 
robust fair lending assessments, and we have communicated that 
throughout our agency.
    I would say that our examination force is not reluctant to 
refer, but I do believe that OTS, I think for all agencies, is 
the process of continually looking at how to strengthen your 
training, your tools and your focus is important; and that's 
something that we've taken very seriously, including a robust 
look at top to bottom in compliance over the last 14 months. 
We've made a series of changes.
    So I take your point. The data kind of speaks for itself. I 
believe with some additional actions that we've taken that 
there may be more activity in that area.
    Mr. Kucinich. What I would like you to do, since you 
mentioned that you made some changes, and I would ask that each 
of the regulators represented here provide to the committee 
what steps--specific steps that you have taken in light of what 
we've learned over the last few years with the dynamics that 
we're discussing here, the dynamics being questions about CRA, 
the level of CRA enforcement, the access to credit in low- and 
moderate-income areas, foreclosure rates, factoring in subprime 
lending to come up with a--both what you can do from this point 
on to further strengthen the enforcement of the Community 
Investment Act and, based on your experience with that act, to 
inform this committee if there's any changes in the CRA that 
the Congress could make that would make it easier for you to be 
able to perform your regulatory functions.
    Now, if you could do that in our--because the committee is 
going to continue to pursue this matter. And we're not--I'm not 
interested in ``gotcha''. I'm interested in trying to see what 
we can do as a matter of public policy to go from this point on 
to provide some protection for American families who are trying 
desperately to get access to credit. We still--you know, even 
with all the foreclosures, the problem remains. It's 
intensified.
    I just want to go to Ms. Jaedicke here, and this will be 
the last question that I'm going to pose to the members of the 
panel. I want to thank you for your patience here. This is one 
of the most critical opportunities that we have to see if we 
can make any changes that would provide some additional 
protection to American consumers who want to be homeowners.
    According to a 2003 National Training and Information 
Center Study, which looked at the year 2001, 15 of the top 25 
lenders or 60 percent of the top 25 lenders in the United 
States were not strictly regulated by the Community 
Reinvestment Act. Since Gramm-Leach-Bliley, which was 1999, 
depository institutions can acquire a number of financial 
institutions, including insurance companies, security firms, 
mortgage companies. These companies are exempt from the CRA 
because they are nondepository institutions. That means that a 
depository institution which is subject to the CRA can have a 
failure instead, can evade CRA scrutiny. This demonstrates an 
incongruency between the CRA and Gramm-Leach-Bliley. As a 
result, there is no law mandating the majority of most 
significant lenders have to meet the credit needs of their 
communities, and currently no regulatory agency has the 
authority to investigate the lending practices.
    Ms. Jaedicke, who regulates insurance companies, mortgage 
lending companies, security firms and other nondepository 
financial institutions?
    Ms. Jaedicke. There are a lot of different regulators for 
those entities. Depending on if it is a mortgage company, they 
may be regulated by HUD; if they are subsidiaries of national 
banks, they are regulated by us.
    Mr. Kucinich. Now, that is--see, I just pointed out about 
Gramm-Leach-Bliley, that there are nondepository institutions 
that are exempt.
    Ms. Jaedicke. That are exempt from CRA, sir?
    Mr. Kucinich. Yeah. A depository institution which is 
subject to CRA can have affiliates that evade CRA because of 
Gramm-Leach-Bliley, which includes insurance companies, 
security firms, mortgage companies. These are, by definition, 
nondepository institutions.
    So I want to go back to the question. In light of the CRA, 
which is what we're talking about, these firms essentially in 
terms of CRA aren't regulated, right?
    Ms. Jaedicke. CRA applies to depository institutions, 
that's correct.
    Mr. Kucinich. That's the point. Unless somehow they are 
selected to be included in the exam by some, which is unlikely. 
Would everyone agree with that? OK.
    So the affiliates' lending practices if--really don't get 
reviewed if their depository affiliates don't elect to include 
them in the CRA exam; is that correct?
    Ms. Jaedicke. Yes, sir. If the depository institution 
decides to include loans made by an affiliate because they are 
in their assessment area to get positive CRA credit, then we 
also attribute any illegal or discriminatory practices that we 
find.
    Mr. Kucinich. But if they are not going to include them, 
they are not going to be looked at right?
    Ms. Jaedicke. That's correct.
    Mr. Kucinich. So isn't it possible that a CRA-regulated 
bank can move its financial assets to noncovered affiliates to 
reduce its CRA obligations?
    Ms. Jaedicke. It is possible for them to move their assets 
into other affiliate organizations, yes. And it might affect 
the CRA questions and issues. But you have to understand there 
are other regulatory agencies who could enforce the fair 
lending issues or deal with illegal discrimination issues.
    Mr. Kucinich. Isn't it possible for a CRA-regulated bank to 
build wealth in its community while its non-CRA-regulated 
affiliates can strip that same community through predatory 
lending or predatory practices; is that possible?
    Ms. Jaedicke. If the affiliate loans are not included in 
the bank's CRA rating in terms of getting credit for CRA, then 
the illegal practices, discriminatory practices, don't carry 
over.
    Mr. Kucinich. This goes back to the challenge that I posed 
to all the members of the panel, and that is, does the CRA 
adequately reflect today's financial markets? And what I would 
like to hear from you--in writing, really--is whether you think 
the CRA should be revised to better reflect today's financial 
markets. It would be good to hear from you on that.
    Does anyone else on the panel want to respond to that 
question or the underlying spirit of the question? Does anyone 
have anything to say on the record before we move on? Anyone?
    I want to thank this panel. You've spent a lot of time. 
We've been here a few hours now and more than that. And you are 
each individuals who do have an in-depth knowledge of your 
institutions, which favors the work of this committee greatly. 
And I look forward to working together with you on this.
    I appreciate that you're really making an effort here. And 
each one of us represents some face of institutional power and 
responsibility, finds ourselves sometimes at a loss to be able 
to account for the deficiencies in the institutions that we 
represent.
    And so I appreciate your willingness to work with this 
committee, and I want to thank you for the time that you've 
spent. And we'll remain in communication on these issues. This 
panel is dismissed.
    We're going to call the next panel. And again I want to 
thank you so much. Just a very important panel. Thank you.
    We will be calling the next panel to come forward. As the 
panel comes forward, I want everyone to know that this is the 
Domestic Policy Subcommittee. We're continuing our 
investigation of regulatory enforcement of the Community 
Reinvestment Act, and we've had an excellent panel from various 
regulators who assist this committee in its ongoing probe.
    I want to thank the second panel here for its participation 
and for their patience, because we certainly have gone to great 
lengths with the first panel. I thank the members of the second 
panel for their patience in waiting to hear the testimony of 
the regulators.
    In the interest of time, what we are going to do is, I am 
going to make a brief introduction of each member of the panel, 
swear in the witnesses and then go directly to their testimony.
    Mr. Calvin Bradford is a Board member of the National 
Training and Information Center, founded in 1973 as a research 
and technical support provider to National People's Action and 
other community organizations. This is a group that builds 
grass-roots leadership, spearheaded the Community Reinvestment 
Act; and their efforts have resulted in over $1 trillion to 
low- and moderate-income families across the United States 
through their aggressive advocacy on behalf of the public.
    And this is a group that has been involved in more 
community reinvestment agreements than any other organization 
in the country.
    Thank you, Mr. Bradford.
    Mr. Carr. Mr. James Carr is the chief operating officer for 
National Community Reinvestment Coalition, advisory member of 
the Federal Reserve Bank of San Francisco, Center for Community 
Development Investments. He has been with Fannie Mae 
Foundation, director for Tax Policy, assistant director of the 
U.S. Senate Budget Committee, has done work in various 
scholarly journals.
    We appreciate you being here, Mr. Carr.
    Dr. Richard Marsico.
    Mr. Marsico. Mister. I am not a doctor. My mother wishes I 
was, but I am not.
    Mr. Kucinich. I had that same thing for a while too.
    OK, Professor Marsico.
    Mr. Marsico. Marsico.
    Mr. Kucinich. Marsico, professor of law, New York Law 
School and director of the Justice Action Center. Professor 
Marsico's specialty is community reinvestment and fair lending. 
He has authored a book, Democratizing Capital, the History, Law 
and Reform of the Community Investment Act.
    He is a graduate of Fordham and Harvard Law. Thank you.
    Mr. Van Tol--is that correct--director of economic justice 
for Rural Opportunities. It is a nonprofit. It works on 
building assets and providing services for underserved 
individuals in communities in seven States and Puerto Rico, the 
Rural Opportunities, Inc., one of the largest nonprofit, first-
time homebuyer programs in rural United States.
    Mr. Van Tol has been active on the National Community 
Reinvestment Coalition, was president of Fairness and Rural 
Lending which works out of Wisconsin.
    I want to thank you, by the way, for replacing Mr. Irvin 
Henderson, who couldn't join us because of circumstances beyond 
his control. Mr. Henderson did submit his testimony; we are 
going to include it for the record.
    [The prepared statement of Mr. Henderson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Kucinich. But I want to thank Mr. Van Tol for joining 
us on such a short notice and coming in from New York.
    I would ask the witnesses to please stand and raise your 
right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you.
    Let the record reflect that the witnesses have answered in 
the affirmative.
    As with panel I, I am going to ask each witness to give an 
oral summary of your testimony and keep the summary under 5 
minutes in duration. Your complete written statement will be 
included in the hearing record.
    Mr. Bradford, let us begin with you. Thank you.

STATEMENTS OF CALVIN BRADFORD, BOARD MEMBER, NATIONAL TRAINING 
AND INFORMATION CENTER; JAMES H. CARR, CHIEF OPERATING OFFICER, 
NATIONAL COMMUNITY REINVESTMENT COALITION; DR. RICHARD MARSICO, 
 PROFESSOR OF LAW, NEW YORK LAW SCHOOL, AND DIRECTOR, JUSTICE 
ACTION CENTER; AND HUBERT VAN TOL, DIRECTOR, ECONOMIC JUSTICE, 
                   RURAL OPPORTUNITIES, INC.

                  STATEMENT OF CALVIN BRADFORD

    Mr. Bradford. Thank you Mr. Chairman. My oral statement is 
actually in my written statement as well, so I would like to 
take my 5 minutes to address a couple of issues that didn't 
come up before that I think need some attention.
    First, I guess I would like to respond to some of the 
Flagstar issues, because I was an expert in both of the 
Flagstar cases that came up. And I'm kind of disappointed that 
at this point, after the OTS has been asked about this since 
2002, that they still don't seem to understand the case.
    The first case wasn't just a couple of applicants. There 
was also a suit filed against them, based on testing, the 
Pattern and Practice case that they settled out of court. And 
the reinvestment activities that the bank was given credit for, 
that you mention, to compensate them for their record, were 
actually things they had to do because of the settlement in 
Detroit--opening branches and doingreinvestment that they 
wouldn't have done on their own.
    And, second, the Written Policy Statement case. In the 30 
years that I've been doing fair lending work, I've never seen a 
case or an institution manage to make a plaintiff out of ever 
single person who applied for a loan, but that's actually what 
they did.
    It wasn't a small case. It involved the entire Nation. It 
was a written policy for their entire mortgage operation. And 
what happened was, applicants had a case because they were 
charged too much for loans.
    It also turned out that the African American applicants had 
a case. Because the brokers couldn't charge them as much for a 
loan, they didn't make as many black loans as they did before, 
and so they were discriminated against too. And for the OTS not 
to understand what a fundamental violation that is of the Fair 
Housing Act and to come here, I think, and to try and defend it 
as something positive the bank was doing is so fundamentally 
wrong that it makes you concerned about whether they even 
understand what the Fair Housing Act is all about.
    The second issue, I guess I think we could spend a little 
moment on, is talking about the affiliate issues because we 
could cover that a little more.
    For one thing, if you look in the CRA process, a lender can 
choose to include the affiliates in the analysis, so they would 
be included. But then when you look at the fair lending record, 
the regulators look at the fair lending exam, the fair lending 
exam specifically excludes anything about the affiliates. In 
fact, they are prohibited from even talking to the affiliate as 
part of the exam process. So you've got another incongruity 
there about these things matching up.
    Now, in my own testimony, I realize that, just using 
Citicorp as an example and not claiming there's something wrong 
with their lending, you see some issues about the affiliates 
that relate to the representative of the Comptroller's 
comments. Just because the affiliate is included in the CRA 
exam doesn't mean that it got a fair lending review.
    Because of the way they look at it--for example, there's a 
Citigroup company called Citicorp Trust. Citicorp Trust makes 
thousands of only subprime loans across the United States; its 
only community reinvestment area is Wilmington, DE, but it 
operates nationwide. So its CRA exam only covers Wilmington, 
DE. It works through Primerica, the largest financial services 
company in the country, which is part of Citigroup. And it only 
makes refinanced loan consolidation, debt consolidation, 
refinanced loans; and it has a special office which is 
mentioned in the CRA exam by the OTS, whose sole purpose is to 
solicit existing customers, essentially flip the loans.
    I'm not saying they did something wrong on these loans, but 
they give them an outstanding rating because they had more 
loans in low-income neighborhoods than any other lender. But 
that's precisely the concern we have had about subprime loans; 
there are too many of them in low-to-moderate-income 
neighborhoods.
    So in the CRA exam process they make no effort to look at 
the nature of these loans and the way they were marketed and 
the substance of these loans. So even when the affiliate loans 
are included, they may be included in this process in a way 
that's really detrimental to the community.
    And the other issue I discovered was that even though this 
company makes thousands of loans, one of the largest subprime 
lenders Citibank has around the country, when other Citigroup 
subsidiaries, savings and loans and banks, elected to include 
all their affiliates, neither the OCC or the OTS ever included 
the loans of Cititrust, this big, major subprime lender, it 
seems to me, a clear violation of the rule that you are 
supposed to include them.
    In Chicago, for Chicago's Citicorp Savings bank, that 
actually meant that in their CRA areas, in 1 year, 85 percent 
of the subprime loans were not included; and for the next year, 
it would have increased the level of subprime loans by over 600 
percent had they included this affiliate. So they are just 
plain not included, and it seems to me we should be concerned 
about that.
    So I would have those issues.
    The other issue I'll mention just before I stop is that if 
you look at the CRA exams, in the fair lending part it says 
that you're supposed to look at the fair lending exam. If you 
look at the fair lending exam, it tells you to go look at the 
CRA exam. The CRA exam you're supposed to look at because it is 
going to tell you if there's racial discrimination.
    But under the CRA, there's no analysis done by race, so it 
couldn't possibly tell you about race discrimination. And these 
have been on the books now for over a decade. And you would 
think that agencies that seriously were concerned about fair 
lending would have eliminated this obvious and clear 
incongruity in these kinds of things.
    So I'll just end there because I know you have the whole 
written statement. Thank you.
    Mr. Kucinich. Thank you, Mr. Bradford.
    [The prepared statement of Mr. Bradford follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Mr. Kucinich. Mr. Carr.

                   STATEMENT OF JAMES H. CARR

    Mr. Carr. Good afternoon, Chairman Kucinich. On behalf of 
the National Community Reinvestment Coalition and our 600 
community nonprofit members across the country, we are honored 
to have the opportunity to speak to you today about this 
important act.
    Since its enactment in the late 1970's, the Community 
Reinvestment Act has leveraged more than $4.5 trillion of loans 
and investments to families and individuals in the communities 
that have been most challenged in accessing credit. And lots of 
organizations, including Harvard University, and key Federal 
agencies, including the Treasury Department and the Federal 
Reserve, have concluded that those loans were done in a safe 
and sound manner.
    Those investments have helped to build homes, launch or 
expand small businesses, build important community facilities 
and grow the wealth of otherwise financially vulnerable 
families. Yet despite all of its success, the goals of CRA have 
yet to be fulfilled.
    Between 9 to 22 million households do not have a 
relationship with a major bank or savings institution. At the 
same time, millions more only have tenuous ties. And over the 
past decade and a half, high-cost lending has grown 
exponentially, disproportionately in moderate-income and 
minority communities.
    Since 1993, for example, payday lending has grown from a 
modest 300 establishments to more than 25,000 to date. And we 
all know the story of subprime lending and, particularly, 
predatory lending and the disproportionate impact it has on 
minority and low-and-moderate-income communities.
    In my written testimony, I highlight six recommendations 
that, if enacted, could greatly enhance the effectiveness of 
CRA to increase credit and capital and other banking services 
to disadvantaged communities; and they include such things as 
mandatory inclusion of nondepository affiliates and CRA exams, 
as well as the inclusion of institutions such as credit unions 
and mortgage companies under CRA. We recommend a series of 
provisions related to fair lending examinations, specifically, 
as well as a number of recommendations related to the 
assessment areas and how those procedures are developed.
    In conclusion, let me just say, the consumers that function 
outside of the financial mainstream often operate in a cash or 
informal economy. A large and growing informal economy is not 
in the best interest of America. Financially stifling 
homeowners with unfair, unreasonable or otherwise deceptive and 
costly mortgage products is not in the interest of America. 
Families with negative savings rates are not in the interest of 
America. Communities unable to tap the credit markets for 
responsible and critical community facilities is not in the 
interest of America.
    In 1960, Mr. Chairman, we put a man on the moon. It is hard 
to believe that 40 years later we can't put a consumer in a 
bank. In many respects, it is not a lack of will; rather, it is 
a lack of want, and that is a want to achieve on this important 
goal. It is not a dearth of financial expertise; rather, it is 
a lack of appreciation for the value of achieving that goal.
    Achieving the goals of CRA are in the best, long-term, 
future interest of America, of our economy, of our society. But 
those interests cannot be measured by quarterly earnings, the 
principal gauge which businesses use to determine opportunity.
    As a result, in addition to repairing the fabric of CRA so 
that it can achieve its important mission, we also turn to you 
and encourage you and ask that you work with us to help inspire 
the business community to do what currently it is not doing. 
And that is inspiring them to reach out and affirmatively want 
to help to improve markets that don't function effectively in 
this country.
    At the end of the day, we know that when America is 
inspired, it will achieve. We put a person on the moon because 
we decided we needed to do that, and we were committed to it, 
and we did it. There is nothing stopping us from succeeding in 
our goals on CRA except the will and the want and the 
understanding that it is in the national interest.
    And with that, I'll conclude; and I'm prepared to answer 
any questions you might ask.
    Mr. Kucinich. I thank the gentleman.
    [The prepared statement of Mr. Carr follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Mr. Kucinich. Professor Marsico.

                  STATEMENT OF RICHARD MARSICO

    Mr. Marsico. Thank you. As I was listening to the 
testimony, I found myself writing and rewriting my own oral 
testimony until finally I've thrown it out, and I have really 
two points that I would like to make.
    And the first point is that one of the problems with the 
CRA performance evaluations not reflecting bank performance is 
that the agencies have too much discretion in evaluating banks 
and generally tend to exercise it in a way that overstates or 
overrates bank performance.
    No two CRA performance evaluations look alike. The agencies 
have discretion about the criteria they will use to evaluate 
bank lending, the benchmarks they will use to measure whether 
the banks have satisfied the criteria, and how to evaluate 
whether the banks have satisfied the criteria or not.
    So, for example, a performance evaluation might state it is 
going to look at the percentage of loans that the bank made to 
low-and-moderate-income neighborhoods. It will compare that, 
for example, to the percent of such loans by all lenders in the 
community. And then it will sort of say, the bank is closed, 
the bank didn't quite make it, the bank didn't quite reach or 
maybe the bank did do a little better than the benchmark.
    But there's no sort of definitive statement of whether the 
bank has satisfied the criteria or not; and as a result, the 
agencies tend to ignore bank performance that does not meet the 
criteria that the performance evaluations have established. So 
they have this discretion to decide not only what criteria to 
look at and what the benchmarks will be, but then when the bank 
doesn't meet the benchmark, they have the discretion to say, 
well, that's OK we're not going to hold that against the bank 
and it will get passing grades on the performance evaluation 
anyway.
    So one thing I would urge the subcommittee to consider is 
whether there should be a standard set of criteria to use to 
look at bank lending, a standard set of benchmarks; and then 
requiring the agencies to make definitive conclusions about 
what happens when a bank does not meet those benchmarks.
    The second point I would like to make is that there has 
been a lot of discussion about the fact that the agencies may 
not be taking into account in the CRA evaluations the results 
of the fair housing and equal credit evaluations that go on 
separately from the CRA evaluation. And I want to make another 
related point, which is, the agencies do not evaluate lending 
by race in their own CRA evaluations.
    They evaluate lending by income, but they do not evaluate 
lending by race, the justification for this being that the 
community reinvestment statute says the banks have an 
obligation to meet the credit needs of their entire communities 
including low-and-moderate-income neighborhoods.
    The agencies have apparently seized on that to say, 
therefore, we don't look at race when we do these reports. I 
tend to disagree with that. I believe there is sufficient 
legislative history that would support a showing that Congress 
was also worried about racial redlining, not just income 
redlining, and therefore the agencies should take race into 
account when doing their CRA evaluations.
    And the failure to take race into account has some very 
significant consequences. For example, you won't see in a CRA 
performance evaluation report, generally, any statistics that 
would compare a bank's subprime lending on the basis of race. 
You won't find what we might call ``disparity ratios'' in there 
that compare the percentage of African Americans who receive 
subprime loans or the percentage of whites who receive subprime 
loans, because they don't look at race.
    So the evaluation report can show a lot of lending in low-
and-moderate-income neighborhoods, but might not show that 
lending might be because they are making a lot of subprime 
loans and that those subprime loans may be disparately 
distributed based on race.
    So my two points would be, simply create some more 
accountability in the CRA exams by establishing set criteria 
and benchmarks and what will happen if the banks don't reach 
the benchmarks, and require the agencies to consider lending by 
race when they do their performance evaluations.
    Thank you very much.
    [The prepared statement of Mr. Marsico follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Kucinich. Before we go to Mr. Van Tol, I would just 
like the committee to take note of something that Professor 
Marsico just said. I think it would be helpful if we put some 
statistics side by side: the number of subprime loans, the 
number of loans generated in an area, the percentage of those 
loans that went to minorities as prime loans, the number of 
subprime loans that were generated, the percentage that went to 
minorities.
    Now, we've done half the equation, I think, already for 
this committee. But I think it would be helpful if we put them 
side by side because that would then get to your question. And 
then, of course, you look at the number of CRA reviews and the 
number of favorable reviews, number of unfavorable reviews, and 
then we know where it goes from there.
    So I just wanted to just stop the music for a second. Let's 
go back to Mr. Van Tol.
    You are recognized. Please proceed.

                  STATEMENT OF HUBERT VAN TOL

    Mr. Van Tol. Good afternoon Chairman Kucinich and 
Congressman Cummings. My name is Hubert Van Tol, and I'm the 
Director for Economic Justice for Rural Opportunities, Inc., in 
Rochester, New York. Thanks for the opportunity.
    Our organization is a member of the National Community 
Reinvestment Coalition, and we support the comments and written 
statement of Jim Carr on NCRC's behalf. Today, I want to speak, 
however, as a long-time grass-roots CRA activist who has found 
and still finds the CRA law an enormously powerful tool for 
individuals and organizations that do grass-roots community 
development work.
    In my limited time today, I'll just touch on the way that 
discrimination in lending has become more subtle and more 
damaging, and the failure of the regulators with their use of 
the fair lending exam and the CRA exam to keep up with the 
changes in lending.
    I first became aware of the Community Reinvestment Act in 
1985 while working for a local community development 
corporation in Memphis, TN. At that time, discrimination in 
access to credit was raw and blatant. For instance, we found 
lenders whose mortgage underwriting guidelines explicitly 
stated that they would not lend in areas of incipient decline. 
Their guidelines specified minimum loan amounts that excluded 
most of the houses in the African American neighborhoods in 
Memphis.
    Mr. Kucinich. Would you state that again?
    Mr. Van Tol. Their guidelines specified minimum loan 
amounts that would exclude by their size. There were $35,000 
and $50,000 minimums, and in effect, the houses in the African 
American neighborhoods were selling for less than that at that 
time. So they would not lend to those areas because they didn't 
meet their minimum loan guidelines.
    There was bad home mortgage disclosure data. For instance, 
in the case of one company, they showed the loans in inner-city 
Memphis averaging $1 million apiece. This is 8 years after the 
passage of the CRA and 10 years after the passage of the Home 
Mortgage Disclosure Act. And the regulators on their own had 
not come to the conclusion that there were any problems with 
that.
    So it took community organizations like us really pounding 
on them and using the bully pulpit and tool of public relations 
for a year before the regulators began asking questions. And I 
think you're seeing an aspect of the same phenomenon now. It 
depends on the leadership at the top and how their attitude 
toward consumer regulation happens.
    In 1986, our organization attempted dialog with the banks, 
but we didn't really have dialog until the regulators got in 
there and failed--well, they didn't fail them on their CRA 
exam, but in two cases we had them deny mergers and a new bank 
branch application, and that created the impetus for real 
change to happen.
    But today, the discrimination for the most part doesn't 
involve access to credit, which was the issue then, but rather 
the fact that minority neighborhoods are really targeted with 
inferior loan products, high fees, high interest rates, 
unfavorable terms. They are targeted regardless of the credit 
scores of the individual borrowers within those neighborhoods. 
And when a group of people are targeted for bad financial 
products, it creates a cascading effect, a self-fulfilling 
prophecy, if you will, as they are so risky loan products 
which, over time, put stress on their financial situations and 
have the practical effect of driving down their individual 
credit scores and making them, ``riskier borrowers.''
    And the banks have really facilitated this shift by doing a 
poor job of marketing in those neighborhoods, removing their 
branches from neighborhoods. They provide the lines of credit 
used by the brokers and the mortgage lenders. Some of them 
service those subprime loans. The investment bank cited, the 
bank often is securitizing those loans even while they are 
proudly saying that the retail division doesn't do subprime 
lending. So when a bank's fair lending examination is done, 
there's no public indication that this entire range of bank 
involvement in a subprime market that targeted at minority 
borrowers is looked at. And in spite of the efforts of 
community activists, it is rare that a bank service an 
investment test, and the CRA exam itself looks at all of these 
issues in a comprehensive way.
    This has been the single most egregious area of 
discrimination in lending over the past decade, this targeting 
of inferior loan products to minority neighborhoods, and it has 
really been the marketing that's been a tremendous problem.
    In the 2\1/2\ years that I have been working for Rural 
Opportunities which, as you said, does work in seven States and 
Puerto Rico and is one of the largest rural operators of the 
first-time homebuyer program, there have been no visits to me 
by a CRA examiner, or to my organization, to ask us what our 
opinion is of the banks that they are about to do CRA exams on. 
And I think it just reflects the fact that they have become 
much more lackadaisical about this.
    There is this attitude that works its way through the 
bureaucracy and the banks quickly lower their standards to the 
minimum needed to get a passing grade.
    Thank you very much.
    [The prepared statement of Mr. Van Tol follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Kucinich. Thank you.
    Just to put this in context, I happen to be the Chair of 
the Domestic Policy Subcommittee. It is a committee that has a 
pretty broad reach in every area in the government with the 
exception of affairs governing the military and most of the 
State Department.
    Years ago, 30 years ago, I was mayor of a city; I was 
elected mayor of the city of Cleveland. I could see the kind of 
effects, beginning to percolate back then, of people not having 
access to credit, which is why when at the first opportunity 
the city of Cleveland, under my administration, pursued an 
action under the CRA against an institution in a neighborhood 
known as the Kinsman neighborhood in Cleveland, Kinsman/Mount 
Pleasant. And we saw community groups participating because 
they were the first ones that had the information about what 
the lack of access to credit was doing.
    And it wasn't just for credit for the purposes of home 
ownership; it was credit for small businesses, because people 
are trying to engage in some commerce in a community.
    So I just want you to know that what you brought here, just 
as individuals, is highly respected in terms of the commitment 
that you make with your life in looking at these issues which 
are so devastating on a personal level. Because we sometimes 
get lost in the minutia and broad, quantitative assessments 
that can be very devastating.
    But when you take it down to an individual level, somebody 
has great hopes: They are finally going to get a chance to own 
a home, and somebody markets a loan that turns out to be 
predatory. OK, no documents? Wow, we're going to have our home. 
And we know what happens from there. I mean, this thing is so 
broad it has caused a shakeout on Wall Street--not a small 
matter. You know, from Main Street to Wall Street we see what 
happens.
    And, Mr. Bradford, deliberate subversion of the CRA, 
deliberate effort to circumvent Federal fair lending laws, what 
do you think?
    Mr. Bradford. I'm not so sure. I don't know if it is 
deliberate, but--it is more inconceivable, I guess, from my 
point of view. These agencies have the regulations in the 
examination procedures that say, you should look for redlining. 
They tell you how to do it. They say to look outside the 
assessment area to see if they include them, and then they 
don't do that.
    I think another example--again, from the OTS--that is of 
concern, I think people have been suggesting that if there's 
any kind of concern about discrimination, it shows up in the 
public evaluations. And that's not true. The agencies are very 
protective of the internal examinations they give them. And I 
know in a couple cases I've been involved in, where attorneys 
have asked the agencies for copies of those, they've not only 
not given them to them, but threatened to go to court if they 
tried to use them.
    Mr. Kucinich. So the agencies protect the lenders?
    Mr. Bradford. They do.
    But in the Flagstar case, the internal exam was submitted 
as part of the trial record, so I can talk about that because 
it wasn't my responsibility.
    Mr. Kucinich. Please do.
    Mr. Bradford. And at that examination the OTS identified an 
appraisal practice that Flagstar had that had a minimal 
appraisal amount, and they wouldn't make any loans to anybody 
below the appraisal amount, which is pretty much like what you 
were saying before. It is the classic kind of discriminatory-
effect policy, not only that the OTS had done a systematic 
analysis of the HMDA data and the census data to show the bank 
that this had a disparate impact on minority neighborhoods; and 
yet when it came to the public evaluation, they had that 
standard little clause that they could find no violations of 
the Fair Housing Act.
    Well, that just wasn't correct because they had in great 
detail shown these to the bank and required the bank to do 
something about it.
    So there's always that. And I've seen it in other cases I 
can't talk about, because they weren't a public trial record; 
but I've seen it over and over again, that there are issues 
like that come up that the public doesn't know about. And so 
that gives me concerns.
    I think, as I said in my testimony, they sort of treat the 
regulations like a kind of regulatory signing statement; that 
we don't care what the Justice Department thinks fair lending 
is, we get to reinterpret it ourselves.
    And in the case of Old Kent that you were going through, 
for them to say, well, it is a reasonable area because now, 
after 1995 when we changed the definition of ``delineation of 
service area,'' we said you could keep defining these little 
areas where you made your loans around all your offices and 
that would be OK. And so, in the case of Old Kent, you just 
kept opening offices in the suburbs and making your little 
circles around them; and when you put them all together you 
grieve the city of Detroit, but you didn't serve the city of 
Detroit.
    And they said, well, that's an OK business practice for the 
bank. But in their fair lending examination, they say that 
would be a disparate impact; and the only defense for a 
disparate impact is a business necessity, a compelling business 
necessity. The OCC says it can't be hypothetical, it has to be 
real, it has to be impending.
    South Shore Bank's only assessment area--it is called Shore 
Bank now--in the city of Detroit, whatever bank is the city of 
Detroit. They make lots of money, they get outstanding ratings. 
So evidently you can do business in Detroit in a profitable 
way. So what would the business necessity defense be for Old 
Kent or anyone else; or in America Bank in Chicago or First 
Bank in Chicago, both of whom had these amoeba-shaped areas in 
the suburbs? It is inconceivable to me that the regulatory 
people don't understand their own regulations and don't 
understand the fair lending laws.
    So I guess they feel they are above the civil rights laws.
    Mr. Kucinich. Because in your written statement you said 
that the CRA intended to prohibit discriminatory practices 
based on race as well as income, but today only expressly 
prohibits discrimination based on income.
    Mr. Bradford. That's right. That's because at the time when 
Proxmire was proposing it and we were working on the language, 
ECOA had just been passed the year before and the Fair Housing 
Act had been in effect for a while and there had already been 
all these redlinings. HMDA was just passed the year before 
that. We were told by the congressional aides and by the people 
drafting the legislation that it would be just redundant to put 
that in the act, everybody understood that was there.
    But there's no Federal protection by income, so they said, 
we'd better put that in the legislation because even though 
race is clearly already covered, income wasn't. So that's why 
that survived in the act.
    Mr. Kucinich. So how would the CRA be enhanced if 
regulatory agencies automatically failed banks that have 
discriminatory and other illegal practices?
    Mr. Bradford. Well, I'll give you an example. If you looked 
at Flagstar Bank during the period these violations were taking 
place, they went from an institution of $500 million to an 
institution of $13 billion; that is, they increased their size 
by 26fold because they had the privilege of inquiring and 
branching and merging with people during this time.
    And if they'd failed the CRA, they probably wouldn't have 
had that privilege. So that's a pretty serious issue for a 
lending institution.
    Mr. Kucinich. That's actually the same question, sensitive 
question, I asked the representative of the Fed. Because if you 
get failed at that first level when your worth is $500 million, 
you don't get to $13 billion.
    Mr. Bradford. Well, that would be, what we all believe 
would be the case.
    Mr. Kucinich. Well, but the point is, that is, if there is 
an active regulation and people are failed or something else 
happens.
    And that is that the volume of access increases to people 
in an underserved population, low-and-moderate-income areas, as 
well as by virtue of definition, people of color.
    Mr. Bradford. Right. But the intention of the act at that 
time, which I think still holds true, was to increase the 
access to prime lending and to target prime lending, not to 
just increase the access to FHA loans or subprime loans.
    Mr. Kucinich. No. I understand that. Good point, 
absolutely. I'm glad you pointed that out.
    But since today people of color end up, more often than 
not, being in that low-and-moderate-income area, they have a 
disproportionate--a disproportionate burden if the CRA is not 
enforced.
    And so, Mr. Carr, I wanted to talk about your testimony. 
You discussed how banks make a significant amount of loans 
outside of their assessment areas and therefore go undetected 
by Federal regulatory agencies. How can that be legally 
possible? Could you explain that?
    Mr. Carr. Yes. In fact, because the procedures that define 
assessment areas generally require that a bank report within 
the areas, which are defined as its assessment areas in which 
it has CRA-covered institutions that have locations, the 
general location around their bank branches, and so to the 
extent that institutions are allowed to, they have affiliates 
that are not covered.
    In one particular study which we examined, four major 
banks, we found that as little as 11 to 13 percent of the total 
lending actually was covered, was concluded to be covered, 
because the institutions were not included in the review, the 
mortgage lending institutions were not included in the review. 
And what that does is greatly undermine any effectiveness of 
CRA enforcement for that lending activity.
    Mr. Kucinich. Mr. Carr, presently, banks, regulatory 
agencies are only describing banking lending activities in one 
to three sentences.
    How can community groups benefit from a more detailed 
description of the fair lending review in the CRA exam?
    Mr. Carr. Well, that is one of the more odd and unusual 
circumstances in a major change from the 1990's in which, in 
fact, the Federal agencies used to provide detailed information 
about the types of statistical tests that were employed. Was it 
matched, peer testing, etc.; what types of statistical models 
were used, and on.
    Today, the reviews are often in a sentence that just simply 
says that a bank has passed its fair lending test. And what 
that does is, it disallows community organizations and civil 
rights attorneys and others who might have an interest in the 
act to actually explore what exactly was done, to comment as to 
whether there are things that were clear omissions or where 
improvements in those examinations could take place.
    Mr. Kucinich. Thank you.
    Professor Marsico, in your written testimony, you mention 
that community groups and banks can enter into CRA agreements 
which are designed to redress weaknesses in the bank's CRA 
lending records. In your opinion, do corrective actions agreed 
on by the banks and their Federal regulators achieve the same 
goals?
    Mr. Marsico. I have not seen any of those corrective 
agreements. I don't believe that they are made public. And I 
think one of the people today referred to those agreements, and 
I don't think mentioned that they are made public, which, if 
true, is a problem. Because one of the reasons that the 
agreements between the lenders and banks and community groups 
work is that they are publicly made and they are agreed upon, 
and they have monitoring reports that are issued publicly and 
periodic meetings with the community groups to show what they 
are doing.
    Mr. Kucinich. So you're saying the very lack of 
transparency on agreements between banks and Federal regulators 
can constitute a subversion of the principles of the Community 
Reinvestment Act.
    Mr. Marsico. Yes, I believe it should all be transparent. I 
don't why the results of the fair lending exams are not made 
public. The CRA performance evaluations are made public.
    Frankly, it is very odd when you get to the fair lending 
portion, when it says the results of the exam showed no 
violation yet, they don't show you the results when they've 
just gone through 100 pages of information about the CRA record 
of the bank.
    Mr. Kucinich. I'm going to come back to you, but I want to 
introduce a member of our panel who has been an outstanding 
representative on so many economic issues affecting urban 
America.
    Mr. Cummings and I have worked on a broad range of social 
and economic concerns relating to access to credit, health care 
infrastructure. I want to introduce the distinguished gentleman 
from Baltimore, Maryland, Elijah Cummings.
    Thank you, Mr. Cummings.
    Mr. Cummings. Thank you, Mr. Chairman. I have only a few 
questions.
    As I was sitting here, gentlemen, I was thinking when 
you're an African American in the position that I'm in and you 
talk about race, or even if you're white and talk about race, 
and you say that people are being discriminated against and 
suffering, do you know what people usually say? They usually 
say, Here they go again, here they go again, it is all their 
fault. And when you come with the kind of evidence that you 
presented here today, I mean, you're actually laying it out 
there. This is it.
    And I was thinking to myself, a few years back we had a 
woman who is now a bishop in the AME Church, Bishop Vashti 
McKenzie. In Baltimore, one of the things that she did is, she 
began to look at what the banks were doing. And she, I think, 
saw, for example, that maybe African Americans were not getting 
the loans that they were rightfully due, and started looking at 
a number of issues.
    And so what she did was bring the churches together; and 
they said, basically, if you want to do business with us--and 
they had about, I can't remember how many churches; probably 15 
to 20 churches, thousands of people--you've got to come right.
    This is where I'm going with this. I'm trying to figure 
out, how does the--first of all, most people who are being 
victimized don't even know they are being victimized. And I'm 
trying to figure out a two-track solution.
    One track is, how do people come together and do things 
similar to what, say, the church did; that is, try to come up 
with a remedy where they force these banks to pay attention? 
Because I can tell you, I live in the inner, inner, inner city 
of Baltimore, and there are no banks. I mean, to get to a bank, 
I have to go at least a mile, about 2 miles to get to a bank; 
and that's not unusual.
    I'm trying to figure out--you know, I really want to 
believe in government, and I do to a degree. But government 
takes so long to get stuff done. And I'm trying to figure out, 
if I'm talking to my community people and they want to organize 
and figure out ways to make the whole purpose of CRA do what it 
is supposed to do, what do they do?
    And then, on the other hand, what do we do in trying to 
tighten it up on this end? Anybody? Do you all understand the 
question?
    Mr. Bradford. I'll give a couple stabs at it.
    One of the things that's discouraging is, the regulators, 
in 1995, they took out some of the assessment factors that 
included the community. They essentially cut the community out 
of the CRA process, because they eliminated looking at how the 
lenders assessed credit needs. And so they made this a kind of 
a private deal between the regulators and the banks.
    And then, in 1999, as part of Gramm-Leach-Bliley, you got 
the ``sunshine''--what we refer to as the ``sunstroke''--
provision, which was really designed to intimidate community 
groups to say, if you participate in making any comments and 
then you make an agreement with the bank, we're going to hold 
all these sanctions against you; but we're not going to make 
the bank do anything or enforce anything, we don't even 
recognize the agreement as existing, but we could take the 
money away from you and prohibit you from the CRA stuff for 10 
years.
    I don't even know if that fits the equal protection clause 
in the Constitution, but--that provision of Gramm-Leach-Bliley.
    And then the Federal Reserve expanded that in the 
regulations, and they said the definition of ``agreement'' is, 
if you go and talk to a bank and say, We want these four types 
of loans; and then, later on, without ever talking to you 
again, the bank has a press conference--and this is an example 
they actually used in the regulations--and they identify those 
four types of loans. Even though they are not going to do them 
the way you want it, the regulators and the banks can declare 
that an ``agreement,'' and they can impose all these sanctions 
against you even though you not only didn't sign it, but you 
probably don't even like it.
    I mean, this is sort of congressionally mandated harassment 
of the community people who are supposed to be involved, and it 
has scared a lot of people off. There are a lot of brave people 
on this panel and in Cleveland and Massachusetts who have stood 
up against it, but it is a threatening tactic.
    It is embarrassing to have my government do that to the 
very people who have created the agreements. And these 
agreements have been the basis of the most creative forms of 
reinvestment in our country. That's where--outside something 
like South Shore Bank, that's where all the best programs came 
from, the most creative programs.
    In Baltimore, you've got to have mixed-use stuff because 
you've got businesses and residential together. Banks didn't 
want to do that, so you had to create special programs. And 
neighborhoods did that. They wanted to have stuff for side-by-
sides and duplexes because a lot of housing was that way, and 
banks only wanted to do single family; and so they had to 
create those programs themselves. I don't have to tell you 
about it, because Baltimore has one of the strongest histories 
of this kind of development activity that we ever had.
    The first study that led to the HMDA Act was actually the 
study in 1973 in Baltimore. So I understand what you're coming 
to.
    I think we've gotten to the point where you have to amend 
the Community Reinvestment Act, to tell the regulators some of 
the things that they have to do, because their discretion is 
never going to work. I think, as the chairman found out before, 
they can't pull the trigger. No matter what you do to violate 
the fair lending laws, they just can't bring themselves to pull 
the trigger and give you a failing grade.
    So the law has to be changed to say, you have to include 
the assessment of whether there's a disparate minority impact; 
you have to decide, if people violate the law or do that, they 
fail. You have to include all the affiliates and what they are 
doing in your assessment. If any affiliate discriminates, then 
the entire bank fails at CRA, even if that affiliate is in 
California. We don't care where they are. You violate Federal 
laws in this country, you lose your banking privileges, period.
    You've got to lay it all out to them because they just 
don't get it. And then that will give the community people the 
chance to do these things because I've been in it for almost 40 
years.
    Mr. Cummings. How long?
    Mr. Bradford. Almost 40 years, before there was a CRA 
working with these things.
    And nobody has figured out how to serve community needs 
like the community. And I've evaluated these reinvestment 
agreements, and I know other people on the panel have looked at 
these too.
    And this is the most creative kind of stuff. We intended, 
when we passed the CRA to create a development banking 
industry. And it was only going to happen if the community 
people came into it because the banks had no idea how to do it.
    We've got the World Bank and everything else to help other 
countries. We had nothing for the United States.
    And we had South Shore Bank, and we had pretty impressive 
agreements early on, but if the regulatory agencies just sort 
of abandon this thing, we are losing the strength, and it has 
all come from the community people.
    Mr. Cummings. Let me just ask you this. What part does the 
Federal Reserve play in all of this? If any, I mean.
    Mr. Bradford. They are the key. They write the regulations.
    Mr. Cummings. And they have a lot of say?
    Let me tell you why I'm asking this. When we--I also serve 
on the Joint Economic Committee, and when we were dealing with 
subprime--we are still dealing with the subprime market and the 
abuse. We wrote to Bernanke and asked him to lay out some 
guidelines with regard to avoiding making--we were trying to 
make sure that people were protected as best the Reserve could 
do with regard to these subprimes. And I am just wondering--you 
know, I am trying to think of all of the different kinds of 
methods that we can go at this thing.
    Because you know what I am afraid of is that--I can almost 
fast forward--in 20 years a whole different set of people will 
be here. Some of us will be in rocking chairs. And it will be 
people who have been denied what the law said they should have 
gotten, and then it will also have hit another generation, and 
we will be going through the same stuff.
    And I am just trying to figure out how do we--I hear you, 
but how do we put brakes on this--and, actually, you know--
cause this gets kind of complicated, you know. And so, people--
they lose their attention with regard to this kind of thing, 
because a lot of people don't have a clue of what CRA is.
    So--but, you know, just--and I will turn it back over to 
you, Mr. Chairman. I am just trying to figure out how do we 
move from square one so that we can actually have some impact--
I just want to finish this--so that we actually have kind of 
impact? Because I mean we can wrestle and wrestle and wrestle 
and the only thing we've done is, you know, messed up the 
wrestling mat a little bit and that's it. And the beat goes on. 
And I think people depend on the beat going on. They depend on 
people not paying attention while they get--while folk are 
getting rich.
    And my last question is, you know, when I was a little boy, 
I remember specifically we would go downtown in Baltimore. 
There were two stores in all of downtown Baltimore that would 
sell clothes to black folks, and I was just a little kid about 
5 years old, and I will never forget standing in the long 
lines. And I asked my mom, I said, ``Mom, I don't understand 
this. All of those stores out there and there is like 300 black 
people standing in line getting school clothes from the one 
store.'' I said, ``Don't those others stores want to make some 
money?'' I was just a little kid.
    And so, I mean, and I am trying to figure out, do you all 
see this as just blatant discrimination? Do you think people 
just have a negative view of minorities? Do you think that 
they--there is some kind of grand scheme to keep certain 
neighborhoods in a certain state?
    I mean, you know, going back to my example, there are 
people who have great credit, they so happen to be African 
American, they are whites, they are all kinds. But do you kind 
of just blanket out a whole group of people and say, OK, later 
for you. I mean, is it--are we that mean in this society? Do 
you think--you must have an opinion.
    Mr. Carr. I was going to say, if you look at most 
distressed neighborhoods, you probably see a combination of 
things happening. One is financial vulnerability that 
predisposes people to being taken advantage of, and then 
compounding that is active discrimination in the markets.
    And one of the things that is just interesting is to see 
how regulation is often upside down, where the people who are 
most financially vulnerable receive the least protection from 
financial services industry, from the regulatory agencies.
    So, for example, if you look at the subprime lenders, the 
predatory lenders, in fact they were the least regulated 
entities. And so why does that happen? It shouldn't happen. And 
the reality of it is that, for all of the weaknesses of CRA, 
there were a lot of things that could have been done directly 
to better regulate the subprime market, and it wasn't. And so 
that is probably the greatest source of damage to African 
American wealth at least for this half century, maybe for the 
entire century. The African American home ownership rate is 
falling fast.
    So to get to your question about what do you do, I think, 
first of all, independent of CRA, we need to put into law 
effective regulations for those entities that are nevertheless 
serving those communities. You know, pay-day lenders, rent-to-
own title lenders, subprime lenders need better national 
regulations, specifically.
    In our testimony, we say to some extent we bring those 
institutions under CRA umbrella, but that will only be good to 
the extent that CRA is actually enforced. Which leads me to a 
comment that I made at the opening of my statement which 
sometimes is considered or thought to be a throwaway line, but 
I don't mean it to be so at all.
    I don't think that there is a good appreciation for the 
value of consumers who live in places like Baltimore and 
Philadelphia and Cleveland and other distressed communities 
across this country. I don't know that there is a real 
understanding about the money that flows through those 
neighborhoods and how in dysfunctional ways it doesn't, in 
fact, accrue to the national economic GDP the way that it 
could.
    And as minority households grow as a share of the U.S. 
population, one thing that would be interesting, I think, for 
the Federal Reserve to do is take a look at the growing 
participation of minorities in the labor market and sort of 
ask, you know, sort of scenarios: How much better could the 
country be off if we were in fact empowering them economically?
    And then maybe Congress might have to do some exceptional 
things like to empower and/or create financial institutions 
that aim at those markets that have been historically 
discriminated against for which there is enormous market 
failure and really experiment, do some financial experiment, do 
some financial engineering and bring those consumers into the 
21st century of financial services access.
    I will just conclude by saying my real belief in talking 
about these issues, just like the last panel, you can't 
understand the rationale. It is unconceivable, and I wouldn't 
have an answer as to why we don't just simply enforce the laws 
as effectively as we can. So I would conclude that the value of 
doing it does not outweigh all of the political challenges that 
are perceived to be faced by those who must enforce it. I don't 
know. Those are my own personal comments, not those of NCRC, 
but I share your frustration.
    Mr. Cummings. Just one last thing. As you were talking, I 
couldn't help but think about we used to--we just started 
getting these Targets, and it is interesting that when you go 
to the Target stores, they are packed with black people. I 
mean, before, Target wouldn't even come to these neighborhoods. 
But now they are packed.
    You know, usually Target's claim to fame is that you don't 
have lines. Did you know that, Mr. Chairman? In other words, 
their claim to fame is they want to appeal to people and they 
have enough check-out counters. That is part of their scheme so 
that you feel comfortable coming in so you can get in and get 
out. I mean, they have all kinds of checkers in the black 
community, and they still got lines.
    What my point is is that something--somebody woke up to 
what you just said and said, wait a minute, hold it. Oh, there 
are black people. They do need trash cans. They do need, you 
know, diapers. They do need--so let's go there.
    What took them years to even get there? Which is to me 
incredible.
    Mr. Chairman, I know I have gone longer than you, and you 
have been very kind.
    Mr. Bradford. On the Target issue, it is interesting, 
because I used to work in Minneapolis, which is where they are 
located, where they are from. And in Minneapolis, nobody would 
build a store in the inner city, and the neighborhood people 
demanded they build a store, and they finally got K-Mart to 
open a store, and it was the largest-selling K-mart store in 
their entire network. And Target looked at that and realized 
that they had been avoiding these neighborhoods.
    And Minneapolis is not a, inner city place, let me tell 
you. But then they began to realize there was market there.
    It is like the community people have done the same thing. 
They like to take the bankers and people on tours and say come 
out to my neighborhood. You have never been to my neighborhood. 
You drive by it in your car to get to work, but you have never 
been in this neighborhood. And it has been like a conversion 
experience for a lot of the really good bankers we worked with 
who come out there and realize what potential there was in 
those neighborhoods, who never had actually been there before.
    And I probably shouldn't say this about a colleague, 
economic colleagues, but we need fewer economists making these 
decisions. I mean, economists don't even believe there could be 
discrimination because it violates the rational man theory. You 
gotta have people trying to make these decisions who have seen 
the world, who go out there and talk to people and realize the 
potential. Because you are right. It is there. And over and 
over again I have seen businesses find it, bankers find it, 
people go out in the neighborhoods. They have to get their feet 
on the ground in the neighborhoods and see what the potential 
is.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Kucinich. Mr. Cummings, this committee holds your 
participation in highest regard because, as you state, you come 
from the inner city, the ``inner'' inner city. I still live in 
the city and have for most have my life in the city of 
Cleveland; and I would imagine that this Congress has changed 
dramatically over the last hundred years, that there is 
probably not a lot of Members that live in the inner city. And 
so, you know, we might have an eye that is trained a little bit 
differently.
    I represented the inner city in the city council. Mayor of 
Cleveland, State Senate, Congress, have an inner city district 
or district that includes the inner city.
    When you get into issues like this that have a powerful 
economic underpinning, given the history of the United States, 
you cannot separate the economic realities from race. Of 
course, we understand that doesn't mean that poor white folks 
aren't dealing with the same problems, essentially, in terms of 
lack of access to credit. Matter of fact, the neighborhood that 
we looked at in Cleveland that had over 50 percent of failure 
of loans and, of course, a rapid rate of foreclosures, happened 
to be predominantly Caucasian. And so there was a lot of poor 
people and moderate income people in the same boat whether they 
were white or black. The point--and, you know, we understand 
that.
    As Mr. Cummings is talking about Target, here is what I am 
thinking about. I am thinking about all of these people going 
to Target, because that is the only place that might be 
available, and I am thinking that all of these--most of these 
goods are made in China. Think about it. You know, buy a 
washing machine, a bicycle, textiles, plants closing in the 
United States. Not work here. Unemployment rises, particularly 
in inner city areas.
    I mean, there is a cycle here. You can't--it is interesting 
how you can get into an issue like CRA and suddenly you can go 
back to where is the money and where is it going. Because what 
is happening, what is happening and what we are seeing here is 
the wealth being distributed to the top in this country.
    Banks are engines for the redistribution of the wealth, and 
the wealth goes upwards. CRA is an engine for a more equitable 
distribution. That's what it's about at its inception. The CRA 
doesn't work that well, it still goes up, and not only that but 
it will accelerate upward if the cop is off the beat, which is 
what happened with the subprime loan and people were just--
basically had their financial positions ransacked.
    So this committee, which is a domestic policy oversight 
subcommittee, understands the linkages and--because there are.
    I want to conclude with a question to Mr. Van Tol and then 
see if we can--if there is any final comments by any of the 
panelists. Mr. Van Tol, how has your participation in the CRA 
process decreased in the past 7 years?
    Mr. Van Tol. Well, I think what we see happening with a lot 
of community groups--we very actively work to keep involved in 
the process, but among many of our peer groups and particularly 
in smaller community development sort of groups, if they don't 
see that their efforts are having an effect with the 
regulators, they naturally drop off in their participation.
    Mr. Kucinich. So is the participation process different 
today than it was in 1997, 1987?
    Mr. Van Tol. Well, I think during the Clinton years there 
was--for a time, there was an increase in people who or banks 
who were referred to the Justice Department. There was a 
feeling that taking action at the local level had real effects 
and that you were doing something good for your community.
    When you start feeling--not seeing that happen any more, if 
you are a busy person working for a community group, your 
natural inclination is to stop taking that action. If you--I 
mean, it is a counter--it's not a good thing to do, but it is 
just a natural thing for people to do.
    Mr. Kucinich. So if you had access to fair lending review 
of banks conducted by regulatory agencies, would that change 
participation?
    Mr. Van Tol. I think there is a whole series of ways. If 
Congress would look at how to make the Community Reinvestment 
Act more friendly to the consumer groups, more friendly to 
people in the neighborhoods, to make sure that it was mandated, 
that during mergers there had to be a public meeting--I mean, 
you could--the groups, you know, represented on this table and 
nationally could come up with a whole series of ways to make, 
to empower communities in the process. And, you know, that 
would be one.
    You know, you could--right now, if there is a negative 
community reinvestment rating that a bank disagrees with, they 
have a right to appeal that within the process. We, as 
community groups, don't get to see positive ratings and have a 
right to appeal them downward. So the deck is stacked in a lot 
of ways in favor of the lending institutions and against the 
community groups.
    So I think if Congress could look at all of the ways that 
happens and restack the deck so that there is a more level 
playing field, we would feel more empowered, we would get more 
involved in the process, and I think benefits would accrue to 
everyone.
    Mr. Kucinich. Each of the panelists has experience on this 
and some of you, in your written testimony, have outlined 
improvements that you would recommend be made in the Community 
Reinvestment Act; and in light of the Gramm-Leach-Bliley, it 
would be good to--and some of you have done that, but I think 
it is good to inspect the implications of that and what might 
be able to be done to strengthen the Community Investment Act 
or to change that law as well.
    I would ask each of you if there is, based on what you have 
heard today from the regulators, if there is anything that you 
would like to submit for the record in terms of followup 
comment or analysis or recommendations for legislative 
initiatives or reforms or any area for further inquiry that 
this committee might look into. Because, again, this committee 
has a very broad reach, and there has not been any regulatory 
enforcement in broad areas of our economy for quite a while. 
This subcommittee intends to change that.
    So you can be of continued assistance in our work, and we 
are open to hearing your suggestions about what we might be 
able to do with respect to the Community Reinvestment Act, to 
Gramm-Leach-Bliley, to any area that relates to your expertise 
in housing and access to credit or anything else that might 
touch on the areas that you have familiarity with.
    So I would let each of you know I would invite you to 
continue to stay in touch with the subcommittee and to give us 
the opportunity of your expertise in this and to thank you for 
your commitment to community. This is--each of you have 
reflected a long-term commitment. When you--I am sure when you 
see the staggering toll that it has taken on families in the 
subprime mortgage failure and you see the lack of enforcement 
of the CRA, it can be very discouraging. But I think we can 
change that, and that is actually what the work of this 
committee is about, by bringing the truth to light and giving 
people a chance to, you know, look at what's happening.
    Are there any--before I conclude the work of this committee 
for the day, do any of you have any final comments that you 
want to make and, you know, feel free to right now. Anything? 
Anybody want to say anything?
    Mr. Van Tol. I would just like to emphasize one point. I 
hope as you look at CRA reform, this whole issue of assessment 
areas desperately needs review. Because that system is 
currently broken. You know, you heard some of the statistics 
from Jim about lending. In terms of business lending, the same 
thing is happening. I look at the rural counties of upstate New 
York, and about 75 percent of the loans going into those rural 
counties now are credit card loans from the urban center credit 
card lenders with no assessment areas in those counties.
    That same donut that you saw for Detroit, you could take--
for many lenders, you could look at the cities across America 
and all of the rural areas in between that are left out of 
assessment areas because they get jumped over.
    Mr. Kucinich. So there you could take the amount of credit 
card loans that are going into rural areas and you could 
probably juxtapose it with bankruptcy statistics.
    Mr. Van Tol. I am sure you could. And it is just a problem 
of having assessment areas tied to deposit-taking branches 
rather than to where the institutions are actually doing it.
    Mr. Kucinich. So if the institutions aren't out there to 
loan, then what happens is that the next line of credit is a 
credit card, and you also have--the staff and I were talking 
earlier about the issue of marketing--you also have the 
extraordinary aggressive marketing of credit card companies, 
just extraordinary.
    I cut up most of my credit cards years ago because I 
started to see the impact that it can quickly have on 
somebody's budget. But if that is the only way you can get 
access to money, you are stuck.
    So that is an interesting area that the subcommittee could 
go into, and I would like--again, I would invite your comments 
on that and any guidance that you have on the issue of 
assessment, how might we strengthen that.
    Anyone else on the panel before--and thank you.
    Mr. Marsico. Just one quick comment, which is I think that 
the Community Reinvestment Act works best when it empowers 
communities, and that has been most seen through community CRA 
challenges to bank merger applications, and that resulted in 
the most sort of innovative, affordable lending programs.
    But, in recent years, the number of CRA challenges seems to 
have diminished dramatically; and I think there are two reasons 
for that. One is that rather than--the regulators actually 
during the 1990's used to push banks to reach these agreements 
with groups, and it would let negotiations proceed while the 
communities were negotiating with the banks, and agreements 
would emerge, and they were terrific. They included monitoring 
provisions and reporting requirements.
    But banks then started to make these unilateral 
commitments, and the agencies accepted them. So, you know, they 
weren't negotiated, they don't have monitoring, they just sort 
of say this is what we will do, and then they report on their 
progress, and that really takes the steam out of CRA 
challenges.
    And the second point is the national scope of banks. It is 
very hard to make a challenge when there are 150 metropolitan 
areas that the bank serves. It is overwhelming. And, actually, 
you heard before, you know, one of the comments was, well, if a 
bank is discriminating in one assessment area but not the 
others, well, what are we going to do about that? Well, you 
know, that is the same kind of attitude I find with CRA 
challenges. It might not be lending well in one area but, well, 
it has 150 areas, so what can we do?
    So I think putting some power back in these CRA challenges, 
it would be a very important way to make the CRA work better.
    Mr. Carr. I would just say very quickly the inclusion of 
nondepository affiliates of banks being covered under CRA is a 
mandatory necessity as well as reforming the assessment area. 
And then also requiring that there be a direct focus on lending 
to minority households and communities would go a long way 
toward, if not enforcing, certainly providing the kind of 
information that would make it very difficult to hide and run 
away from the reality of what is happening through major 
financial institutions as it respects disenfranchised 
communities and households.
    Mr. Bradford. I would just add, I think you have to review 
the fair lending exam process itself. We do a lot of consulting 
with lenders, and we look at their own lending regulations and 
guidelines, and I can tell you if any lender showed me the 
Federal guidelines, they would be in a heap of trouble in terms 
of their ability to actually control discrimination. They are 
really kind of disgraceful.
    Mr. Kucinich. They are kind of?
    Mr. Bradford. Disgraceful. They don't really cover 
marketing, which is the main way in which subprime lending 
deceives people. They don't cover underwriting practices. They 
just say look at underwriting, but they don't describe to 
people how they are supposed to look at that and what to do.
    Their statistical analysis only works if you have a lot of 
actual minorities who applied. So if you are good enough to get 
no minorities to apply, you are exempt from their statistical 
analysis. It is an absurd system of target.
    And, also, they only target one focal point, they call it, 
or two focal points. So even though they examine a bank, they 
will sort of pick, well, this year we will look at marketing, 
next year we will look at loans to single family homes, instead 
of looking at the entire package. There is no way in the world 
that a decent lender who was trying to do their own internal 
process would ever set up a set of guidelines like that.
    Mr. Kucinich. Well, this has been a very informative 
hearing of this Domestic Policy Subcommittee, and I want to 
thank the members of the panel for their participation.
    I want to note, as I did at the beginning of the hearing, 
that the gentleman from California, the ranking member, Mr. 
Issa, was called to California because of the very serious 
matter of the fires in that State and in proximity to his 
district; and with his generous consent we were able to move 
forward. Because our rules, unless we have cooperative 
participation here, it doesn't work. But he made that possible, 
and I want to thank him and wish the people of California, his 
constituents, well as they contend with this outbreak of fires.
    This is the Domestic Policy Subcommittee of the Oversight 
and Government Reform Committee. Our hearing today began at 2 
o'clock--it is nearing 6 o'clock--on the issue of Upholding the 
Spirit of the Community Reinvestment Act: Do Community 
Reinvestment Act Ratings Accurately Reflect Bank Practices.
    Our first panel had Ms. Sandra Thompson, who was the 
Director of the Division of Supervision and Consumer Protection 
of the Federal Deposit Insurance Corporation; Ms. Sandra 
Braunstein, who was the Director of the Division of Consumer 
and Community Affairs Board of Governors of the Federal Reserve 
System; Ms. Montrice Yakimov, Managing Director for Compliance 
and Consumer Protection, Office of Thrift Supervision; Ms. Ann 
Jaedicke, Deputy Comptroller for Compliance Policy, Comptroller 
of the Currency; and, of course, the distinguished gentlemen 
who are in front of us, panel II: Calvin Bradford, Board 
member, National Training and Information Center; Mr. James 
Carr, chief operating officer, National Community Reinvestment 
Coalition; Professor Richard Marsico, professor of law, New 
York Law School, director of the Justice Action Center; and Mr. 
Hubert Van Tol, director of Economic Justice, Rural 
Opportunities, Inc.
    This has been a very meaningful hearing. I want to thank 
Congressman Davis and Congressman Cummings for their 
participation. This committee will continue to delve deeply 
into this issue and the economic implications for millions of 
families.
    Again, thank you to members of the panel.
    This committee is adjourned. And thank the staff, too, very 
much.
    Thank you.
    [Whereupon, at 5:52 p.m., the subcommittee was adjourned.

                                 
