    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                         AN EXAMINATION OF THE DECLINE

                             OF MINORITY DEPOSITORY

                          INSTITUTIONS AND THE IMPACT

                           ON UNDERSERVED COMMUNITIES

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

                                    HEARING

                                   BEFORE THE

                      SUBCOMMITTEE ON CONSUMER PROTECTION
                           AND FINANCIAL INSTITUTIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 22, 2019

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 116-62

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                              ______

                 U.S. GOVERNMENT PUBLISHING OFFICE
    42-451 PDF           WASHINGTON : 2020

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     MAXINE WATERS, California, Chairwoman

    CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    BRAD SHERMAN, California             ANN WAGNER, Missouri
    GREGORY W. MEEKS, New York           PETER T. KING, New York
    WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
    DAVID SCOTT, Georgia                 BILL POSEY, Florida
    AL GREEN, Texas                      BLAINE LUETKEMEYER, Missouri
    EMANUEL CLEAVER, Missouri            BILL HUIZENGA, Michigan
    ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
    JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
    BILL FOSTER, Illinois                SCOTT TIPTON, Colorado
    JOYCE BEATTY, Ohio                   ROGER WILLIAMS, Texas
    DENNY HECK, Washington               FRENCH HILL, Arkansas
    JUAN VARGAS, California              TOM EMMER, Minnesota
    JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
    VICENTE GONZALEZ, Texas              BARRY LOUDERMILK, Georgia
    AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
    MICHAEL SAN NICOLAS, Guam            WARREN DAVIDSON, Ohio
    RASHIDA TLAIB, Michigan              TED BUDD, North Carolina
    KATIE PORTER, California             DAVID KUSTOFF, Tennessee
    CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
    SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
    AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
    BEN McADAMS, Utah                    BRYAN STEIL, Wisconsin
    ALEXANDRIA OCASIO-CORTEZ, New York   LANCE GOODEN, Texas
    JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia
    STEPHEN F. LYNCH, Massachusetts      WILLIAM TIMMONS, South Carolina
    TULSI GABBARD, Hawaii
    ALMA ADAMS, North Carolina
    MADELEINE DEAN, Pennsylvania
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    DEAN PHILLIPS, Minnesota

                       Charla Ouertatani, Staff Director
         Subcommittee on Consumer Protection and Financial Institutions

                      GREGORY W. MEEKS, New York, Chairman

    NYDIA M. VELAZQUEZ, New York         BLAINE LUETKEMEYER, Missouri,
    DAVID SCOTT, Georgia                     Ranking Member
    WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
    DENNY HECK, Washington               BILL POSEY, Florida
    BILL FOSTER, Illinois                ANDY BARR, Kentucky
    AL LAWSON, Florida                   SCOTT TIPTON, Colorado, Vice
    RASHIDA TLAIB, Michigan                  Ranking Member
    KATIE PORTER, California             ROGER WILLIAMS, Texas
    AYANNA PRESSLEY, Massachusetts       BARRY LOUDERMILK, Georgia
    BEN McADAMS, Utah                    TED BUDD, North Carolina
    ALEXANDRIA OCASIO-CORTEZ, New York   DAVID KUSTOFF, Tennessee
    JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        October 22, 2019.............................................     1
    Appendix:
        October 22, 2019.............................................    35

                                   WITNESSES
                           Tuesday, October 22, 2019

    Betru, Aron, Managing Director, Center for Financial Markets,
      Milken Institute...............................................    12
    Bowman, Jeff, President and CEO, Bay Bank........................    11
    Falero, Mara, Vice President, Marketing and Communications,
      JetStream Federal Credit Union, on behalf of the National
      Association of Federally-Insured Credit Unions (NAFCU).........     9
    Kelly, Kenneth, Chairman and CEO, First Independence Bank, and
      Chair, Board of Directors, National Bankers Association (NBA)..     6
    Sung, Jill, CEO and President, Abacus Federal Savings Bank, and
      Chair, Independent Community Bankers of America's (ICBA's)
      Minority Bank Advisory Council, on behalf of the ICBA..........     7

                                    APPENDIX

    Prepared statements:
        Betru, Aron..................................................    36
        Bowman, Jeff.................................................    43
        Falero, Mara.................................................    48
        Kelly, Kenneth...............................................    61
        Sung, Jill...................................................    67

                  Additional Material Submitted for the Record

    Meeks, Hon. Gregory W.:
        Written statement of Creative Investment Research............    76
        Written statement of the Credit Union National Association...    83
        Written statement of Inclusiv................................    87
        OCC press release............................................    91
    Luetkemeyer, Hon. Blaine:
        Written statement of the National Bankers Association........    93

                         AN EXAMINATION OF THE DECLINE

                             OF MINORITY DEPOSITORY

                          INSTITUTIONS AND THE IMPACT

                           ON UNDERSERVED COMMUNITIES

                                  ----------

                           Tuesday, October 22, 2019

                 U.S. House of Representatives,
                    Subcommittee on Consumer Protection
                            and Financial Institutions,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:05 p.m., in
    room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks
    [chairman of the subcommittee] presiding.
        Members present: Representatives Meeks, Scott, Clay,
    Foster, Lawson, Tlaib, Porter, Ocasio-Cortez; Luetkemeyer,
    Lucas, Barr, Tipton, Williams, Loudermilk, and Kustoff.
        Ex officio present: Representatives Waters and McHenry.
        Chairman Meeks. The Subcommittee on Consumer Protection and
    Financial Institutions will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the subcommittee at any time. And, without objection,
    members of the full Financial Services Committee who are not
    members of this subcommittee are authorized to participate in
    today's hearing.
        Today's hearing is entitled, ``An Examination of the
    Decline of Minority Depository Institutions and the Impact on
    Underserved Communities.''
        And I know that we are in competition this afternoon with
    several different hearings, so I expect Members to be running
    in and out.
        I now recognize myself for 4 minutes to give an opening
    statement.
        To my friend and colleague, Ranking Member Luetkemeyer, and
    the members of the subcommittee, welcome to this hearing on the
    decline of minority depository institutions (MDIs) and the
    impact on underserved communities.
        This hearing continues our consideration of the challenges
    faced by disenfranchised marginalized communities, including,
    in particular, communities of color that face discrimination in
    access to financial services.
        It is regrettable in many ways that, in 2019, we still need
    to hold hearings to draw attention to the systemic challenges
    and structural discrimination faced by minority communities. It
    is frankly regrettable that, in 2019, we must still talk about
    the challenges faced by Asian banks, Hispanic banks, African-
    American banks, Native American banks, and the dramatic
    disparities in lending to minority communities and low- and
    moderate-income (LMI) communities. But the data and the
    generational impact is irrefutable.
        Today, we will not only consider the problems, but we will
    also have a substantive conversation about actionable
    solutions, and a discussion of the draft of a bill I plan to
    introduce that was attached to this hearing. The bill seeks to
    tackle several key challenges faced by minority banks,
    including in particular those that focus primarily on serving
    unbanked and low-income communities.
        Specifically, the bill on which I look forward to feedback
    from our panel of experts here today addresses the following:
    one, access to capital. Overall, minority banks are smaller
    than their peers and typically well below a billion dollars in
    assets. These banks pose no credible systemic risk and focus on
    underbanked communities investing in homeownership and small
    business lending in LMI communities.
        Given the communities they serve, these banks often
    struggle to mobilize savings to redeploy in their communities.
    My bill tackles this by making it somewhat easier for minority
    banks that are also community development organizations to
    raise capital from private investors and from Opportunity Zone
    funds, and pushes the Federal Government to deposit funds that
    are fully insured within these institutions.
        Two, regulator engagement. The bill calls on the regulators
    to harmonize and strengthen the minority bank advisory boards
    and take ownership of their failings in the area of diversity.
    Specifically, the bill calls for regular auditing of the
    diversity of the bank examiner corps, publication of the data,
    and consideration of how the lack of diversity in this area and
    lack of special training of examiners engaging with minority
    banks in low-income communities harm their effectiveness.
        The bill also calls on the prudential regulators to
    consider more effective and coherent Community Reinvestment Act
    (CRA) examinations of minority banks that are also Community
    Development Financial Institutions (CDFIs).
        Furthering the CDFI fund, finally, the bills calls on
    Congress to fully fund the CDFI fund of the Treasury
    Department. The CDFI fund is a unique tool which leverages
    limited government funding to crowd in significant private
    sector capital and foster innovation investments in market-
    oriented solutions to tackle some of our nation's most
    persistent challenges in poverty alleviation. This program
    deserves strong bipartisan support.
        In closing, I wish to highlight that I am very aware that,
    while today's hearing is very focused on minority banks and
    issues of discrimination, I recognize that any discussion of
    banking deserts and underbanked communities must also include
    consideration of rural and agricultural communities. These
    issues cut across districts and party affiliation, and I look
    forward to working with my colleagues on a bipartisan basis to
    tackle these important challenges.
        I look forward to the testimony of our witnesses here
    today.
        And I now recognize the ranking member of the subcommittee,
    Mr. Luetkemeyer, for 5 minutes for an opening statement.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Minority Depository Institutions (MDIs), like all financial
    institutions, have struggled under the weight of the regulatory
    burden of the Dodd-Frank Act.
        According to a Harvard University study, Dodd-Frank has
    created an uneven regulatory playing field. This playing field
    resulted in additional legal and compliance costs for small
    institutions, preventing them from serving their customers,
    particularly the businesses and consumers within their
    community.
        MDIs play a unique role in serving their community.
    According to the FDIC and the Federal Reserve, MDIs serve
    consumers in low- to moderate-income communities at higher
    rates than non-MDIs.
        This committee should be focused on alleviating the burden
    on these institutions so they can serve their communities,
    specifically the minority and LMI communities.
        One such burden that will have a devastating effect on
    small depository institutions, and particularly Minority
    Depository Institutions, is the proposed Current Expected
    Credit Losses (CECL) accounting standard. Now, as many on this
    panel know, I could spend the length of this hearing discussing
    the pitfalls of this ill-conceived proposal. Instead, I will
    simply read an excerpt from a letter to the committee regarding
    CECL from the National Bankers' Association, which identifies
    itself as the voice of minority banking in the United States.
        And I quote: ``To the extent that CECL increases the cost
    of lending to borrowers that are perceived by regulators as
    being riskier or lower credit quality, such as low- and
    moderate-income consumers and small businesses located in low-
    and moderate-income communities, the economics of our lending
    decisions could be altered dramatically. This would further
    restrict access to credit for consumers and businesses that
    already experience limited credit options.''
        In addition, I would like to read a statement from the
    Center for Responsible Lending President Michael Calhoun on
    CECL, in which he said, ``As proposed, CECL creates a
    significant disincentive for lenders to originate loans to low-
    and moderate-income families and communities of color.''
        I would like to ask unanimous consent that the full
    statements from both of these organizations be entered into the
    record.
        Chairman Meeks. Without objection, it is so ordered.
        Mr. Luetkemeyer. The statements I just read are not unique.
    The truth is that numerous consumer interest groups have voiced
    concerns over CECL. Despite the warning signs these groups have
    raised, this committee has not taken any formal action to
    better understand the effects that CECL will have an low- to
    moderate-income consumers and minorities. No Full Committee
    hearings, no subcommittee hearings, no markups, no nothing.
    This inaction flies in the face of LMI borrowers in minority
    communities across the country who will be adversely affected
    by this accounting standard.
        For all of the rhetoric from the other side of the aisle
    about how consumers and minorities can struggle in the
    financial services industry, the Democratic leadership on this
    committee remains woefully silent on an issue that has direct
    impact on Minority Depository Institutions and the consumers
    they serve.
        I specifically mention that the Democratic leadership of
    this committee has been inactive because CECL is a bipartisan
    issue that has support from Members on both sides of the aisle:
    52 bipartisan Members have signed onto a bill to delay
    implementation of CECL until a study is completed that examines
    access to credit for consumers.
        In addition, roughly 30 members of this committee just last
    week signed a bipartisan letter I sent to FSOC urging the
    Office of Financial Research to study the impacts of CECL.
    Despite this bipartisan support, the chairwoman of this
    committee has done nothing to address an issue that could
    devastate low- and moderate-income lending and lending to
    minority communities.
        In front of this committee today are witnesses representing
    three separate organizations that have voiced concerns over the
    effects of CECL, effects that it could have on their member
    institutions as well as the consumers they serve. And yet, this
    committee has shown no interest in bringing this issue up and,
    in fact, seems completely content to let CECL go into place,
    despite the warning signs related to minority- and low-income
    borrowers.
        This committee is tasked with ensuring a healthy financial
    services industry and promoting economic freedom for everyday
    Americans. That responsibility includes ensuring financial
    institutions are not driven out of the marketplace by onerous
    requirements, and protecting the ability of consumers to gain
    access to credit.
        With that said, I urge all of my colleagues on both sides
    of the aisle to call for a committee hearing on CECL, or better
    yet, have the Financial Accounting Standards Board (FASB) come
    before this committee and defend this standard.
        I yield back.
        Chairman Meeks. I now yield 1 minute to the gentleman from
    Georgia, Mr. Scott.
        Mr. Scott. Yes. Thank you, Mr. Chairman.
        I do want to let my colleague from Missouri, Mr.
    Luetkemeyer, know that I agree with him, and will work with him
    on CECL. But I also want to clarify that Chairwoman Waters, who
    is the Chair of the full Financial Services Committee, is very
    much concerned about the status of minority-owned depository
    institutions, and she has asked us to look at that as well as
    she has an open mind to the CECL question as we get to it.
        But in my last few seconds, it is very important to say
    that banks are the heart of our financial system. And with the
    growing population among minorities, there could not be a more
    crucial hearing than today, Mr. Chairman, and I look forward to
    a very excellent hearing.
        Thank you.
        Chairman Meeks. Thank you. The gentleman's time has
    expired.
        Today, we welcome the testimony of, first, Mr. Kenneth
    Kelly, who is the chairman and CEO of the First Independence
    Bank, and the Chair of the National Bankers Association.
        First Independence Bank, headquartered in Detroit,
    Michigan, is now the seventh largest African-American-
    controlled commercial bank in the country. He has been
    appointed to the Fed's Depository Institutions Advisory Council
    for a 3-year term, and has been appointed nationally to the
    FDIC's Community Bank Advisory Committee.
        Second, we will hear from Ms. Jill Sung, president and CEO
    of Abacus Federal Savings Bank in my home City of New York, and
    Chair of the Independent Community Bankers of America's
    (ICBA's) Minority Bank Council.
        Ms. Sung joined Abacus, the bank her father started in
    1984, as vice president and general counsel in 1996, later
    rising to executive vice president and then taking over as
    president and CEO in 2005. She serves in several leadership
    positions within the Independent Community Bankers of America,
    as Chair of the Consumer Financial Services Committee, and as
    Chair of the ICBA's Minority Bank Council.
        Third, Ms. Mara Falero, vice president of marketing and
    communications at Jetstream Federal Credit Union, a low-income
    CDFI operating in Miami-Dade County Florida, and in Puerto
    Rico.
        She has over 33 years of financial institution experience
    in both credit unions and banks, and she is very active in her
    community, serving on several chamber and credit union boards,
    and as the past Chair of the Town of Miami Lakes Economic
    Development Committee.
        Fourth, Mr. Jeff Bowman, president and CEO of Bay Bank, a
    Tribally-owned bank within the Oneida Indian Tribe of
    Wisconsin. Mr. Bowman has over 30 years in the banking
    industry, with the majority of his career working in bank
    management and commercial lending positions. He specializes in
    helping small businesses, by providing technical assistance. He
    is also active with several organizations that facilitate
    economic development and small business development. He
    specializes in assisting and capitalizing minority businesses,
    particularly Native American-owned small businesses.
        And last but not least, Mr. Aaron Betru, managing director
    of the Center for Financial Markets at the Milken Institute. He
    has over 20 years of experience and leads the Center's Access
    to Capital and Strategic Innovative Financing initiatives to
    enhance social impact, both in the United States and in
    developing countries.
        He also leads the Institute's work on Opportunity Zones and
    Qualified Opportunity Funds. Mr. Betru was a member of the
    steering group for the Blended Finance Task Force launched by
    the Business and Sustainable Development Commission, as well as
    co-chairing the Partnership for Lending in Underserved Markets,
    a joint initiative with the U.S. Small Business Administration.
    He is also a term member of the Council on Foreign Relations,
    and is a member of the Board of Directors for the Calvert
    Impact Capital NFHI Foundation.
        The witnesses are reminded that your oral testimony will be
    limited to 5 minutes. And, without objection, your written
    statements will be made a part of the record.
        Mr. Kelly, you are now recognized for 5 minutes to give
    your oral presentation of your testimony.

          STATEMENT OF KENNETH KELLY, CHAIRMAN AND CEO, FIRST
      INDEPENDENCE BANK, AND CHAIR, BOARD OF DIRECTORS, NATIONAL
                       BANKERS ASSOCIATION (NBA)

        Mr. Kelly. Chairman Meeks, Ranking Member Luetkemeyer,
    members of the subcommittee, thank you for the opportunity to
    testify on behalf of First Independence Bank and the National
    Bankers Association.
        I serve as chairman and CEO of First Independence Bank, a
    $272 million MDI headquartered in Detroit, Michigan. We are the
    only African-American bank in the State of Michigan and one of
    only two banks in the City headquartered in Detroit, and we are
    also a Community Development Financial Institution (CDFI). I
    also Chair the board of directors of the National Bankers
    Association, the leading voice of MDIs since 1927.
        Our banks are in crisis. They fail at a higher rate, and
    while there is broad diversity in the MDI sector in terms of
    profitability, mission-oriented financial institutions
    encounter unique challenges ranging from investors who don't
    understand the value of the services we provide, to,
    oftentimes, regulatory review that does not understand the
    communities we serve.
        We are the banks of first and last resort of our
    communities. Relative to non-MDIs, we do more small business
    and mortgage lending on a pro rata share. We often do specialty
    lending in terms of religious institutions and other community-
    based organizations.
        We fully understand the value of our work, but absent
    intervention from Washington, fewer of our banks will exist to
    do this work.
        The top issue for NBA members is raising capital, as we
    mentioned. Congress can take four steps now to alleviate our
    capital-raising concerns by: one, amending the Community
    Reinvestment Act (CRA) such that the majority institutions
    automatically receive positive CRA consideration in addition to
    enhanced CRA credit for equity investment in MDIs; two,
    amending the Investment in Opportunity Act such that MDIs are
    eligible for equity investments; three, exempting MDIs under $3
    billion from the Bank Holding Company Act and change of control
    provisions; and four, creating an investment tax credit for
    equity investments in MDIs.
        Congress can also act now to help our banks diversify their
    deposit basis by: one, lowering the barrier to participation in
    the Minority Bank Deposit program; and two, modernizing the
    Federal Deposit Insurance Act approach toward broker deposits
    so that smaller MDIs can diversify their deposit basis.
        Congress is also well-positioned to use existing tools,
    like the Community Development Financial Institutions Fund, to
    create a fairer process for new markets tax credit allocation
    and to urge congressional appropriators to increase funding for
    all CDFI programs.
        Should it become law, Congress should leverage the Improve
    Access to Traditional Banking Act to create a fund for MDIs for
    financial literacy and alternatives to predatory products.
        Targeted deregulatory measures would benefit the NBA banks.
    The current leadership in the industry, the Executive Branch,
    and regulatory environments are working collaboratively within
    these constraints today.
        Examples include the bolstering of the Treasury Mentor
    Protege Program and the FDIC's MDI roundtable. But there is an
    immediate need to streamline BSA/AML reporting requirements for
    smaller banks, and there is still a need to strengthen Section
    308 of the Financial Institutions Reform, Recovery, and
    Enforcement Act of 1989 (FIRREA), requiring that significant
    regulatory developments include an impact analysis on MDIs and
    support MDIs' sustainability.
        In order to do the work that we do, we often look to
    Washington for support. The actions outlined above and in our
    written submission provide a roadmap for helping us to do this.
        Examples of that include actions taken by the forefathers
    of this great nation, including creating the Federal Reserve in
    1913, creating the FDIC in 1933, and, particular to MDI's,
    creating the Freedman's Bank over 154 years ago in 1865.
        You will hear a recurring theme throughout the hearing that
    demonstrates that leadership matters on issues related to these
    institutions, and in particular, policy matters more.
        We commend the subcommittee and the committee, and
    Chairwoman Waters and Chairman Meeks on their longstanding
    leadership on MDI issues and, most importantly, for holding
    this hearing.
        I look forward to answering the subcommittee's questions.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Kelly can be found on page
    61 of the appendix.]
        Chairman Meeks. Thank you for your testimony.
        I now recognize Ms. Sung for 5 minutes.

       STATEMENT OF JILL SUNG, CEO AND PRESIDENT, ABACUS FEDERAL
       SAVINGS BANK, AND CHAIR, INDEPENDENT COMMUNITY BANKERS OF
    AMERICA'S (ICBA'S) MINORITY BANK ADVISORY COUNCIL, ON BEHALF OF
                                THE ICBA

        Ms. Sung. Chairman Meeks, Ranking Member Luetkemeyer, and
    members of the subcommittee, I am Jill Sung, CEO and president
    of Abacus Federal Savings Bank in New York.
        I testify today on behalf of the Independent Community
    Bankers of America, where I serve as Chair of the Minority Bank
    Advisory Council and the Consumer Financial Services Committee.
    Thank you for this opportunity to testify at today's hearing.
        MDIs play a critical role in promoting economic prosperity
    in historically marginalized communities. I would like to thank
    Chairman Meeks for his work on a thoughtful discussion draft.
    We are pleased to have the opportunity to offer input on this
    draft and hope to continue to work with you as it advances
    through the process.
        Abacus Bank is a $350 million asset privately held savings
    and loan association headquartered in Chinatown, New York City,
    with branches in Chinese-American communities in Brooklyn,
    Queens, Edison, New Jersey, and Philadelphia. Abacus was
    founded in 1984 by my father, Thomas Sung, who immigrated
    through Ellis Island as a teenager from China. He went on to
    attend law school and eventually opened his own immigration law
    practice in Chinatown to help others like him find a better
    life in this country.
        He was motivated to open Abacus Bank by the realization
    that banks were more than happy to take his deposits but were
    not willing to give him or people like him a loan. Abacus was
    founded to change that and to ensure that our community has
    access to credit, a fundamental factor for the economic
    stability and growth of any community.
        The majority of our lending is in residential mortgages,
    particularly first-time homebuyers, a natural fit for our
    community, where the aspiration of owning your own home is
    almost sacred. We also lend on small multifamily and mixed-use
    investment properties. Our lending policy is extremely
    conservative, and our delinquency rates have always been
    unusually low, before, during, and after the financial crisis.
    We attribute this to our deep understanding of our customers,
    and we are very proud of how we have helped our community over
    the past 35 years, and we look forward to serving future
    generations.
        I would like to speak to some of the unique challenges we
    face as MDIs that serve immigrants. These challenges reflect
    the vulnerabilities of our customers in the financial system.
    The first is the language barrier. Because most of our
    customers speak Chinese as a primary language, we must hire
    employees who are fluent in Chinese. This limits the supply of
    qualified employees, and we often have to hire people with
    little or no banking experience and train them at a significant
    expense to us.
        The language barrier also increases our operating costs, as
    we spend much of our time translating, explaining to our
    customers disclosure forms and regulatory concepts with which
    there is often no literal translation in Chinese. The language
    barrier makes implementing a regulatory change, of which there
    have been many in recent years, twice as costly and time-
    consuming.
        The second challenge is serving customers who come from a
    starkly different cultural and sociopolitical system. Many of
    them view not only the government but the banking system with
    deep suspicion. In order to overcome this lack of trust, we
    must heavily invest in financial education. We feel a
    tremendous responsibility to act as trust advisors to this
    vulnerable population and guide their decisions while at the
    same time respecting their concerns.
        Technology, which is transforming financial services, is
    not always suitable for this population. Some of our most
    popular products are safe deposit boxes and passbook savings
    accounts, old school products which cannot be automated and are
    costly and labor-intensive for us to maintain. Despite this, we
    continue to offer these products to ensure that the
    particularly vulnerable pockets of our community, like the
    elderly, still have access to the banking system in ways they
    feel safe and comfortable to use.
        As a small MDI, our business model does not easily lend
    itself to high margins and high profits. This is why access to
    capital is so key. We do not have access to public capital
    markets, and raising private capital through the regular
    channels is challenging, given our specific missions and our
    concentration of disadvantaged communities.
        I know this predicament of lack of capital faces all MDIs.
    We need to find ways to help MDIs obtain capital, such as
    reducing our regulatory costs so we can retain more of our
    earnings, diversify our income stream, and come up with new,
    nontraditional ways of raising capital. This is critical for
    our preservation, to ensure the fair and equitable access to
    the financial system is preserved for all.
        When we look at Chairman Meeks' discussion draft, this is
    the perspective we bring, the unique challenges I discussed and
    the need for new capital resources. My written statement
    provides a more detailed assessment of the draft.
        I would like to thank you again for your work on the
    promising constructive draft. We hope to continue to work with
    you to ensure the legislation reaches its true potential for
    strengthening MDIs in the communities we serve.
        With that, I am happy to answer any questions you may have.
        [The prepared statement of Ms. Sung can be found on page 67
    of the appendix.]
        Chairman Meeks. Thank you.
        Ms. Falero, you are now recognized for 5 minutes.

        STATEMENT OF MARA FALERO, VICE PRESIDENT, MARKETING AND
     COMMUNICATIONS, JETSTREAM FEDERAL CREDIT UNION, ON BEHALF OF
      THE NATIONAL ASSOCIATION OF FEDERALLY-INSURED CREDIT UNIONS
                                (NAFCU)

        Ms. Falero. Good afternoon, Chairman Meeks, Ranking Member
    Luetkemeyer, and members of the subcommittee. My name is Mara
    Falero, and I am testifying today on behalf of NAFCU.
        I currently serve as the vice president of marketing and
    communications at JetStream Federal Credit Union. We appreciate
    the opportunity to share our views on the important role that
    Minority Depository Institutions serve in our economy.
        JetStream Federal has over $200 million in assets and
    serves more than 18,000 members in Miami-Dade County and parts
    of Puerto Rico. JetStream Federal is an NCUA-designated low-
    income credit union, a Minority Depository Institution, as well
    as CDFI-certified. All of our employees are community
    development certified financial counselors. This program trains
    our staff to identify financial distress within our membership
    and proactively work to prevent financial catastrophe. Our
    membership is diverse and reflective of the communities we
    serve.
        Seventy-one percent of JetStream members are classified as
    low income, of which 40 percent are extremely low income; 68
    percent of our members are Hispanic, of which 27 percent are
    Puerto Rican; and 19 percent of our membership is African
    American.
        JetStream Federal is also a Juntos Avanzamos credit union,
    which is a community of credit unions committed to serving and
    empowering Hispanic communities. We were the first credit union
    in Florida to receive this designation.
        JetStream Federal is committed to meeting the needs of our
    members, which has led us to offer a number of products to help
    newly arrived immigrants and those with lower incomes, such as
    a second chance checking program, no credit check loans, and
    even a resettlement loan program for those moving from Puerto
    Rico to the mainland.
        Due to the areas that JetStream Federal serves, Hurricanes
    Irma and Maria critically affected our members in 2017. These
    hurricanes were a life-defining moment for many of our members,
    and we knew we had to act. JetStream Federal provided $2.5
    million of critical financial relief to our members during the
    first stages of recovery, including no-cost, zero-percent APR
    short-term loans, deferment of existing loan payments,
    elimination of transactional fees, and financial coaching for
    our members who were dealing with insurance cases while
    attempting to rebuild their homes.
        The credit union industry strives to lead when it comes to
    diversity, equity, and inclusion. The majority of credit union
    CEOs are women. The minority of MDIs are credit unions: 528 in
    2018, according to the NCUA.
        MDI credit unions serve 3.9 million members and tend to be
    smaller institutions. Eighty-seven percent of MDI credit unions
    have assets of less than $100 million. They also tend to
    underperform growth in all categories, including asset size,
    membership, and loan volume, in comparison to the rest of the
    credit union industry, largely due to a decline in membership.
        In my written testimony, I outline in detail several areas
    where Congress can act to help credit union MDIs such as
    JetStream Federal, and these include, first, fully funding the
    Community Development Financial Institutions Fund program.
    These grants have been an important tool for us to serve our
    members.
        Second, allowing all credit unions to serve underserved
    areas. Field of membership restrictions on credit unions, such
    as JetStream, hamper our ability to serve those in neighboring
    counties who have the same needs as our members.
        Third, making it easier to charter new credit unions by
    providing greater flexibility in the Federal Credit Union Act
    and giving NCUA the appropriate tools. This includes ensuring
    that NCUA has the authority it needs in areas such as credit
    union capital, subordinated debt, and loan maturity limits.
        NAFCU is generally supportive of the efforts in the
    discussion draft of the Ensuring Diversity in Community Banking
    Act. In particular, we are pleased to see the idea of creating
    an MDI Advisory Committee within each regulator. We welcome the
    opportunity to continue to work with the subcommittee as you
    consider legislative approaches to address this critical issue.
        In conclusion, credit unions are proud of the work we have
    done to serve minority and underserved populations. Still, MDI
    credit unions face a number of challenges. We urge the
    subcommittee to support efforts to improve the regulatory
    environment for MDI credit unions and modernize the Federal
    Credit Union Act.
        Thank you, again, Chairman Meeks, Ranking Member
    Luetkemeyer, and members of the subcommittee for the invitation
    to testify before you. I welcome any questions you may have.
        [The prepared statement of Ms. Falero can be found on page
    48 of the appendix.]
        Chairman Meeks. Thank you.
        I now recognize Mr. Bowman for 5 minutes.

         STATEMENT OF JEFF BOWMAN, PRESIDENT AND CEO, BAY BANK

        Mr. Bowman. Good afternoon, Chairman Meeks, Ranking Member
    Luetkemeyer, and members of the subcommittee.
        My name is Jeff Bowman, and I am the president and CEO of
    Bay Bank. We are a small community bank located in Green Bay,
    Wisconsin. Our bank is owned by the Oneida Nation.
        One of the things that makes us unique as an MDI is that
    there are only 18 Native American-owned institutions in the
    entire country, of the approximately 5,500 FDIC-insured
    institutions.
        We are also the smallest bank in Green Bay. Part of the
    Oneida Reservation overlaps the City of Green Bay, so we have
    an urban and a rural market from which we solicit our
    customers.
        Some of the services that we are very strong in and
    committed to include community and economic development as a
    small-dollar loan program. We do not base our credit decisions
    on credit scores. We look at expanded guidelines. This creates
    increased access, and it helps move people out of predatory
    lending.
        There is a huge problem with Native American people
    utilizing payday loan stores and short-term lenders, where a
    $500 loan turns into a $3,000 debt. We dedicate a lot of
    resources to make sure that we have a robust and easy-to-access
    small-dollar loan program.
        We are also very strong in mortgage lending. One of the
    original reasons why the bank was started in 1995 is, during
    the 1990s, there were a lot of bank mergers and acquisitions
    that left a void in community banking, Green Bay included.
    There were no small institutions. So, the Oneida Tribe
    partnered up with some local investors and started a brand new
    bank.
        One of the reasons why the Tribe was interested in forming
    the bank is making sure that their Tribal members had access to
    financing to purchase a home.
        If you are familiar with reservation communities, much of
    the land is checker-boarded, where it is a combination of fee
    land and then trust land. It is difficult to obtain a mortgage
    on trust land, especially when you go back in time to the
    1990s. One of the reasons for forming the bank was to make sure
    that the bank was going to be the responsible party and figure
    out a creative way to make mortgage loans on trust land.
        We are very good and strong in that space. We have
    originated over $90 million worth of mortgage loans to Native
    American borrowers throughout the Great Lakes area. So, we
    figured out how to solve that problem.
        We are also very active in the small business space.
    Minority small business owners, we don't always feel, get a
    fair shake. And when they apply for a business loan at Bay
    Bank, they are going to have a Native American person in the
    management team looking at their credit decision.
        It is interesting, and everybody's story and testimony here
    is we all have unique stories about our neighborhoods and our
    communities that we love. They can be ethnic-based. They can be
    low- to moderate-income. And one of the things that is
    encouraging in this bill is the formation of the advisory
    committee in which we have a voice. This is the first time that
    a Native American bank has had the opportunity to come and talk
    about what we do.
        We all have important stories, and we all need additional
    resources. But this advisory committee has an opportunity to
    share these stories with bank examiners.
        We are a $100 million dollar bank. We are the smallest bank
    in our community. But we are not just a bank. We effect social
    change. We are also a CDFI. We have an outstanding CRA rating,
    and we wear that like a badge of honor. We earned that. So, it
    is important that we recognize the efforts that MDIs are doing,
    and I think that has to trickle down to the bank examiner level
    to let them know you are not just looking at another $100
    million bank; you are looking at an institution that is
    effecting change.
        This bill has the opportunity to heighten the awareness of
    MDIs, and bring in additional resources, and we are in favor of
    that.
        In my testimony, I paint a picture of what the Oneida
    Community looks like. We have a 22-percent poverty rate and a
    9-percent unemployment rate. There are 11 Tribal communities in
    Wisconsin, 11 federally recognized Tribes. Oneida has some of
    the strongest economic indicators. When I mention a 22 percent
    poverty rate and 9 percent unemployment, there are several
    other communities where it is much worse.
        So, there is a role for what we do. We appreciate this
    opportunity to tell our story, and we hope that you will take
    this to the next level and keep bringing us additional
    resources so we can keep doing the work that we love to do.
        [The prepared statement of Mr. Bowman can be found on page
    43 of the appendix.]
        Chairman Meeks. Thank you.
        And I now recognize Mr. Betru for 5 minutes.

        STATEMENT OF ARON BETRU, MANAGING DIRECTOR, CENTER FOR
                  FINANCIAL MARKETS, MILKEN INSTITUTE

        Mr. Betru. Thank you. Thank you, Chairman Meeks, Ranking
    Member Luetkemeyer, and members of the subcommittee. It is an
    honor to be here.
        My name is Aaron Betru, and I am the managing director for
    the Center for Financial Markets at the Milken Institute. The
    Milken Institute is a nonprofit, nonpartisan think tank that
    promotes evidence-based research that serves as a platform for
    policymakers, industry practitioners, and community members to
    come together and address challenges we face here in the U.S.
    as well as globally.
        For the past century, steady economic growth and ongoing
    job creation has led to prosperity in the United States.
    However, not all segments of society have been able to
    participate fully in this prosperity. Inequality does exist.
    Ensuring all segments of society have an equal opportunity to
    contribute and benefit when the economy grows is critical to an
    equitable and just society.
        Minority Depository Institutions play a vital role here in
    promoting financial inclusion and economic viability for
    underserved communities by virtue of their presence and focus.
        However, yes, their numbers have dwindled. Those that
    remain today are limited in their capacity to serve their
    communities. I would like to focus my comments today from both
    a bottom-up institutional but also a top-down economic
    perspective on understanding the decline of MDIs as well as how
    to reverse this decline, all with the perspective of improving
    access to capital for underserved communities.
        From a bottom-up institutional perspective, I recently
    served as the co-Chair of Partnership for Lending in
    Underserved Markets, a joint initiative of the U.S. Small
    Business Administration and the Milken Institute to promote
    access to capital for minority-owned small businesses.
        Small businesses are the backbone of broad-based economic
    development. But, unfortunately, over the past decade, the
    United States has seen a significant and growing
    underrepresentation of minority-owned enterprises.
        In our work, we identified a series of factors as
    contributing to this situation, but one in particular stood
    out: access to capital. Without sufficient access to capital
    for a small business, not only were they limited in their
    ability to grow, but those individuals in the community who
    would have been hired lost out on jobs.
        Those individuals that the businesses would have provided
    in terms of services from a grocery to a computer store to a
    day care, never happened. In this context, a lack of access to
    capital contributes to a lack of access to the American Dream.
        As you have noted in your committee memo, a combination of
    factors emerged as contributing to a lack of access to capital.
    The 2008 financial crisis fueled bank closures, and home value
    reductions in minority neighborhoods, the collateral for these
    loans. This was exacerbated by longstanding bias in the banking
    sector. This is important, because bank loans nationally are
    the second-most prevalent source of start-up capital for a
    business. But for minority-owned businesses, it is a credit
    card, a far less efficient source of capital for funding long-
    term growth.
        It has been well-documented. The Office of the Comptroller
    of the Currency recently confirmed that if you compare MDIs and
    Community Development Financial Institutions (CDFIs) to other
    banks, MDIs and CDFIs disproportionately focus on low-income
    communities.
        However, MDIs are small in the broader commercial banking
    context, and the result of the small scale is increased
    susceptibility to challenges associated with increased
    compliance costs, operational complexity and fast-paced
    technology-enabled competitive markets.
        If enhancing the scale of their impact is a target,
    understanding improvements strategies of MDIs and how to
    resource them is critical to assuring MDIs can be greater
    economic development engines for underserved markets from the
    bottom up.
        Now, from the top-down economic perspective, we are sitting
    in the tail-end of one of the longest periods of economic
    expansion for this country. Yet for the past 30 years, median
    household wealth for African Americans and Hispanics, in
    particular, has declined by 75 and 50 percent, respectively. A
    recent study by McKenzie & Company detailed that closing the
    racial wealth gap, just looking at Black and white Americans in
    particular, could mean improving the U.S. GDP by as much as 7
    percent. That is a trillion dollars.
        As a demographic shift, the minority groups become a
    majority of the U.S. population, it is no longer a nice-to-
    have; it is an economic imperative to promote access to capital
    to these communities in order to grow the U.S. economy and
    retain our global competitive advantage. And we must meet this
    challenge with the full weight of U.S. public policy, and I
    believe MDIs are a part of this.
        In my written statement, I have provided a more detailed
    set of comments and recommendations revolving around a series
    of issues, but I will just mention three right now: one,
    promoting increased Federal deposits to MDIs; two, exploring
    the potential of MDI/FinTech collaborations; and three,
    enabling Opportunity Zone investments into MDIs and CDFIs.
        Let me conclude here. I thank you for this opportunity, and
    I look forward to the discussion today.
        [The prepared statement of Mr. Betru can be found on page
    36 of the appendix.]
        Chairman Meeks. Thank you.
        I want to thank all of the witnesses for your excellent
    testimony. And I think this might be the first time since I
    have been Chair, that all of the witnesses finished within 5
    minutes, and I didn't have to use the gavel one time.
        Thank you. Maybe what we will do in this round is, I will
    recognize myself to ask questions for 5 minutes, but it will
    give you an opportunity to put some more meat on the bones of
    which you may have testified.
        I will start with Mr. Kelly.
        Can you please tell us and speak to the challenges that
    MDIs face in seeking to raise equity capital to achieve scale?
        Mr. Kelly. Certainly. When you think about minority banks
    and their mission focus, one of the challenges has been that
    they have been measured to larger institutions. And by default,
    what happens is, they assume that they are not as profitable or
    their intent, in terms of what they are trying to improve, from
    a pretax return on assets is not worthy of investment. So you
    have what I will call an intra-industry issue.
        We also have now an inter-industry issue, where we are
    seeing technology companies are moving in and being able to
    attract capital, and move into the logistics of moving money in
    a way that is attractive to investors.
        One of our reasons for asking this committee to support us
    is to allow us to demonstrate that with the proper scale and
    the proper focus, our institutions can grow, be mission-
    oriented in serving the low- to moderate-income communities but
    also be profitable.
        Chairman Meeks. Thank you.
        Ms. Falero, your bank is designated low income by NCUA.
    What advantages do you have with such designation, and how does
    NCUA work with you as a result of those?
        Ms. Falero. Being a low-income credit union allows us to
    serve the underserved better. CDFI certified also gives us a
    greater opportunity to be able to serve our community, and the
    grants that we receive from the Treasury that we have received,
    about two grants, helped us rebuild some of our loans in Puerto
    Rico, helped us do resettlement loans in Puerto Rico, and also
    helped us make people whole in Puerto Rico by assisting them
    with all of the items that they can't afford that insurance
    doesn't cover, for example, your furniture, your patio
    furniture, all of those other types of loans that they are not
    able to access. We have been able to do a good job with those
    loans.
        Chairman Meeks. Thank you.
        And, Ms. Sung, listening to Ms. Falero, do you think that
    other regulators should have designations similar to NCUA's
    low-income designation for banks? And what could some of those
    advantages and disadvantages be if they did?
        Ms. Sung. I think that any opportunity that we have to be
    able to obtain more access to capital, whether it is through a
    designation, as you stated, is important. At this point now, I
    am not clear, though, based upon the bills that I have seen,
    whether or not that would allow us to be able to access
    capital.
        I am concerned that, as we create this issue of trying to
    gather more data and we create data creep in our process, that
    the things that we do naturally and the things that we already
    do will be stymied as we try to meet certain requirements that
    are new.
        And I will tell you that my CRA rating has been outstanding
    for many years. And I know over 55 percent of my loans are to
    low- to moderate-income borrowers or Census tracts. And I feel
    already in what I do, I should be able to access that capital
    or grants that may be necessary to help us survive.
        Chairman Meeks. Thank you.
        Mr. Bowman, does government do enough to leverage programs
    at its disposal to deposit funds in MDIs, and what more do you
    think that we or the government can do in this area?
        Mr. Bowman. I am not an expert on that, so I may not have
    the perfect answer. However, the only the experience I have is
    a couple of years ago I went to a minority banking conference
    put on by the joint supervisors, FDIC and OCC, and there was a
    pamphlet advertising the Minority Banking Deposit Program. It
    had an application: Fill this out; we will contact you.
        I had a bad experience. I filled out the paperwork, sent it
    in, and couldn't get a real live person to call me back. At
    that point in time, I just figured, we are on our own.
        So, this bill has the opportunity to create access, and
    creating access would help reciprocal deposits. Every bank in
    this room needs deposits to make loans. Any opportunity would
    be appreciated.
        Chairman Meeks. Thank you.
        Last, Mr. Betru, I am interested in your comment about
    closing the wealth gap. Can you articulate more about that, how
    MDI banks would help?
        Mr. Betru. Sure. We are all well aware that essentially,
    when you look at the biggest driver of wealth creation in this
    nation, it definitely comes from the small business sector. In
    the small business sector, when you look at post-2008, a number
    of things happened in minority neighborhoods, where the biggest
    source of collateral that was used typically for small
    businesses was home equity value.
        After 2008, where in some ZIP Codes in minority
    neighborhoods, the value dropped by more than 50 percent, that
    collateral was not there anymore. Couple that with my previous
    statement with regards to the closures of the banks, and you
    had a perfect mixture of issues that actually prevented access
    to capital.
        If we want to create wealth, to actually bridge this gap,
    we have to think about providing the right type of capital,
    providing the right type of loan products, equity as well as
    debt, to minority-owned businesses so that they can actually
    grow those enterprises but also hire more in their
    neighborhoods. From there, then we can actually be in a much
    better position to create the wealth in minority neighborhoods
    to be able to address the gaps that we have been seeing across
    30 years.
        Chairman Meeks. Thank you very much.
        I now yield to the ranking member, the gentleman from
    Missouri, Mr. Luetkemeyer, for 5 minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        And witnesses, welcome to the panel today.
        The first question is for Mr. Kelly.
        Your testimony states that First Independence Bank remains,
    like so many CDIs, the bank of first and last resort for the
    communities that you serve.
        In addition, the letter from the National Bankers that I
    read in my opening statement said that CECL would further
    restrict access to credit for consumers and businesses that
    already experience limited credit options.
        Can you describe what limited credit options look like for
    individuals that your bank serves in your community?
        Mr. Kelly. Thank you, Ranking Member Luetkemeyer.
        What we find is that alternative financial services become
    very challenging for people. They are very expensive for
    individuals to have to do, check cashing, to have to do payday
    lending, et cetera.
        What our bank and what banks like ours do is provide those
    individuals another opportunity for financial alternatives, and
    that is what I am describing in that comment.
        Mr. Luetkemeyer. My concern is--and I am anxious to hear
    your response here--I believe that CECL will raise the cost of
    loans that you give, because in order to reserve for those, you
    are going to have to find the income from someplace. And to me,
    that limits access to credit.
        What would happen if access to credit to those consumers
    was further restricted due to CECL, where would those
    individuals go or what would they do?
        Mr. Kelly. I think, exactly as you just referred to, they
    would have to resort to alternative lending.
        If I heard your comment correctly, you were asking, does
    CECL put restraints on our business? Is that correct?
        Mr. Luetkemeyer. Yes.
        Mr. Kelly. The answer to that is, yes. In fact, I think we
    all would agree on this panel that the discussion of CECL being
    delayed was something that we were very proud to hear, and that
    we celebrated. That has not been our primary fight at this
    point because we are talking about issues such as capital.
        But your question and your premise is exact in that if we
    had to adhere to that, it would create even more pressure for
    institutions like ours.
        Mr. Luetkemeyer. Very good.
        Ms. Falero, your testimony states that 71 percent of your
    customers are low income or below and 68 percent of your
    customers are Hispanic.
        If the statement I read from the Center for Responsible
    Lending is correct, and CECL restricts lending to LMI and
    minority communities, what will that do to your business model
    and customer base? And I think you also--I know your
    association was very prompt in getting information to me with
    regards to the effect on your credit unions.
        Ms. Falero. Congressman, the effect of CECL on credit
    unions, not only our credit union, would be a tremendous
    regulatory burden and additional compliance costs. So, we would
    be spending more money dealing with that, and giving us less
    opportunity to deal with our actual members who need us.
        Mr. Luetkemeyer. We have heard in this committee before,
    testimony from the National Association of Home Builders that
    for every thousand dollars of increase in a home loan, 100,000
    people across the country no longer have access to home
    mortgage lending.
        And, to me, credit unions and small banks, community banks,
    are the crux of where this CECL accounting is going to hit and
    the very people who need access to the credit, low- to
    moderate-income folks, are where your business model is. Those
    are the folks that you take care of.
        And so, it is very concerning to me that this is going on.
    And I appreciate your response to that. I think in the letter
    you said that your capital would be affected roughly $14
    billion to $15 billion. How do you recover that? What is your
    revenue stream?
        Ms. Falero. I couldn't even answer that right now.
        Mr. Luetkemeyer. Probably interest rates and fees on the
    loans, right?
        Ms. Falero. It would have to be--yes. And that is something
    that we are not--
        Mr. Luetkemeyer. So you are going to raise the cost of the
    loan, which restricts the ability of people to have access to--
        Ms. Falero. Exactly, and that is not the way our operating
    model works.
        Mr. Luetkemeyer. Perfect.
        Ms. Sung, your testimony states that CECL might make sense
    for larger institutions but is misapplied to your institution
    and its peers. Can you elaborate on that statement? And when
    you say ``peers,'' do you mean small institutions or MDIs?
        Ms. Sung. Small institutions and MDIs.
        Mr. Luetkemeyer. Okay. How would it affect you?
        Ms. Sung. I think the cost of compliance is unknown right
    now, and that is what is scaring us. Also, the uncertainty of
    how the regulator will look at CECL once it is in effect is
    worrying us as well.
        As a result, will we have to spend money on consultants? If
    so, that will cost money and time for us as well.
        Mr. Luetkemeyer. Do you believe there is a procyclinal
    effect? In other words, whenever the economy turns down, you
    are going to have to reserve more, and therefore you have to
    raise costs and it just keeps spiraling the wrong way?
        I see Mr. Kelly nodding his head. Do you agree with that?
        Ms. Sung. Yes. There is no other way to understand that
    otherwise.
        Mr. Luetkemeyer. Ms. Falero, you agree with that?
        Mr. Bowman, I see you shaking your head.
        Mr. Betru, you also as well.
        I see my time is up. Thank you so much for your comments
    today. I appreciate it.
        I yield back.
        Chairman Meeks. The Chair now recognizes the gentleman from
    Georgia, Mr. Scott, for 5 minutes.
        Mr. Scott. Thank you very much, Mr. Chairman.
        Let me just commend you. This is an extraordinarily
    important and critical issue. And let me tell you just how
    critical this is. You have to put it in the framework of the
    history of our country, when it relates to this issue,
    paramount of which came during the Civil War.
        Alexander Hamilton, during the Revolutionary War, set the
    principles and the foundation of our great system, and we
    wouldn't have been here without that great centralized banking
    system; it required every State of the 13 States at that time
    to have a bank and to organize into a major central bank to
    power.
        But something happened just a little while later. It was
    the Civil War, which tore the whole country apart, and which
    ripped this banking system apart. But it had to come back
    together very quickly. But here is the point: It didn't come
    back for 4.5 million Black slaves. But they realized that they
    had to do something. And that is where the Freedman's Bank came
    in. And then, later on, with Plessy v. Ferguson, separate but
    equal, they wouldn't let the Black folks go in the white folks'
    bank, so they had to get Black banks.
        Here is my point. Right now, you have Mr. James Ballentine,
    who has just left. He is an executive vice president of the
    American Bankers Association, as an African American. Mr.
    Kelly, you are Chair of the National Bankers Association, as an
    African American. Wonderful.
        What I am saying is, the pieces are here. But the energy,
    the thrust, the urgency of this government to respond to this
    is not.
        Now, if we had 4.5 million slaves there without banking,
    what did they do? They put together the Freedman's Bank. Then
    what Plessy v. Ferguson did, they had to put the banks in each
    of the former Confederate States where there weren't any.
    Government policy moved to that.
        The reason I am saying that is, the answer to our unbanked
    and underbanked population is to bring and give this as a
    tremendous seeding opportunity. What better group of banks do
    we have to service and get in there so that we can reduce this
    unbanked? There are 58 million unbanked and underbanked people.
        Anyway, now that I have my sermon out, let me get to my
    question.
        I want to get to you, Mr. Kelly. What should we in Congress
    be doing to take steps now to get more of these banks in? We
    have agencies for everything, but not this. We used to have
    some efforts. But unless we get an institutionalized approach,
    that there is an entity here in the Federal Government whose
    sole purpose is to increase Minority Depository Institutions
    and have that as a primary goal of being able to enrich the
    banking system by solving this--it is a shame to have 58
    million unbanked and underbanked people.
        What say you on that? What else should we be doing?
        Mr. Kelly. Congressman Scott, thank you for that. And it
    aligns with my opening statement. We talked a little bit about
    the creation of the Federal Reserve System in 1913, and the
    FDIC in 1933.
        Mr. Scott. Yes.
        Mr. Kelly. My point was that leadership matters, but policy
    matters more. And so, to your point, which is how do we help
    support the unbanked and underbanked, there is a bill right
    now, the Improving Access to Traditional Banking Act. We need
    to make that happen soon. We need to ensure that there is a
    fund created for MDIs to support financial literacy and
    alternatives to predatory products. That is the thing that I
    would say immediately.
        But the second thing I would say is--
        Mr. Scott. I thank you for that. That is my bill. I am on
    that. And I didn't ask for that commercial.
        Mr. Kelly. You did not, but I--
        Mr. Scott. You see the energy--the energy is on this
    committee to really get institutionalized on this.
        And if they did it for the slaves coming out of the Civil
    War, 4.5 million, surely, we can do it to really solve the
    problem of getting to 58 million underbanked.
        One other point--I know, Mr. Chairman, you want me to make
    my point here--but do you all know--and I am finished after
    this--that there has not been an additional African American-
    owned bank in 20 years, since 2002?
        Chairman Meeks. The gentleman's time has expired.
        Mr. Scott. Thank you, Mr. Chairman.
        Chairman Meeks. The gentleman from Texas, Mr. Williams, is
    now recognized for 5 minutes.
        Mr. Williams. Thank you, Mr. Chairman.
        Dodd-Frank greatly increased compliance costs on smaller
    institutions throughout the country. Even though these banks
    pose little threat to financial stability, they have had to
    bear the greatest burden from a heavy-handed regulatory
    approach by the Federal Government. I have long been an
    advocate that banks should be hiring more loan officers than
    compliance officers, and this rings especially true for
    community banks.
        Mr. Betru, how has a greater regulatory burden affected the
    number of MDIs as well as the cost of credit to their
    customers?
        Mr. Betru. Thank you. I think when talking about any of the
    regulatory issues, the number of capital rules worth
    considering, most of these come from, let's say, the Basel
    Committee and the Bank of International Settlements as an
    example. In particular, there are rules around the level of
    high-quality liquid assets, how much banks should be holding in
    reserves, should be rightsized to the inherent risk of the bank
    itself. MDIs in particular, given how small they are, we know
    that most of them are low $1 billion in assets. I believe there
    are only a few that exceed that number, yet the rules that
    govern them are pretty much exactly the same up and down the
    ladder.
        A couple of things to kind of give you an example of this.
    The number of foundations that want to participate in
    supporting access to capital and work with the various MDIs,
    from the various Rockefeller Foundations, Kresge Foundations,
    is an unbelievable number. However, the way that they want to
    participate is by backstopping the credit risk that these
    different institutions have in providing access to capital, and
    they are willing to provide guarantees. These guarantees are
    governed, not just between the two different institutions, but
    those rules are governed by different bank standards around
    capital adequacy rules, leverage ratios, and the like.
        Now, with these rules, it actually specifically stipulates
    whether or not a foundation that provides these guarantees
    treats those guarantees in terms of a high-quality liquid asset
    that can be both exchangeable within 30 days or tradable on the
    open market. That level of scrutiny has forced these
    foundations to say, well, the only way that we can provide this
    is in certain rules that actually will abide by Basel or the
    particular bank regulator that is engaged.
        If we want to have the rest of the economy actually
    participate in pushing access to capital through the MDIs, we
    have to realize the exact rules that govern the capital
    adequacy rules, the liquidity ratios that these banks are
    subject to, have to be in line with our overall objective. We
    can't, in one way, support safety and soundness, and then from
    the other side, provide regulations that actually prevent that
    access to capital for underserved communities.
        Mr. Williams. Thank you. Last week, I questioned CFPB
    Director Kraninger on the small business data collection
    provision contained in Section 1071 of Dodd-Frank. I spoke with
    many community bankers in Texas about the potential costs that
    this rule would impose on smaller institutions.
        Ms. Sung, I understand that you operate a savings bank
    focusing primarily on mortgages. Can you talk about the HMDA
    data collection process for mortgages and why the Section 1071
    data collection process for small business loans could have an
    adverse effect on lending by community banks?
        Ms. Sung. Yes. HMDA collection and reporting takes up 3
    months of the 12 months of our lending season. We have about
    six people in our credit operations department, two of them,
    including my top senior credit officer, is actually--operations
    officer, is actually involved with the collection and ensuring
    the HMDA data scrub carefully, properly matching the fields,
    and finally uploaded to the government website.
        I believe that this process would be very, very difficult,
    even more so difficult in the small business lending, even
    though I am not 100 percent in that space. What happens with
    residential lending is that at the very least, you have a
    uniformed residential application you give to every single
    borrower and that borrower is required to fill out those
    fields.
        In small business lending, I was just in my Consumer
    Financial Service Committee meeting with the ICBA, and all of
    the business lenders are saying that a lot of them don't even
    use an application process in the beginning, and they are
    actually having different ways themselves customized to ensure
    that they are able to meet the credit needs of their community
    in the small business space. This alone is completely--seems to
    me going to be very impossible for these small business lenders
    to be able to create this uniformity to upload this data and
    collect it.
        Mr. Williams. Thank you. I yield back.
        Chairman Meeks. Thank you. The gentleman yields back.
        The gentleman from Missouri, Mr. Clay, who is also the
    Chair of our Subcommittee on Housing, Community Development,
    and Insurance, is now recognized for 5 minutes.
        Mr. Clay. Thank you, Mr. Chairman, especially for
    conducting this hearing. And I thank all of the witnesses for
    your attendance.
        I will start with Mr. Betru. Data shows that MDIs operate
    predominantly in low- and moderate-income communities and have
    as their client base an overrepresentation of communities of
    color. Can you speak to the challenges of having a business
    model like that?
        Mr. Betru. Sure. I think it is important to put that within
    the context of what is actually going to be the financial
    services of tomorrow. There are currently a number of online
    and mobile banking services that made themselves available
    post-2008. We talked earlier about what happened in the
    financial crisis in terms of the amount of wealth that was
    destroyed, the amount of home values that were destroyed, and
    the amount of bank closures that happened in 2008. What swept
    in was definitely a number of nonbanks that were providing
    financial services.
        These financial services firms have a different set of
    rules with regards to the type of loans that they provide and
    different types of products. If we look at low- to moderate-
    income communities, they are still of the exact same ilk as any
    business where cash matters, speed in being able to obtain
    working capital loans, CapEx loans, and the like.
        Now, with the absence of minority depository institutions,
    what are they doing? They are going to the only sources that
    they can find, whether it be payday-based or more reputable
    ones. And I think it is important to mention that online firms,
    in general, are actually--there is a wide swath of them. We did
    an evaluation of more than a hundred different institutions,
    different models, different approaches, so you can't paint them
    with the same brush.
        Mr. Clay. But have the participation levels, has the actual
    lending improved as compared to a brick-and-mortar institution?
        Mr. Betru. Absolutely. In fact, PayPal Working Capital in
    particular released a study, I believe in 2017, that found that
    when they launched their service online, the vast majority of
    the customers that they serviced were principally minority and
    women in the ZIP Codes where they saw a number of bank
    closures. Essentially, the answer to your question is, yes.
        Mr. Clay. Any explanation for that, or what do you
    hypothesize about it?
        Mr. Betru. There is a mixture of things. Either, we are
    talking about in financial services where, because the banks
    were not in their ZIP Codes, they went to alternative sources,
    and those alternative sources met the need of the particular
    borrowers.
        Mr. Clay. Okay. Thank you for that response.
        Let me ask Mr. Kelly and Mr. Bowman, minority banks operate
    more than their peers in minority and LMI communities. They
    also continue to engage with minority small businesses which
    face significant discrimination from nonminority banks. How
    successful have you been in extending products and services to
    those who want to start a business in your community? Mr.
    Kelly, you can start.
        Mr. Kelly. Certainly. I will say--and thank you,
    Congressman Clay. In my opening comments, I mentioned in
    several cases where the first and sometimes last resort for
    those entrepreneurs, you heard that ethnic minorities typically
    don't get to fund out of their home equity; they do it out of
    credit cards. That is just a metaphor for the challenges that
    we see within our communities, and that is why it is so
    important when you look at, on a pro-rata share, these
    institutions serve a market that is typically left behind.
        It is our intention to continue to be focused on those in
    that space of the community and to try to provide services
    where they normally wouldn't have an alternative. That is not
    predatory.
        Mr. Clay. I see.
        Mr. Bowman, anything you can add to that?
        Mr. Bowman. Yes. I think a real live example is
    appropriate. We have conducted outreach into some of the other
    Native American Reservations looking for opportunities to help
    people, and it is really interesting, because when they have a
    Native American banker approach them, they feel that they are
    going to get a fair shake. I spent the first half of my career
    working for a giant money center bank, and the rules were very
    rigid. The guardrails are very narrow. If I utilize those
    lending guidelines to help that Native American borrower, I am
    not going to make that loan.
        What you have to figure out, from an entrepreneurial
    standpoint, is how am I going to help? In the center of
    Wisconsin, there is a reservation, the Menominee Indian
    Reservation. It is 240,000 acres, 95 percent wooded. The
    primary industry is logging, and Menominee Tribal members log
    that land. I have made equipment loans to loggers with no down
    payment, buying a piece of equipment, because if you don't have
    a down payment, you can't go to work.
        Chairman Meeks. The gentleman's time has expired.
        Mr. Clay. My time is up. Thank you.
        Chairman Meeks. I now recognize the gentleman from Georgia,
    Mr. Loudermilk, for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman. I appreciate
    everybody on the panel here.
        It is a very interesting discussion, especially, Mr.
    Bowman, kind of the direction you were going right there are
    some of the concerns I have being from Georgia, when our State
    lost over 70 banks during the financial crisis, and we still
    have a lack of community banks. And that is one of the issues
    is, the bank that is managed closest to the people understands
    the culture, they understand the people, they understand the
    needs, and it is like the Federal Government has come in and
    taken away the local decision-making that best fits that
    community.
        Ranking Member Luetkemeyer brought up CECL, and I fully
    agree with his assessment on that. And when I talk to our
    community bankers in Georgia--and keep in mind, we still have
    50 counties in the State that do not have a locally owned
    community bank or credit union in that county. We even have
    some counties that don't have a bank branch at all, and that is
    a big concern.
        And when I ask about the challenges our community banks
    face and why we don't have the creation of de novo banks--we
    haven't seen them come back. We have had a few, but they are
    just not coming back in a way that we think they should--I am
    continually told it is like the death of a thousand cuts. It
    isn't one thing; it is a multiplicity of things. And I see CECL
    is that thousand and first cut into that because of the
    uncertainty. It is like, all right, we had a bad situation, now
    let's just throw out an idea that is not tested and we will
    just see how the market reacts. And it is going to hurt the
    local communities more than anyone else if it fails.
        Ms. Sung, the scenario I have laid out with community
    bankers and just the not seeing a revival of those locally
    controlled banks because of multiplicity of existing
    regulations, the uncertainty of new regulations, in your
    testimony, you said Congress and the banking regulators should
    pursue policies to promote the de novo banks and MDIs. Do you
    have any specific recommendations of those policies that we
    should be pursuing?
        Ms. Sung. There is talk about this in the draft bill, and I
    believe the streamlined process to be able to apply as a de
    novo bank is extremely important. However, I also don't want to
    just base it upon an application process. I think it is
    important to allow these banks, once they apply and they are
    granted a charter, the ability to actually breathe and live,
    and that is in the capital ratio requirement. You should not
    have a bank that is just starting and hasn't had a chance to
    live and to be something with a capital ratio requirement that
    is equal to a high-risk, big money center bank.
        I believe that one way to do this, other than streamlining,
    is to create several tiers of capital requirements that are
    lower when the bank begins, and then as it grows and matures,
    is higher as it takes on more risk and gets bigger.
        Mr. Loudermilk. I agree with you. I think that is one of
    the problems we have with Dodd-Frank is lumping everybody into
    one category without consideration of the constituency or the
    customer base or the community.
        Ms. Falero, what are the biggest barriers to de novo credit
    unions, particularly MDIs?
        Ms. Falero. I have to agree with Ms. Sung, the requirements
    to create a de novo credit union are extremely stringent, and
    then when they do get their charter, all of the other
    requirements and all of the compliance issues that the credit
    union has to come to terms with, it is extremely difficult for
    them to compete.
        Mr. Loudermilk. And, Mr. Bowman, again, I appreciate your
    testimony, because I remember when I started my business. Under
    today's regulations, I would not have been able to establish a
    line of credit, but the bank president knew me, knew my
    character, knew me personally, and was willing to take a risk,
    and we ended up making a fairly successful business. And that
    has just been taken away from our banks.
        Mr. Kelly, how is BSA/AML playing in this issue of not
    being able to develop new banks? Do you feel that the Bank
    Secrecy Act and the regulations around that play a factor?
        Mr. Kelly. Yes. I will give you one example of that,
    Congressman. The Beneficial Owners Act that we have to comply
    with is very challenging. Now, the question is, we have been
    given the authority to be the police to know who is actually
    behind the business, but the reality is, most of those should
    be governmental records, when someone gets a license for a
    business, et cetera. That is just one example where that burden
    needs to be taken off of the banking system.
        But the others have been old and maybe stale. One example
    would be the cash requirement of $10,000. People don't use cash
    the same way they did 50 years ago, or 40 years ago when that
    was put in place, but we still have to adhere to it. So, that
    means I have to have personnel in the back office to ensure
    that we are tracking those. So, we need a more comprehensive
    view of money and how it moves.
        And I agree that there are things we need to do to be sure
    that there aren't detrimental or prerogative things happening
    inside of a bank, but the principles from 40 years ago don't
    apply today. And that is just one example.
        Mr. Loudermilk. Thank you for that.
        I yield back.
        Chairman Meeks. The gentleman's time has expired.
        I now recognize the gentleman from Illinois, Mr. Foster,
    for 5 minutes.
        Mr. Foster. Thank you. And thank you to our panelists.
        This is something that has been worrying me for a long
    time. I am just so worried that small community banks are going
    to go the way of small community newspapers, and that our
    country will be poorer as a result.
        One question I have is whether the competition from
    FinTechs is landed disproportionately on minority-owned
    financial institutions. Anyone want to pick that up, either in
    the mortgage space, where I am pretty sure it probably may
    have, and just in the general overall banking?
        Mr. Betru. Yes. We looked at, essentially, what has been
    going on in terms of the access to capital in underserved
    markets and, in particular, because of all the issues again
    with regards to lowering of assets, lowering of credit scores,
    the absence of the banks in low-income communities, other
    providers of capital have definitely stepped in, the FinTechs
    in particular. And, again, per my previous statement, there is
    a wide number of models and platforms, and so you can't paint
    everybody with a broad brush, the same brush. However, they are
    using technology in a way that a lot of the banks are having a
    hard time adopting because of difference between the regulatory
    standards that the nonbanks have versus the banks have.
        And so as you look at ensuring some of the rules with
    regards to fair lending, disparate impact, it is not at the
    same level; however, here is where regulation can actually go a
    little bit further. If you look at the access to capital
    mission of the CDFI space in particular in targeting low-income
    individuals, specifically, if I look at the small business
    sector, you have seen the banks essentially utilizing the
    entrepreneur's own credit score rather than the cash flow of
    the business. That is what the larger banks do in a business
    profile. However, utilizing that cash flow requires a
    completely different cost profile.
        Now, the FinTechs have actually started to use technology
    in an unbelievable way to be able to do that, and so we
    actually did that test. We brought in a number of institutions
    and we looked at, can a cash flow base methodology for
    providing access to capital to a small business in underserved
    markets actually--does that yield a positive outcome?
        And this is a study that we recently released with our
    partner organization FinRegLab, but, yes, it does. But the
    issue is the ability for the banks to utilize that type of data
    is something that is regulated versus on the FinTech side.
        Now, we have been asking this question, why can't the MDIs
    and the FinTechs actually collaborate more? But this is another
    part of regulation. Third-party lending platforms, which are
    governed by the OCC, actually are a little bit more complex,
    and allow a bank to partner with a FinTech to utilize that
    technology, and increase the access to capital. In the absence
    of finding that regulation that enables that collaboration,
    FinTechs have moved in and actually are doing it in a way that
    sometimes is a bit opaque.
        Mr. Foster. They come into all of our offices and say how
    they are going to provide services to the underbanked and so on
    and so forth, but they sound a lot like all of your traditional
    customers, that they are going to go cherry pick profitable
    opportunities and just make your life harder. And so, it is a
    double-edged sword.
        We are also very interested in bias in algorithmic lending,
    but that may cause them to focus on traditional, mostly white
    groups they traditionally lend to because that is their
    training set for their artificial intelligence and leave your
    customers alone. And so I am just wondering which way the sword
    is cutting here and whether you feel like it is just putting
    all small banks under stress or preferentially the minority-
    owned banks. Mr. Bowman?
        Mr. Bowman. Thank you. Wisconsin has 11 Tribal communities.
    We are very big in one, and a small presence in others. FinTech
    has the opportunity of using this to access those communities.
    One of the challenges is when you are a small community bank,
    you are a small business. We watch every penny, every dollar,
    and everything has to be right every day for it to be a good
    business model.
        You could go to a FinTech conference and there would be
    1,000 FinTechs there. How do you vet them? We have 27
    employees. Who is going to vet them? Part of banking regulation
    is you have to have a scoring model for your vendor management
    program. They are now going to be a critical vendor, just like
    your core processor. We are going to stumble. We need some help
    to figure that out, but that is the future. We need to embrace
    that.
        Mr. Foster. Thank you.
        Chairman Meeks. The gentleman's time has expired.
        I now recognize the gentleman from Colorado, Mr. Tipton,
    for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman. I appreciate you
    holding this hearing. And I appreciate all of you taking the
    time to be here today.
        It is an interesting title of this on MDIs. I find it
    interesting the commonality between the MDIs, and my district
    in Colorado has 29 counties, small, rural areas that qualify
    certainly for low- to moderate-income, more on the low-income
    strata as well. As I have had the opportunity to be able to go
    through, we do have a CDFI that is active, First Southwest
    Bank, that is in our district to be able to make some loans,
    but those small community banks are echoing the very same
    concerns that you are putting out here today in terms of
    regulatory compliance and costs.
        And I think we probably have--I do want to certainly
    associate my thoughts with the ranking member's comments in
    regards to CECL as one more additional cost, potentially, that
    is going to impact the ability to make loans. But can we just
    go down the line, do compliance costs impact your ability to
    have profitability and to be able to make loans? Mr. Kelly?
        Mr. Kelly. Yes, it does.
        Mr. Tipton. Ms. Sung?
        Ms. Sung. Yes, it absolutely does.
        Mr. Tipton. Ms. Falero?
        Ms. Falero. Absolutely, it does.
        Mr. Tipton. Mr. Bowman?
        Mr. Bowman. Yes, absolutely.
        Mr. Tipton. Mr. Betru?
        Mr. Betru. Not as a bank, but as a nonprofit, yes.
        Mr. Tipton. It does. Great.
        In listening to Mr. Kelly during his opening comments, he
    said that leadership matters, but policy matters more. And that
    is the role, I think, that Congress needs to actually be active
    in. We have had Chair Yellen before the Full Committee, and we
    have had Chair Powell before the Full Committee. I have a piece
    of legislation called the TAILOR Act, to be able to sculpt
    regulations to be able to meet the size and the risk portfolio
    of the institutions, rather than having one-size-fits-all.
        I think many of us recall some of the comments after the
    passage of the Dodd-Frank Act, the bigger banks, one CEO had
    noted, it becomes a moat around those big banks, making it
    harder for the smaller banks to be able to compete simply
    because you can't keep up with the regulatory costs that are
    coming through.
        As we visited with Chair Yellen, and as we visited as well
    with Chair Powell, the regulations aren't necessarily supposed
    to apply to the smaller institutions, but something called best
    practices comes in when the examiners come in the door. And so,
    those costs do continue to multiply and inhibit that ability to
    be able to grow our communities.
        I had a very similar circumstance to Mr. Loudermilk when I
    started my business. I filled out a form to the Secretary of
    State sales tax license, got a character loan for $10,000, and
    I was in business. What bank can really do that today?
        You can. You are one of the few who might be able to make
    some of those character-type loans. But knowing the clientele
    that you work with, knowing your community is something that
    ought to be respected by the financial policy that is coming
    out of Washington, D.C., because it does have a real impact.
        And we are looking at some of the MDIs. Have you seen
    mergers between MDIs that have taken place? Ms. Sung, you are
    nodding your head. Is some of this a practice really of
    regulatory cost, meaning that you have to have the economy of
    scale to be able to just simply survive?
        Ms. Sung. Yes, it has absolutely had to do that. I have
    seen two Asian-American banks in my community in the past 24 or
    12 months have merged because of that issue. AML/BSA compliance
    regulation is actually one of the highest regulatory costs. I
    would say one-half of my compliance resources are used to that
    particular regulation, and one-third of my board meetings are
    actually spent reviewing AML/BSA reports by my AML/BSA officer.
    So, that is an enormous outweighted focus on one regulation.
        Mr. Tipton. Thank you for that.
        We had a study that was put on by the Council of State Bank
    Supervisors, and they found that regulatory costs for State-
    chartered community banks was 4.2 percent just in 2018. And as
    I have talked to my community banks throughout my district, we
    don't have a lot of the big banks that are actually there, but
    those regulatory costs and how that is impacting their profits,
    which ultimately impacts their ability to be able to pay the
    people who work there more and to be able to make those loans,
    has become an inhibiting factor for being able to help
    underserved and rural areas to be able to grow and to be able
    to provide jobs.
        I appreciate, Mr. Chairman, you holding this hearing, and I
    invite the witnesses to take a look at this TAILOR Act. I think
    it is something that might benefit you as well.
        Thank you. And I yield back, Mr. Chairman.
        Chairman Meeks. The gentleman's time has expired.
        I now recognize the gentlewoman from New York, Ms. Ocasio-
    Cortez, for 5 minutes.
        Ms. Ocasio-Cortez. Thank you, Mr. Chairman. And I would
    like to thank all of our witnesses here for being here today.
        I think, particularly when we are talking about issues like
    the wealth gap, it is important that we operate and have these
    discussions with the context of history. And in the United
    States, we have a long and ugly history of discrimination and
    economic discrimination. And that history of discrimination and
    plunder has kept communities of color impoverished, and it is
    as apparent today as it was in 1865, when Lincoln signed the
    Freedman's Savings and Trust Act. And it dates back to
    communities like in New York City, when one of New York City's
    first free Black communities was demolished to build Central
    Park.
        I think it is important that we, again, recognize that
    context in history today and see where that inertia of
    injustice and identify where those areas may be in our present
    financial systems, whether it is for Native communities, Black
    communities, Latino immigrant communities, et cetera.
        Minority depository institutions lend to minorities at a
    dramatically higher rates, is that correct, Mr. Kelly?
        Mr. Kelly. Representative, I am not sure of that answer.
        Ms. Ocasio-Cortez. Is there someone on the panel who does
    know the answer to that question?
        Mr. Betru. In terms of the portion of their total lending
    and total assets, disproportionately, they focus on minorities
    more than others.
        Ms. Ocasio-Cortez. Okay. Thank you, Mr. Betru. Is it also
    true that despite strong financial performance, minority
    depository institutions continue to struggle to raise capital?
        Mr. Betru. Yes.
        Ms. Ocasio-Cortez. Why is that?
        Mr. Betru. There is a misconception, I would say, in terms
    of their efficiency. Essentially, there is a perception by MDIs
    by virtue of the fact that they predominantly live within
    minority neighborhoods, that they are in and of themselves
    inefficient and essentially less likely to be a good investment
    source for an investor. And that is actually something that we
    at the Milken Institute wanted to challenge. So, we decided to
    do an analysis of the return on assets in small business
    lending efficiencies of MDIs. We collated everything from 2002
    to 2019, and did a data and envelope analysis, and actually
    found that that is actually not true.
        On a size-weighted basis, the efficiencies of MDIs versus
    non-MDIs was not different between those two cohorts. We are
    actually hoping to have this study published in the next week
    or two, but it gets at this point: The perception of
    inefficiency belays the reality of what these institutions are
    doing.
        Ms. Ocasio-Cortez. To clarify, minority depository
    institutions, by the books, are strong and exhibit strong
    financial performance, but they struggle to raise capital
    because of the perception that minority depository institutions
    are somehow a bad bet?
        Mr. Betru. The perception blocks the ability of investors
    to support them and help them to scale. It is the scale the
    fact that, A, their inability to attract the right type of
    scale to defer the cost of compliance, the scale that actually
    drives the real drive towards efficiency, but it is a
    triumvirate of scale, perception, and a number of other
    compliance-related issues that all conflate the problem that
    you are talking about.
        Ms. Ocasio-Cortez. Thank you very much for that insight.
        Ms. Falero, I wanted to thank you for your testimony today.
    As I am sure you are aware, during economic downturns,
    communities of color are almost always hit the hardest. We need
    look no further than the last financial crisis to see that.
        As a lender to Puerto Rico, I am interested in hearing how
    your organization approaches lending during economic downturns
    and some of the challenges that you face?
        Ms. Falero. Thank you, Congresswoman Ocasio-Cortez, for
    that question. We are very proud to serve the community of
    Puerto Rico. We had a branch there for 25 years, so we are very
    familiar with the needs and wants of that community. And during
    the hurricanes, we worked with our members, and helped them as
    much as we could. We deferred their loan payments. We waived
    all their fees, late fees, ATM fees in the islands, anything
    that we could do to assist them.
        We have a strong auto lending program right now in Puerto
    Rico. The unfortunate part of it is that, since we are a credit
    union, we are very limited in our field of membership, so we
    are only able to serve three cities--Carolina, San Juan, and
    Trujillo Alto--because of the field of membership expansion
    rules that we have.
        Ms. Ocasio-Cortez. Thank you very much.
        Chairman Meeks. The gentlelady's time is expired.
        I now recognize the gentleman from Kentucky, Mr. Barr, for
    5 minutes.
        Mr. Barr. Thanks, Mr. Chairman. I appreciate the hearing,
    and I appreciate the testimony from the witnesses.
        I have a question about mortgage lending for all of you
    all, and we will start with Mr. Kelly and work down the panel,
    if you don't mind. At the conclusion of the promulgation of the
    Qualified Mortgage rule, did you observe a decline in the
    availability of mortgage credit, particularly as you reflect
    upon the fact that your institution serves low- and moderate-
    income borrowers?
        Mr. Kelly. Congressman, I am not sure I understood the
    first part of your question.
        Mr. Barr. Did you observe, in serving your customers after
    the Qualified Mortgage rule went into effect, that that
    materially reduced access to mortgage credit for your
    customers?
        Mr. Kelly. Congressman, here is how I would answer that. We
    have seen it become more challenging for us, for a number of
    reasons, to compete in the marketplace, some FinTech-related,
    as one of the witnesses had mentioned here, but also, it is a
    combination of many things.
        And I will give you one example. On CRA, we have seen
    larger banks be able to give rebates to customers for CRA
    credit, and these are much larger banks. We have to compete
    with that, and we can't compete with that.
        The point I am trying to make is that for small
    institutions like ours, it is very difficult to play in the
    mortgage space with the compliance you have to support the
    scale that you have.
        Mr. Barr. I guess what I am getting at--
        Mr. Kelly. Like HMDA, the following of the HMDA rules and
    all of those is a burden for us. And so, for players who are in
    the 100 to 200 over the 2-year period, that becomes very
    challenging to spread that compliance cost based on the spread
    of where we can actually compete and place those mortgages in
    the market. That doesn't include the ones we keep on the books
    in terms of our portfolio--
        Mr. Barr. I guess what I am getting at is, did the
    inflexible, rigid 43 percent debt-to-income rule limit your
    ability to originate mortgages for your customers?
        Mr. Kelly. The answer to that is a simple yes.
        Mr. Barr. Yes.
        Ms. Sung?
        Ms. Sung. When the Dodd-Frank rule came out on the
    Qualified Mortgage, we saw a tremendous drop in lending. It
    took me a year to review the rule and to understand the small
    creditor exception, which was very important for us to be able
    to continue to lend and to lend on our portfolio. I had to go
    to my regulator, despite the fact this was legislatively
    approved, to get them to approve. I had to literally write a
    research and White Paper for them, for them to accept and allow
    me to do this.
        To this day, they are continuing to monitor my lending in
    the small creditor exception space continuously. They are
    worried about concentration risks. I tell them that my mission
    is to serve my community, and my community cannot fall in the
    cookie-cutter profile that other bigger banks are, I must go to
    that. However, they are concerned about concentration risk.
        Mr. Barr. And, Ms. Falero, did your members see a drop in
    access to mortgage credit after the Qualified Mortgage rule
    went into effect?
        Ms. Falero. Unfortunately, we are not able to offer first
    mortgages right now because of the cost involved and our size
    credit union and all the regulations involved.
        Mr. Barr. So you just got out of the business altogether?
        Ms. Falero. We did.
        Mr. Barr. So, QM to you is quitting mortgages?
        Ms. Falero. Yes.
        Mr. Barr. Mr. Bowman?
        Mr. Bowman. We did see a decline in lending. We are
    fortunate, however, because we have a niche product. We serve a
    Native American customer base. There is a product called the
    HUD Section 184 loan, and one of the eligibility requirements
    is you have to be an enrolled member of a federally recognized
    Tribe. Our business continued when QMI came in. What suffered
    were the applicants who didn't qualify, who were non-Native
    American and couldn't qualify for the specialty.
        Mr. Barr. Mr. Betru, I am going to come back to you. But
    just for the other witnesses, I am sorry that the CFPB's rule
    negatively impacted your customers. What we were able to do in
    a bipartisan basis in the last Congress was, through a
    portfolio lending provision for institutions below $10 billion
    in consolidated assets, is provide that portfolio lending
    relief, and our hope is and our intent was to provide your
    institutions and, more importantly, your customers, that
    flexibility to access mortgage credit where you can retain that
    risk and hold those credits on your books.
        And that is what we were trying to remedy there. Last
    question to Mr. Betru, Mr. Betru, the valid-when-made doctrine,
    if we were to restore valid when made and overturn Madden,
    would that help invite FinTech assistance for minority-owned
    institutions?
        Mr. Betru. I believe on valid-when-made component, and I
    think both sides of the argument have a valid point. On one
    end, you have proponents that are making the right case that
    when a loan is made from a borrower and a provider, that
    financial services having that clarity throughout the life of
    that loan makes absolute sense. I think the fact that we have
    differences with regards to what is affordable across multiple
    States, in some places like in Utah where there are no usury
    laws, is putting a little bit of consternation for various
    lenders. That being said, from a FinTech's perspective, they
    are operating throughout multiple different jurisdictions.
        I think the biggest point that we have to figure out is,
    the banks that are sitting here are dealing with a different
    regulatory regime than the nonbanks, and bringing parity to
    that absolutely makes sense. In the absence of that parity, I
    think the situation we are dealing with is, we have FinTechs
    that are able to provide a type of financing that a lot of
    these banks are not.
        Chairman Meeks. The gentleman's time is expired.
        I now recognize the gentleman from Florida, Mr. Lawson, for
    5 minutes.
        Mr. Lawson. Thank you, Mr. Chairman, and witnesses, welcome
    to the committee.
        Mr. Kelly, could you tell me how many African-American
    banks are still in existence? Do you have that number?
        Mr. Kelly. There is a round number that I would say is
    roughly around 21, 22, is the number in the country out of
    roughly 5,500-plus banks.
        Mr. Lawson. Okay. The other question would be--and I might
    know some of the answers, but I would like to hear some of the
    answers from you, if you are aware. What led to the major
    decline? It wasn't a financial crisis; it probably started
    before then. But what led to the major decline of African-
    American banks?
        Mr. Kelly. I would say it is a host of things. I think it
    was Representative Loudermilk who mentioned that it is death by
    a thousand cuts, and that has been prevalent in the industry.
    The challenges that you heard him describe in Georgia, I think
    Georgia lost more banks than any other State in the country.
    These are not MDIs, but I think it is somewhat prevalent.
        The other aspect of it that I would say to you,
    Congressman, is the propensity of where African-American banks
    were built. You heard Congressman Scott mention there hasn't
    been one chartered in 20-plus years. Our banks were centered in
    the heart of what used to be the middle-class African-American
    community where the doctors, and the lawyers, et cetera, lived.
    Some of that was because of redlining issues that the
    Congresswoman made reference to, but the reality is, through
    kind of some of the changes in our economy where you saw people
    move away from the city and to the suburbs, our institutions
    weren't capable of being able to deliver beyond the brick and
    mortar and the circumferences that they were built in. And so
    you saw kind of a decline of business activity around some of
    these institutions that have been somewhat challenging for
    them.
        Mr. Lawson. Mr. Betru, would you like to comment on that?
        Mr. Betru. Sure. In answering your question, I think it is
    important to take the Congresswoman's comment earlier about
    making a historical context point. I think when we look at the
    middle of this previous century dealing with redlining, it
    wasn't, at least on paper, an overtly racist issue. It was
    utilizing the construct of these markets are too risky to
    engage in.
        Now, if we are talking about the failure of MDIs in
    quotations, and I don't believe the failure is an accurate
    description, it is a mixture of everything that happened post-
    2008, in terms of the individuals being targeted by certain
    unscrupulous mortgage lenders, their wealth being destroyed.
    Eventually, those institutions that served them felt the brunt
    of the 2008 crisis. And post, what do we do, we started
    introducing a number of regulatory standards that were unfairly
    at parity between an institution that is sub-$1 billion in
    assets with all the other banks.
        In essence, are we looking at introducing, it is too risky
    for these banks to operate in these areas in a similar way that
    is unfair? The MDIs are $250 billion in assets, the entire 150
    of them, $250 billion. That is like 1 percent of the total
    assets of the all 5,500 institutions, yet we are subjecting
    them to the exact same level of regulatory scrutiny as we have
    other banks north of $200 billion in assets. If we want them to
    actually deploy capital to the exact communities that need it,
    then we have to rightsize the rules which govern them.
        Mr. Lawson. That is amazing.
        And the last question is, if I have enough time, it seems
    like the credit unions that are associated with a university
    seem to have a much higher opportunity to survive during the
    financial crisis and so forth. Is it because they have built-in
    depositories that are used from the universities, especially
    with minority universities? Is that one of the reasons why you
    can still find credit unions associated with the universities
    and in many of the cities where there are minority
    institutions?
        Mr. Bowman, you seemed like you wanted to say something?
        Mr. Bowman. I work in the banking industry, and I think I
    would defer to Ms. Falero. She runs a credit union.
        Ms. Falero. Congressman, yes, I work at a credit union, and
    I believe the reason why credit unions are a little bit more
    able to survive is the way we do our loans. We are very
    conservative, highly regulated, and our mission in life is to
    deal with the underserved. That is what we do.
        Mr. Lawson. Okay. I yield back, Mr. Chairman.
        Chairman Meeks. Thank you.
        I am now going to yield a minute and a half to the ranking
    member for a closing statement.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        I thank each one of you for being here today. You have done
    a great job of stating your case and informing us. It has been
    very informative for me to be able to ascertain some of the
    things that I think are important.
        I think from the standpoint that small banks and credit
    unions provide many resources to the communities that you
    serve, you have the same problems that every small community
    bank, every small credit union in the country has from the
    standpoint of compliance, because it is just through the roof.
    It is driving consolidation, it is driving them out of
    business, and we need to find ways to minimize that, if not get
    rid of it altogether.
        Obviously, my focus has been on CECL today because I think
    it is a huge problem for, I think, our economy and especially
    for small banks and credit unions in particular from the
    standpoint of having to reserve more money for that, and there
    is only one place to go get that and that is when you make that
    loan. And that is going to raise the cost. It is going to keep
    people from having access to credit.
        I think one of the things we talked about, I think Ms. Sung
    talked about, was concentration of credit or concentration of
    risk. If you are doing a good job of representing your
    community, you are going to be invested in your community. You
    know what you are going to do? You are going to have a lot of
    risk in your community, because that is where your risk is.
    That is what you want to do, you want to improve your
    community.
        As a small institution, yes, you have your investments in
    the community and that is where your risk is, but if you do a
    good job of--and this is where the analysis of the regulator
    needs to be. And as a former regulator, I can tell you some of
    them do a good job and some of them don't. You wind up with
    some folks who don't want to do their job, and they are lazy,
    but they need to go in there and depend on you to give them a
    review of the economic activity in your area and how you can
    help interact with that and build a better community.
        Each of you, I can see, have your community at heart. I
    thank you for that.
        And with that, I will yield back.
        Chairman Meeks. Thank you.
        First, let me ask unanimous consent to enter statements
    into the record submitted by the Credit Union National
    Association, the Creative Investment Research, and the
    inclusive and its network of CDFI credit unions.
        Also, without objection, I ask for unanimous consent to
    submit an article published on the OCC website entitled,
    ``Citibank: Partnering With Community Banks to Expand Financial
    Access,'' which speaks out about Citi's program which provides
    over 440,000 customers of 25 participating community banks,
    minority deposit institutions, and Federal credit unions with
    surcharge-free access at 2,300 Citibank branch ATMs.
        Without objection, it is so ordered.
        And I now recognize myself for a minute and a half for a
    closing statement.
        As we conclude this hearing, I first wish to thank the
    witnesses for your testimony and for choosing to tackle some of
    the most difficult challenges in banking, namely, ensuring
    access to financial services for marginalized, underbanked, and
    discriminated communities. We sometimes portray banking and
    bankers as a monolith, but it is a complex and diverse industry
    that is reflective of the diversity of America, but it is also
    reflective of the problems in America.
        We cannot allow minority banks to disappear. And we must
    work in earnest to tackle the challenges of banking
    discrimination in lending and foster genuine diversity in the
    banking sector. We must do that, because that is the way we
    close the wealth gap. If we look at what took place prior to
    2008, we were closing the wealth gap, but after 2008 and the
    crisis, when individuals in minority communities were most
    directly affected, that wealth gap just blew open, and we are
    not lending in the way or having access to capital in the way
    that we should in our MDIs.
        So, I have taken note. I have been listening very carefully
    to the feedback on my bill, and I will work to make appropriate
    changes ahead of its introduction.
        I must close with thanking, again, Chairwoman Waters, for
    putting issues of diversity and inclusion at the heart of our
    committee's work, as well as to congratulate my colleague, Mrs.
    Beatty, for her able leadership on the Diversity & Inclusion
    Subcommittee.
        But I also want to thank my colleagues from across the
    aisle, Mr. McHenry and Mrs. Wagner, and, of course, the ranking
    member of this subcommittee, Mr. Luetkemeyer, for engaging with
    us constructively on issues of diversity and, in particular, on
    today's hearing on minority banks and tackling issues faced by
    underbanked communities. These issues cut across parties and
    districts, and I believe that our work here matters to the
    vulnerable communities we all represent in Congress.
        Again, I thank the witnesses for their testimony today.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.

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