    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                             THE FUTURE OF BANKING:
                           HOW CONSOLIDATION, NONBANK
                          COMPETITION, AND TECHNOLOGY
                        ARE RESHAPING THE BANKING SYSTEM

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

                                 HYBRID HEARING

                                   BEFORE THE

                      SUBCOMMITTEE ON CONSUMER PROTECTION
                           AND FINANCIAL INSTITUTIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 29, 2021

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 117-49

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    46-008 PDF                 WASHINGTON : 2021

    -----------------------------------------------------------------------------------

                     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             FRANK D. LUCAS, Oklahoma
    GREGORY W. MEEKS, New York           BILL POSEY, Florida
    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
    AL GREEN, Texas                      BILL HUIZENGA, Michigan
    EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
    ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
    JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
    BILL FOSTER, Illinois                FRENCH HILL, Arkansas
    JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
    JUAN VARGAS, California              LEE M. ZELDIN, New York
    JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
    VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
    AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
    MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    RITCHIE TORRES, New York             JOHN ROSE, Tennessee
    STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
    ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
    RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
    MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
    ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    NIKEMA WILLIAMS, Georgia
    JAKE AUCHINCLOSS, Massachusetts

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

                       ED PERLMUTTER, Colorado, Chairman

    GREGORY W. MEEKS, New York           BLAINE LUETKEMEYER, Missouri,
    DAVID SCOTT, Georgia                     Ranking Member
    NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
    BRAD SHERMAN, California             BILL POSEY, Florida
    AL GREEN, Texas                      ANDY BARR, Kentucky
    BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
    JUAN VARGAS, California              BARRY LOUDERMILK, Georgia
    AL LAWSON, Florida                   TED BUDD, North Carolina
    MICHAEL SAN NICOLAS, Guam            DAVID KUSTOFF, Tennessee, Vice
    SEAN CASTEN, Illinois                    Ranking Member
    AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
    RITCHIE TORRES, New York             WILLIAM TIMMONS, South Carolina

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        September 29, 2021...........................................     1
    Appendix:
        September 29, 2021...........................................    51

                                   WITNESSES
                         Wednesday, September 29, 2021

    Gonzalez-Brito, Paulina, Executive Director, California
      Reinvestment Coalition.........................................     5
    Henry-Nickie, Makada, Fellow, Governance Studies, Brookings
      Institution....................................................     7
    Hughes, Sarah Jane, University Scholar and Fellow in Commercial
      Law, Maurer School of Law, Indiana University..................     9
    Jackson, Desiree, Assistant Vice President, Treasury Management,
      Beneficial State Bank..........................................    10
    Reuter, Jim, Chief Executive Officer, FirstBank, on behalf of the
      American Bankers Association...................................    12

                                    APPENDIX

    Prepared statements:
        McHenry, Hon. Patrick........................................    52
        Gonzalez-Brito, Paulina......................................    54
        Henry-Nickie, Makada.........................................    72
        Hughes, Sarah Jane...........................................    78
        Jackson, Desiree.............................................    92
        Reuter, Jim..................................................    97

                  Additional Material Submitted for the Record

    Perlmutter, Hon. Ed:
        Written statement of the American Financial Services
          Association................................................   106
        Written statement of the Bank Policy Institute...............   108
        Written statement of the Credit Union National Association...   119
        Written statement of the Electronic Transactions Association.   122
        Written statement of the Financial Data and Technology
          Association................................................   125
        Written statement of the Independent Community Bankers of
          America....................................................   129
        Written statement of the National Association of Federally-
          Insured Credit Unions......................................   132
        Written statement of the National Armored Car Association....   139
        Written statement of Hon. Donald M. Payne, Jr., a
          Representative in Congress from the State of New Jersey....   141

                             THE FUTURE OF BANKING:
                           HOW CONSOLIDATION, NONBANK
                          COMPETITION, AND TECHNOLOGY
                        ARE RESHAPING THE BANKING SYSTEM

                                  ----------

                         Wednesday, September 29, 2021

                 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 10:02 a.m., in
    room 2128, Rayburn House Office Building, Hon. Ed Perlmutter
    [chairman of the subcommittee] presiding.
        Members present: Representatives Perlmutter, Meeks, Scott,
    Velazquez, Sherman, Green, Foster, Vargas, Lawson, Casten,
    Pressley; Luetkemeyer, Posey, Barr, Williams of Texas,
    Loudermilk, Budd, Kustoff, Rose, and Timmons.
        Ex officio present: Representative Waters.
        Also present: Representatives Garcia of Illinois and Emmer.
        Chairman Perlmutter. 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. Also, without
    objection, members of the full Financial Services Committee who
    are not members of this subcommittee are authorized to
    participate in today's hearing.
        With the hybrid format of this hearing, we have some
    Members and witnesses participating in-person and others on the
    Webex platform.
        I would like to remind all Members participating remotely
    to keep themselves muted when they are not being recognized by
    the Chair. The staff has been instructed not to mute Members,
    except when a Member is not being recognized by the Chair, and
    there is inadvertent background noise.
        Members are also reminded that that they may only
    participate in one remote proceeding at a time. And I am aware
    that there are several hearings going on even as we speak, but
    you can only participate in one at a time. If you are
    participating remotely today, please keep your camera on. And
    if you choose to attend a different remote proceeding, please
    turn your camera off.
        Today's hearing is entitled, ``The Future of Banking: How
    Consolidation, Nonbank Competition, and Technology are
    Reshaping the Banking System.''
        I now recognize myself for 4 minutes to give an opening
    statement.
        Following the financial crisis, former Federal Reserve
    Chair Paul Volcker was once asked about financial innovation
    and regulatory reform, and he said, ``The most important
    financial innovation that I have seen in the past 20 years is
    the automatic teller machine (ATM). It really helps people
    prevents visits to the bank, and it is a real convenience. How
    many other innovations can you tell me of that have been as
    important to the individual as the ATM, which is more of a
    mechanical innovation than a financial one?''
        I don't bring this up to say that financial innovation is
    bad, and bank technology needs to stop at ATMs, but there is a
    point to what Mr. Volcker said. From the consumer perspective,
    the ATM is a wildly-useful product, and it is not such a
    complicated idea.
        However, many so-called innovative and complex financial
    products, like credit default swaps or balloon mortgage
    payments, got us into a lot of trouble back in 2008.
        But in the dozen years since the financial crisis, there
    have been many real innovations in banking with clear benefits
    to consumers. You can access your accounts and transfer funds
    with your smartphone.
        Credit unions and banks have developed advanced fraud
    detection to address the rise in cybersecurity threats. I was
    recently notified that there had been some fraudulent activity
    on one of my accounts that was actually noticed within hours of
    the activity.
        New tools in analytics help consumers set and track savings
    and spending goals. We are also seeing more financial
    institutions use artificial intelligence, machine learning, and
    algorithmic-based decisions. These technologies offer a great
    deal of promise, but also raise new consumer protection issues.
        Another trend over the past decades has been the
    consolidation in the banking sector. In 1984, there were 18,000
    different banks across the country. Today, there are less than
    5,000, and the number of new bank charters has fallen to a
    record low.
        The number of credit unions has also fallen from about
    15,000 in 2004, to about 5,000 today.
        With fewer banks and credit unions, there is less consumer
    choice when it comes to depository institutions.
        But this is not to say that traditional financial
    institutions are completely without new competition. Financial
    technology companies, often referred to as fintech, have
    captured a larger and larger share of consumer mortgage and
    small business lending markets.
        These firms are often not subject to the same regulations
    that banks and credit unions are, but often compete in the same
    markets. In April, this subcommittee held a hearing on the
    trends of financial institution charters. We looked back in
    history at the powers of the National Bank Act, the original
    purpose of industrial loan companies in examining how banking
    laws are being used and, in some cases, stretched to fit an
    evolving financial services sector.
        As illustrated by that hearing, there are significant
    challenges for Congress and regulators to keep up with modern-
    day trends.
        My time has expired, so I will now yield to Mr.
    Luetkemeyer, the ranking member of this subcommittee, for 5
    minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman. I would like to
    ask unanimous consent to insert Full Committee Ranking Member
    McHenry's statement into the record.
        Chairman Perlmutter. Without objection, it is so ordered.
        Mr. Luetkemeyer. Thank you, Mr. Chairman, and thank you for
    having this important hearing today, and I thank our witnesses
    also for testifying before us. We look forward to your
    insightful information.
        This hearing asks us to consider the future of banking, a
    very broad subject. In order to understand where banking is
    going, we need to examine what has happened to banking in the
    past.
        At the turn of the century, there were 9,600 FDIC-insured
    banks. Today, there are a little more than 4,900. Potentially
    more troubling, the number of banks with less than a $100
    million in assets has declined by 92 percent since 1985.
        What are the leading factors driving consolidation in the
    banking sector? What are the practical impacts on consumers?
    And what are common-sense private-sector solutions to this
    problem? These are the questions we should be examining at this
    hearing today.
        Consolidation in the banking sector has been occurring for
    the past 3 decades. However, there is no doubt that the impacts
    of a post-Dodd-Frank Act regulatory regime are hurting small
    financial institutions.
        A 2020 FDIC study examined the per-unit costs associated
    with operating a community bank with below $10 billion in
    assets. They found that in the year 2000, the most efficient
    size for a community bank was $350 million. In 2019, the most
    efficient size of a bank was $3.2 billion. In short, the FDIC
    study found that the current regulatory landscape has created
    an ecosystem where size equals survival.
        While community banks continue to consolidate, non-bank
    firms, including fintechs, have risen sharply in their absence.
    It is clear that fintechs have spurred innovation in the
    financial services sector and increased access to credit for
    consumers.
        Much of this innovation and inclusion has come through
    bank-fintech partnerships. These relationships allow fintechs
    to innovate, while being regulated by bank regulators through
    their examination and supervision of a banks' third-party risk.
        All of this information begs the question, what should
    Congress do? First, we should examine what specifically is
    driving up the costs for community financial institutions and
    look at ways of alleviating those costs through regulatory
    reform.
        Second, we should examine the processes and requirements in
    place for de novo institutions. We saw the formation of 15 de
    novo institutions in 2020, a far cry from the 149 the year
    before Dodd-Frank.
        Third, we should ensure that a bank-fintech partnership
    model remains intact. Unfortunately, my colleagues on the other
    side of the aisle are dismantling the bank-fintech ecosystem by
    reversing the OCC's True Lender Rule.
        While Republicans are looking to solutions that allow the
    private sector to innovate in a manner that solves these
    problems, improves inclusion, and decreases banking deserts, my
    colleagues on the other side of the aisle have a very different
    view of the future of banking.
        In just this Congress, we have seen the Majority put
    forward proposals to turn the Consumer Financial Protection
    Bureau (CFPB) into a public credit bureau, establish postal
    banking, and establish government control of the banking system
    through FedAccounts.
        In fact, the recent Biden nomination for Comptroller of the
    Office of the Comptroller of the Currency (OCC) argued for
    FedAccounts even though, in her own words, it would, ``end
    banking as we know it.''
        A government takeover of the banking system is truly one of
    the most radical ideas I have heard in my time in Congress, and
    yet it has become a mainstream tenet of the Majority's
    platform. It truly terrifies me that these ideas are receiving
    serious consideration in this committee.
        At a time when the leaders of the House and the Senate are
    desperately pursuing Bernie Sanders' socialist agenda, and the
    President appointed an OCC Chair with hopes of ending banking,
    the future of banking couldn't be in more limbo.
        I thank the witnesses for being here today. I look forward
    to discussing how Congress can and should allow the private
    sector to improve the banking system.
        And with that, Mr. Chairman, I yield back.
        Chairman Perlmutter. I thank the gentleman.
        And seeing that the Chair of the Full Committee isn't here,
    I will take that last 49 seconds I had left for her to just
    say, given the challenges of keeping up with the present, I am
    excited for today's hearing. This hearing is about ensuring
    that 10 or 20 years down the road, we have a banking system
    that is innovative, consumer-driven, and competitive, and
    making sure it works for every American.
        I would now like to introduce our witnesses. And I thank
    you all for appearing virtually.
        First, I would like to begin with Paulina Gonzalez-Brito,
    who is the executive director of the California Reinvestment
    Coalition. Paulina has more than 20 years of experience working
    on economic justice and community empowerment issues, and
    currently serves on the board of directors for the National
    Association for Latino Community Asset Builders.
        Second, Dr. Makada Henry-Nickie, who is the Robert and
    Virginia Hartley Fellow in Governance Studies at the Brookings
    Institution. Makada is an expert in fintech issues and
    equitable access to financial services, and formerly worked as
    a senior analyst with the Consumer Financial Protection Bureau.
        Third, Sarah Jane Hughes is a university scholar and fellow
    in commercial law at Indiana University's School of Law. She is
    an expert on payment systems, online banking, and privacy
    issues.
        Fourth, Desiree Jackson is the assistant vice president for
    treasury management at Beneficial State Bank. She is a member
    of the Communication Workers of America Local 9412, and has
    worked in the financial services sector for more than 25 years.
        And finally, Jim Reuter is the chief executive of FirstBank
    headquartered in Colorado, and a friend of mine, who is
    testifying on behalf of the American Bankers Association. Jim
    started his career at FirstBank in 1987 and has worked in
    various departments within the bank including mortgage
    operations, IT, online banking, payments, contact center, and
    treasury management. He is the former Chair of the American
    Bankers Council.
        Witnesses, you are reminded that your oral testimony will
    be limited to 5 minutes. You should be able to see a timer at
    the bottom of your screen that will indicate how much time you
    have left. When you have 1 minute remaining, a yellow light
    will appear. I would ask you all to be mindful of the timer,
    and when the red light appears, to wrap up your testimony so we
    can be respectful of both the other witnesses' and the
    subcommittee members' time.
        And without objection, your written statements will be made
    a part of the record.
        We will begin with Paulina Gonzalez-Brito. You are now
    recognized for 5 minutes for your testimony.

       STATEMENT OF PAULINA GONZALEZ-BRITO, EXECUTIVE DIRECTOR,
                   CALIFORNIA REINVESTMENT COALITION

        Ms. Gonzalez-Brito. Good morning. Thank you for inviting me
    to join you today, Chairman Perlmutter and Ranking Member
    Luetkemeyer.
        My name is Paulina Gonzalez-Brito, and I go by the pronouns
    they/them. I am Purepecha, Chicane, and my people come from the
    original people of Michoacan and Zacatecas.
        I am the executive director of the California Reinvestment
    Coalition, or CRC, and we work to close the racial wealth gap.
        From the stealing of land to the enslavement of Black
    people through housing, lending, and financial policies, the
    U.S. has always profited from the labor of Black, Indigenous,
    and people of color (BIPOC), while simultaneously denying us
    wealth.
        As we continue to march down the path of mergers and
    acquisitions resulting in fewer financial institutions, the
    closure of branches, and less reinvestment, it is no surprise
    to anyone that communities of color are disproportionately
    impacted.
        With the support of Chairwoman Waters, President Biden
    recently issued an Executive Order meant to improve regulatory
    oversight of bank mergers. It is imperative that regulators not
    rubber-stamp merger applications but give the mergers the
    scrutiny they deserve.
        This year alone, in California, CRC and our members have
    negotiated three community benefits agreements to ensure that
    proposed bank mergers have a public benefit. The agreements
    with banks articulate community needs and how the bank will
    meet those needs and, therefore, further Community Reinvestment
    Act (CRA) implementation.
        Just last week, U.S. Bank announced plans to acquire Union
    Bank. Currently, neither bank has community benefits
    agreements. In addition to looking at whether a merger will
    create a public benefit, regulators must also evaluate the
    possibility of public harm.
        In the case of U.S. Bank's proposed merger with Union Bank,
    U.S. Bank plans to make cuts. These planned cuts are made
    possible by branch overlap in four big California counties--
    L.A., Orange, San Diego, and Santa Clara--where more than 50
    percent of the Union's branches are located. It is our position
    that there should be no branch closures as a result of this
    merger.
        As we experience branch closures, we are told to embrace
    fintech. In our society, we like to think of technology as the
    great equalizer. This is certainly not the case.
        In fact, technology benefits financial institutions by
    lowering overhead costs, but the benefits to BIPOC communities
    are less clear. Case in point, the Federal Reserve of Kansas
    found that there are two reasons for the lack of adoption of
    financial services: financial exclusion; and individual
    exclusion.
        These findings are consistent with what we see in CRC's
    Economic Wellness Promotora Program, which supports the
    financial well-being of low-income BIPOC families.
        Black and Latinx participants reported experiencing poor
    and/or unfriendly service from banks. Participants expressed
    being made to feel not good enough or wrong or unwelcome when
    attempting to access banking products and services.
        The encroachment of fintech into banking bring concerns of
    hypercharged harm. Venmo, PayPal, Square, SoFi, Google, Apple,
    and the growing number of tech financial services companies use
    complicated and rapidly-changing algorithms that process mass
    amounts of data to make credit decisions.
        If technology advances faster than our understanding of it,
    regulation becomes very difficult, if not impossible, and the
    threat of resulting discrimination is greater.
        In pursuit of profits, financial institutions will take as
    many liberties as they are given. Let's take Amazon as an
    example. Amazon has long been in the fintech space and has done
    so without becoming a bank and without banking regulator
    oversight or CRA obligations.
        Amazon Lending advises sellers to apply for their loans and
    has effectively created a 21st Century company store. Amazon
    loans can only be used for inventory or marketing on the e-
    commerce site. And if a merchant cannot make a payment, Amazon
    can seize the merchant's inventory and collateral to pay back
    the loan.
        Our communities lack access to safe, affordable credit and
    banking services. There is another solution to be considered.
        We must nurture public banking, either through the creation
    of local public banks that are tied to the Federal Reserve or
    the creation of postal banking. Every American has a post
    office in their community. They should have a bank too.
        Congress can stop the abuses of the foreseeable future by
    supporting a strong Community Reinvestment Act that explicitly
    considers race, enhances the role of community voices and
    community benefits agreements, downgrades banks that harm, and
    discourages further branch closures.
        We also urge all regulators to develop a coordinated and
    robust regulatory response to fintech that ensures strong
    compliance with consumer protection and fair lending laws.
    Thank you for this opportunity to address you today.
        [The prepared statement of Ms. Gonzalez-Brito can be found
    on page 54 of the appendix.]
        Chairman Perlmutter. Thank you, Director Gonzalez-Brito.
        Our next witness is Dr. Henry-Nickie. You are now
    recognized for 5 minutes for your testimony.

     STATEMENT OF MAKADA HENRY-NICKIE, FELLOW, GOVERNANCE STUDIES,
                         BROOKINGS INSTITUTION

        Ms. Henry-Nickie. Chairman Perlmutter, Ranking Member
    Luetkemeyer, and distinguished members of the subcommittee, I
    am pleased to join today's hearing on the future of banking. I
    am Makada Henry-Nickie, a governance studies fellow at the
    Brookings Institution.
        My comments today will focus on market trends, the rise of
    fintechs as consequential market players, and the impacts of
    these shifts on marginalized consumers. My comments on these
    issues are my own and do not reflect any official position of
    the Brookings Institution.
        The U.S. is facing a major demographic transition driven
    exclusively by communities of color. In the last decade alone,
    Asian and Hispanic American populations grew by 36 and 23
    percent, respectively.
        But the financial services sector has yet to respond to
    these representational changes within the consumer financial
    market. Minority households systematically occupy status quo
    roles on the fringe, rather than sitting at the center of
    market models as gross drivers.
        According to the FDIC's 2019 Banking Survey, 7.1 million
    households remain unbanked. The overwhelming majority of these
    households, 64 percent to be precise, were Black and Hispanic.
        Indigenous communities have an unenviable, longstanding
    experience of exclusion. Despite modest progress in promoting
    financial inclusion, 16.3 percent of Indigenous Americans are
    unbanked, and are disproportionately exposed to alternative
    financial products such as predatorial payday and title loans.
        The prosperity of the U.S. is stifled when the future
    growth segments are excluded from fully participating in the
    economy.
        The Biden Administration has drawn on a comprehensive
    accountability model to orient the Federal Government's policy
    framework towards racial inclusion.
        Now, while President Biden's racial equity agenda marks a
    sea change, it is only a first step towards closing profound
    racial wealth gaps. Financial intermediaries and regulators
    must do their part to ensure that the financial services
    ecosystem responds to the unmet needs of minority communities.
        The Great Recession has dramatically altered the banking
    landscape as we know it. More than a decade after the subprime
    crisis, the banking infrastructure continues to contract.
        In the years since the housing bubble, the number of
    commercial banks has fallen sharply from 7,300 institutions in
    2007, to 4,375 in 2020. That is an astonishing 40-percent
    decline.
        This shrinkage is in large part due to consolidation
    through mergers and acquisitions, with larger banks absorbing
    small ones.
        The vast majority of these mergers and acquisitions
    unfolded in the community banking sector, which, according to
    the FDIC, accounted for 91 percent of this consolidation trend.
        It is important to know that acquired community banks
    tended to be less profitable than their peers and were often
    cited as problematic by the FDIC.
        Another concerning trend is a lack of new bank formation
    that has shaped the competition dynamics during the same time.
    A combination of enhanced regulatory oversight and market
    dynamics undermines bank formation and increases complexities
    in the post-crisis world.
        Contrary to broader trends in select segments within
    underserved communities, these communities disproportionately
    rely on physical retail outlets to connect with mainstream
    banking.
        This retail network is shrinking, contracting, and under
    threat with the increased and accelerated pace of mergers and
    acquisitions. The FDIC's 2019 survey underscored the importance
    of retail outlets to groups that visit branches more than 10
    times a year.
        Those are older Americans, people with disabilities,
    individuals experiencing regular income volatility, and Native
    peoples.
        The hollowing out of the retail bank footprint also impacts
    the small business community. Studies have shown that bank
    closures adversely affect small business lending, and bank
    branches that have lenders--excuse me--with all bank branches
    allocate less capital to small businesses and those with
    branches in low-income communities.
        Now, efficiency gains are celebrated, right? That is the
    mantra of merging institutions. But low-income communities
    rarely, if ever, realize these economies of scale.
        Instead, the mergers have resulted in a rise in FHA loan
    denials, and substantial increases in interest rate loans on
    non-agency mortgages, particularly for subprime borrowers.
        The lack of existing bank relationships is a defining
    characteristic for Black Paycheck Protection Program (PPP)
    applicants. Congress has a duty to create a framework to ensure
    that consumers remain protected during this dynamic innovation
    process in which fintechs and banks and nonbanks are vying to
    serve and find the right balance of a mix of products to bring
    to market.
        Congress can take clear steps to protect consumers and
    restore their ability to hold innovators and abdicators
    responsible for their decisions.
        This subcommittee should examine how to extend the
    authority of the Consumer Financial Protection Bureau (CFPB) to
    include oversight of the Community Reinvestment Act (CRA).
    Compliance with CRA is a crucial tool that allows regulators to
    hold lenders accountable, while deepening lending in low-income
    communities.
        Again, thank you for hosting this critical conversation on
    the future of banking.
        [The prepared statement of Dr. Henry-Nickie can be found on
    page 72 of the appendix.]
        Chairman Perlmutter. Thank you, Dr. Henry-Nickie.
        Professor Sarah Jane Hughes, you are now recognized for 5
    minutes.

     STATEMENT OF SARAH JANE HUGHES, UNIVERSITY SCHOLAR AND FELLOW
      IN COMMERCIAL LAW, MAURER SCHOOL OF LAW, INDIANA UNIVERSITY

        Ms. Hughes. Good morning, Chairman Perlmutter, Ranking
    Member Luetkemeyer, and honorable members of the Subcommittee
    on Consumer Protection and Financial Institutions of the
    Committee on Financial Services. It is a great honor to appear
    before you today to discuss topics that are of great
    consequence--bank consolidation, nonbank competition, and
    technology--and the manner in which they are reshaping American
    banking, some pieces for the good and other pieces, as other
    witnesses have mentioned, with less desirable effects in some
    respects.
        My prepared statement touches upon many of these subjects,
    including just bank consolidation, the challenges that
    consolidation poses for small towns and rural communities that
    are still very important to us, including here in south central
    Indiana, how nonbank competition is changing banking, and the
    role that technology is playing in driving changes to banking
    services and availability, including for the partnerships that
    the chairman mentioned in his opening statement.
        In the interest of time, I think it is important to realize
    that we are in a perhaps more robust phase of nonbank
    competitors. But we have basically been in this space, with
    nonbank competitors taking over pieces of bank action, for
    approximately 40 years, if not longer, because the credit card
    industry might be claimed to do that as well.
        So, it is not like it is new. It is just that it is a
    little more robust, and it is based on the internet and other
    forms of online services that are available.
        Some nonbank competitors have been around for a hundred
    years, and they were beginning to be very robust in the late
    1950s and early 1960s, but not at the level we see today.
        I would like to speak about industrial loan companies
    (ILCs) for a moment, because industrial loan companies have
    been around for quite a long time, since Congress authorized
    them.
        The States and the FDIC are the regulators for industrial
    loan companies. They are subject to thorough investigation
    before they obtain their State charters and before they obtain
    FDIC deposit insurance.
        I have no reason to believe that it is less robust than
    what happens with other State banks that the FDIC is reviewing,
    and as one of the witnesses mentioned, there have been a few--
    not very many--de novo banks, which we think of as rising to
    take the place often of what happens after banks consolidate.
        ILCs are not in that space. The States have expanded the
    powers of ILCs and industrial banks since the late 1980s so
    that their powers now are very close to, if not identical to,
    the lending powers that other State banks have, and the FDIC
    insures the nonretail deposits that are there.
        But it is the thorough supervision and examination by both
    the FDIC and the States that is very successful and has
    resulted in very few complaints of which I am aware. And, at
    least once a quarter, I review the complaint database for the
    CFPB just to be sure that I am still keeping current with that.
        It is very hard to estimate how many fintechs are out
    there. We know that the American Fintech Council earlier this
    year revealed that it had 75 members, and they have, as I
    described in my prepared statement, some specific sorts of
    responsibility.
        The fintechs also hold State licenses, either as lenders or
    as money transmitters, and like industrial loan companies, they
    are subject to examination and supervision by the States. They
    don't have FDIC insurance at this point, so they don't have the
    FDIC behind them.
        But because they have this same State, boots-on-the-ground,
    close-to-consumers orientation in many cases with State
    regulators being in charge, they are not unregulated. And I
    think it is very important to realize that they are not
    unregulated, just as ILCs and State-chartered banks are not
    unregulated.
        The Bank Service Corporation piece of my prepared statement
    is important because I am aware of the fact that Bank Service
    Corporation authority is pending in Congress, and with that, I
    would like to close my remarks by telling you that I am a big
    fan of State-chartered banks, and I am a big fan of State
    regulation of nonbank providers. I think they do a pretty good
    job.
        Thank you for including me today.
        [The prepared statement of Professor Hughes can be found on
    page 78 of the appendix.]
        Chairman Perlmutter. Thank you, Professor.
        The next witness is Ms. Desiree Jackson. You are now
    recognized for 5 minutes.

        STATEMENT OF DESIREE JACKSON, ASSISTANT VICE PRESIDENT,
               TREASURY MANAGEMENT, BENEFICIAL STATE BANK

        Ms. Jackson. Thank you.
        Good morning, Subcommittee Chairman Perlmutter, and members
    of the subcommittee.
        My name is Desiree Jackson. I am an assistant vice
    president for treasury management services at Beneficial State
    Bank in Oakland, California. And I am also a proud member of
    the Communications Workers of America Local 9412.
        Last year, my coworkers and I made history when we became
    the first group of bank workers to organize a union in over 40
    years. And this past Sunday, we ratified our first union
    contract.
        I have worked in the banking industry for over 25 years,
    including 18 years at Wells Fargo, so I am excited to share my
    perspective on the future of our banking system.
        Frontline bank jobs are stressful. We are under extreme
    time pressures, and we know that mistakes can harm our
    customers. Whether or not a bank respects its workers' rights
    greatly impacts our stress levels. It is also a good predictor
    of whether a merger will impact us and our customers positively
    or negatively.
        During my time at Wells Fargo, I worked in a call center as
    a customer service representative where I was responsible for
    opening accounts after they were sold.
        When Wells Fargo bought other banks, like Norwest Bank and
    Wachovia Bank, it made our workload more intense. We had to do
    more with less. Our performance metrics got more excessive,
    meaning we had to complete all of our assigned work each day or
    we would get a talking-to by our manager.
        We had to answer our phone by the second ring. Emails had
    to be responded to within 2 hours, and we had strict deadlines
    for opening customer accounts. But there was no opportunity to
    get raises even though the expectations of our jobs had
    increased.
        Managers pressured us to work as many hours as necessary to
    complete our daily assigned tasks, like making sure every
    account was opened. But they didn't care how many hours we
    worked because the bank misclassified us as salaried employees
    so they didn't have to pay us overtime.
        On top of that, departments closed, and people were laid
    off, instilling even more stress and fear. Basically, Wells
    Fargo used mergers to cut staff, even if it meant getting rid
    of experienced staff who were skilled at serving the best
    interests of our customers.
        This management style is all too common in the industry. It
    means that bank workers often experience huge stress, and there
    are sometimes incentives for workers to take actions that harm
    consumers. That is why I strongly support the Financial
    Services Worker Bill of Rights.
        Luckily, my experience at Beneficial State Bank couldn't be
    more different. Beneficial is a mission-driven bank, owned by a
    nonprofit foundation, and is committed to serving communities
    that need access to financial services.
        When Beneficial has acquired small banks over the last few
    years, they have been like-minded community banks, enabling us
    to serve more communities in need. And no one lost their job,
    and there was an open communication process with much better
    transparency. We held monthly bank-wide meetings to explain
    what was going on.
        And now, with our union contract, we will have regular
    labor-management meetings where we can discuss a range of
    issues, including how we can improve customer service.
        The reality is there has been too much consolidation in the
    industry, and I want to make sure that small, mission-oriented
    banks like Beneficial can thrive and not be swallowed up by
    predatory megabanks.
        That is why I think Congress should strengthen the merger
    standards to ensure that mergers are in the public interest and
    improve wages and working conditions.
        Meanwhile, online banking is creating more cashless banks
    and reducing the number of brick-and-mortar branches,
    threatening the livelihood of 423,000 bank tellers in the
    country and possibly reducing access to banking for the
    underserved consumer who can't utilize the newer technology.
        From my 25 years of experience in banking, I think there is
    room to ensure that employees are taken care of when there are
    mergers, and that is through unionizing.
        Making sure frontline bank workers' rights are protected by
    empowering more of us to organize will not only reduce our
    unhealthy stress levels, but it will be better for our
    customers, better for our communities, and better for our
    entire financial system. Thank you for this opportunity.
        [The prepared statement of Ms. Jackson can be found on page
    92 of the appendix.]
        Chairman Perlmutter. Thank you for your testimony, Ms.
    Jackson.
        And our final witness is Mr. Jim Reuter. You are now
    recognized for 5 minutes for your testimony, sir.

    STATEMENT OF JIM REUTER, CHIEF EXECUTIVE OFFICER, FIRSTBANK, ON
               BEHALF OF THE AMERICAN BANKERS ASSOCIATION

        Mr. Reuter. Chairman Perlmutter, Ranking Member
    Luetkemeyer, and members of the subcommittee, thank you for the
    opportunity to testify today on the future of banking.
        As a banker for over 34 years, this hearing could not be
    more timely given the changes underway in our industry. I am
    pleased today to speak not only on the behalf of FirstBank and
    our 3,000 employees, but also on behalf of the American Bankers
    Association (ABA), which represents banks of all sizes, and the
    2 million women and men who work at those banks and serve your
    constituents every day.
        Founded in 1963, FirstBank has grown organically to more
    than 100 locations in Colorado and Arizona. We are currently
    the largest bank headquartered in Colorado.
        Despite our footprint, we were one of the first banks to
    join a real-time payments network and offer Zelle payment
    services to customers. While our business is banking, our
    commitment to the communities we serve goes well beyond that.
        Our 300 bank officers sit on 2 to 3 nonprofit boards each,
    and our most recent Colorado Gives Day raised over $50 million
    for more than 2,000 nonprofits in 24 hours.
        Before we look to the future, I would like to reflect for a
    moment on where banking stands today. As Federal regulators
    have noted, banks have been a source of strength during the
    pandemic, providing critical financial support for the economy
    while maintaining record levels of capital and deposits.
        At FirstBank, we were the number-one bank in Colorado for
    PPP loans, originating more than 20,000, which helped save over
    120,000 jobs in the State.
        We also realize that the ongoing pandemic is not over, and
    many Americans are still struggling. Like many banks around the
    country, we continue to prioritize financial inclusion.
        ABA has sounded the alarm on this issue and urged banks of
    all sizes to offer safe, low-fee, BankOn-certified accounts,
    which are helping to reduce the number of unbanked. Today,
    BankOn accounts are offered at more than half of the bank
    branches in this country.
        Our industry is optimistic about the future, but like all
    businesses, we face challenges. You encouraged us to focus on
    how consolidation, nonbank competition, and technology are
    reshaping the banking system.
        Bank consolidation is a long-term trend. Today, there are
    just under 5,000 banks in the U.S., down from nearly 18,000 in
    1984, and we expect consolidation to continue for a variety of
    reasons.
        The need for scale is the main driver. Banks at every level
    of the asset ladder are seeking to scale to invest in the
    ongoing digital transformation reshaping our industry.
        At FirstBank, our strategy has been to focus on organic
    growth without significant M&A, but other banks are taking
    different approaches.
        Bank consolidation has likely been accelerated by policy
    decisions, including a regulatory framework that imposes
    significant compliance costs and deters de novo bank creation.
        One troubling new trend we urge this committee to review is
    that tax-exempt credit unions are increasingly using their tax
    subsidy to buy up tax-paying banks. From 2018 to 2020, more
    than 28 banks were acquired by credit unions.
        Despite consolidation, banking remains a healthy, diverse,
    and highly competitive industry. As the banking industry
    consolidates, many of our biggest competitors have emerged
    outside the regulated banking space.
        The list includes tax-advantaged lenders like credit unions
    and the Farm Credit System, monoline fintech firms, nonbank
    payment providers, and decentralized finance technologies like
    cryptocurrency.
        Many of those competitors have business models that rely on
    a kind of regulatory arbitrage in which they can offer one or
    several aspects of banking services while avoiding the full
    banking regulatory framework.
        We see this most clearly in the rise of payments charters,
    or special purpose national bank charters that would aim to
    provide payment system access to companies but would not be
    subject to the same regulations as banks.
        In our view, the stringent rules in place for banks should
    be applied to others looking to offer bank-like services.
    Anything less than a level playing field will put consumers and
    financial systems at risk.
        The pandemic has only accelerated banking's digital
    transformation. At FirstBank, we have more than 400 people in
    our information technology unit, up from 250, 5 years ago. ABA
    firmly believes that banks in the private sector will continue
    to drive this technological revolution.
        The one innovation we don't need is the government trying
    to replace the nation's banks. We will continue to firmly
    oppose efforts to create direct consumer accounts at the
    Federal Reserve, or to turn the Postal Service into a consumer
    bank, or to create a central bank digital currency that
    disintermediates banks.
        These are solutions in search of a problem that, if
    implemented, would drain deposits out of banks and undermine
    the valued banks that deliver convenient funds access and loans
    to consumers to support local economic growth.
        Ultimately, these approaches would put at risk the many
    benefits of the modern banking system. Despite challenges, we
    believe the future of banking is bright, provided the policy
    environment continues to support growth and close gaps that
    promote regulatory arbitrage and put the financial system and
    consumers at risk.
        Thank you for the opportunity to testify, and I look
    forward to answering your questions.
        [The prepared statement of Mr. Reuter can be found on page
    97 of the appendix.]
        Chairman Perlmutter. Thank you, Mr. Reuter. Thank you for
    your testimony.
        Now, I will recognize myself for 5 minutes for questions.
    And the first thing is, I will just say, being one of the older
    members of this committee, much of the consolidation, much of
    the reduction in the number of banks occurred in the late 1980s
    and 1990s when the savings and loan system failed, and many
    small and medium-sized banks across the country either went out
    of business or were acquired by others.
        But there has been a continued reduction and consolidation
    of the industry.
        Mr. Reuter, one of the principal reasons you cite is the
    need for financial institutions to scale up in order to invest
    in technology. As more banks and credit unions continue to
    scale up, either through mergers and acquisitions or organic
    growth, do you see the bar to entry becoming even greater for
    de novo banks?
        Mr. Reuter. Thank you for that question, Mr. Chairman. I do
    see the bar for entry for de novo charter to be higher. One of
    the reasons is the regulatory burden. We have a number of
    regulations that haven't been reviewed for decades, and some of
    them have not kept up with the changing times.
        The other one is investment in technology. I mentioned
    earlier that we went from 250 employees in technology up to
    over 500 in 5 years. Our annual spending has gone from $50
    million a year to over $110 million a year.
        Ranking Member Luetkemeyer pointed out a study that in
    2000, $350 million was the asset size to be efficient, and
    today that has climbed to $3.2 billion.
        So, when you think about someone starting a single-bank
    location or a two-bank location de novo charter, those barriers
    to entry are significant.
        Chairman Perlmutter. Let me follow up then. You have said
    that we expect this consolidation to continue, and the ability
    to get a de novo charter seems to be pretty difficult.
        Should we be concerned that we may be left with only a
    handful of banks and fintech companies in 10 or 20 years?
        Mr. Reuter. I think the banking industry, at nearly 5,000,
    is still very competitive, Mr. Chairman, and while I think
    there will be continued consolidation, I think there is a place
    for community banks.
        Clearly, we are one of those community banks, and you saw
    what we did with PPP. So, while I believe there will be
    continued consolidation to find efficiencies given the
    regulatory requirements, as well as the lift in technology, I
    think there will continue to be a diverse banking system.
        But one thing I think is really important is a level
    playing field from a regulatory perspective with the fintechs.
    Many of them purposely are picking off parts of our business,
    avoiding holding deposits and different things, so they can
    avoid the regulatory requirements.
        I think it is important that we have a level playing field,
    or you will drive even more bank consolidation.
        Chairman Perlmutter. Thank you.
        Dr. Henry-Nickie, can you talk about the role fintechs play
    as partners with small and medium-sized financial institutions,
    and do you think these partnerships help or hurt the smaller
    banks to compete with larger banks?
        Ms. Henry-Nickie. Thank you for your question. I think you
    point to an important externality, a potential upside for
    community banks that do partner with fintech institutions.
        As Mr. Reuter pointed out, the hurdles to transforming and
    modernizing community banks are substantial when it comes to
    transforming legacy infrastructure, old Cobalt Systems into new
    systems that can intersect with mobile banking that consumers
    have grown to expect and demand at their banks.
        So, in that regard, I think these partnerships with
    fintechs are helping to: one, reduce the technical barriers;
    and two, really drag along the community banking sector.
        And those benefits accrue to the communities, the local
    communities that these banks tend to serve.
        I think, moving forward, we really want to be careful and
    mindful about how these vendor contracts are structured. What
    are the implications for consumers? Do these banks have full
    capacity on their staff to fully vet, to fully stand up
    contracts that are beneficial to their longevity in the system
    that doesn't sort of set them up for perhaps a picking off in
    the future?
        I think, again, going back to where we started around these
    mergers and where fintechs are entering into the space, these
    community arrangements can be helpful, these partnerships, but
    always with a cautionary tag attached.
        Chairman Perlmutter. Thank you for your testimony.
        My time is about to expire, so I will recognize the ranking
    member of the subcommittee, the gentleman from Missouri, Mr.
    Luetkemeyer, for 5 minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        And I thank the witnesses for being here today. It's an
    interesting discussion we are having this morning. I want to
    follow up a little bit on the chairman's question here with
    regard to banks and fintechs.
        As the ranking member on the House Small Business
    Committee, we saw the banks being very, very effective with the
    PPP loans, and any problems with regards to fraud or misuse of
    funds seems to be pretty well located in the fintech part of
    this.
        So, Mr. Reuter, let me just ask you this question: What
    about rules and regulations for fintech folks? I am not against
    innovation. I think it is important. We have to continue to do
    it.
        But at some point, the PPP program points out the inability
    to control fintechs and some of the things they are doing, and
    shows the amount of fraud that could be perpetrated in that
    area. What do you think about the rules and regulations around
    them?
        Mr. Reuter. Ranking Member Luetkemeyer, thank you for that
    question. I think the rules need to be much like a bank because
    their activities are very bank-like.
        As I mentioned earlier, we were the number-one bank in
    Colorado with PPP loans. We are on the phone with those
    customers. We are forging relationships. It is not just a
    transaction for us.
        With many of the online lenders, you fill everything out
    online, and you get a decision within minutes. So, you tell me
    how well they are vetting the business, how well they are
    understanding what the needs are of that business and taking a
    relationship approach?
        To me, that is a fundamental difference between banks and
    fintech providers, and I do think there needs to be more
    regulation in that space.
        Mr. Luetkemeyer. Thank you. This week in The Washington
    Times, there is an article entitled, ``The Death of Financial
    Privacy.''
        Now, the other party is wanting to weaponize the financial
    services system and the IRS to monitor all of the transactions
    of every bank account over $600. This is going to cause a
    tremendous amount of cost on all of the banks.
        So, Mr. Reuter, are you set up right now to be able to
    handle that situation, to where you can forward on to the IRS
    every transaction of every person and every business in your
    bank over $600?
        Mr. Reuter. We are not set up to be able to do that.
        Mr. Luetkemeyer. Do you have any idea what it would cost
    your bank to be able to do that?
        Mr. Reuter. It would be significant. And I think the bigger
    issue as well is the concerns our customers would have over
    privacy.
        Many people and the unbanked have chosen not to bank with
    banks because of trust, and I think reporting all the
    information to the government would not help us in that regard.
        Mr. Luetkemeyer. Even for the big banks, it is going to be
    a significant cost, but the community banks, it would seem to
    me, you are just going to actually run them out of business
    with an issue like this.
        Professor Hughes, you talked a little bit about some of the
    rules, regulations, and size. I want to run something by you
    really quickly. It would seem to me that if you are going to
    try and regulate the local hardware store or you are going to
    regulate Walmart, there would almost have to be two different
    sets of rules for those folks because you couldn't regulate the
    local folks the same way you would a regular Walmart.
        To take that analogy and put it into banking, a community
    bank with $100 million or $200 million versus JPMorgan, how can
    you use those same rules and regulations and apply it to the
    banks?
        To me, this is one of our problems in causing banks to
    really have to comply with all of these rules. The cost is just
    running away, just like this new rule that is being proposed
    would cause them probably to be unable to do that.
        So, do you agree that perhaps we need to size all of our
    regulations based on the size of the banks? In other words,
    small community banks would have one set of rules they would
    have to abide by but not necessarily every single rule that the
    big banks would have to abide by? Is that a reasonable
    expectation?
        Ms. Hughes. Yes. I think this is a very complicated
    question because we don't want to make community banks--and I
    have said in my prepared statement that I am a huge fan of
    community banks. They serve the community I live in and those
    around us very, very capably.
        I don't think we want to make them targets for bad behavior
    by customers. So, I think the scaling of it would have to be
    done with great care.
        I do think that there are rules that are being applied to
    community banks that make it harder for them to survive because
    of costs. And, to that extent, I heard Dr. Henry-Nickie and Ms.
    Jackson make claims that we need to be certain that we do not
    lose banks serving every community in the United States that
    can reasonably be served.
        I am in favor of looking for opportunities to reduce
    regulatory burdens on community banks and community national
    banks to the extent that those regulations--that they are not
    participating in some of the same kinds of transactions that
    the giants in this country are participating in--
        Mr. Luetkemeyer. Professor?
        Ms. Hughes. Yes?
        Mr. Luetkemeyer. Thank you for your comment, Professor. I
    am out of time.
        Chairman Perlmutter. Thank you, Professor.
        Mr. Luetkemeyer. I yield back.
        Chairman Perlmutter. The gentleman's time has expired.
        I would like to now recognize the Chair of the full
    Financial Services Committee, the gentlewoman from California,
    Chairwoman Waters, for 5 minutes.
        Chairwoman Waters. Thank you very much, Mr. Perlmutter, for
    this hearing. This is extraordinarily important. We have done
    considerable work dealing with our banks, but so much more has
    to be done.
        Let me just say that, of course, most of the banks in this
    country take credit for the work that they did with our PPP
    loans. But, if you can remember in the beginning of the PPP
    loans, many of the big banks set up special portals for their
    concierge clients, and we ran out of money for the PPP loans,
    and we came back and we put in another $60 billion so that our
    minority depository institutions (MDIs) and our credit unions
    and our community banks would have an opportunity to
    participate more fully with PPP.
        So, we thank those banks for having participated, but we
    still have to do work with the banks, when we are talking about
    PPP loans and the way that they were handled in the beginning
    with the portals, again, that served their concierge clients.
        But, on consolidation, back in the day, there used to be
    hearings that were held by the Federal Reserve, where they
    invited the community in on mergers, and we had an opportunity
    to get people from our communities who were very much involved
    with oversight in their own way of these banks. We had an
    opportunity to weigh in on the mergers.
        Now our committee, Mr. Perlmutter, must get back with the
    Federal Reserve, and we must open up this opportunity, because
    this business of mergers without real community involvement has
    to stop. And this is an issue that we must deal with.
        Not only that, I am concerned that we get many complaints
    about banks, but people feel helpless to absolutely correct the
    problems that are created within the banks.
        We have experienced a lot of this, and we know that a lot
    of work still has to be done in dealing with the servicing of
    these mortgages, where people find that fraud has been
    committed, and they have nowhere to turn, and on and on and on.
        So, we have to pay more attention to servicing, and I
    think, Mr. Perlmutter, I want us to take a look at advisory
    committees. Some of the banks say they have advisory
    committees, but I have been thinking about--and we will talk
    about this--whether or not we need to have advisory committees
    for every bank, and not only at the headquarters level but at
    all of the community levels for the banks, so that people get
    more involved.
        CRA kind of alludes to that in some way, that there should
    be advisory committees of some kind, and some of the banks say
    that they have them, but I don't think that they are real.
        And so, I want to look at how we can get, for these
    branches in the communities, advisory committees for all of
    them, so the communities are invited in and they can
    participate in what is going on at the banks.
        We know that some banks have improved their pay, their
    wages. We have had the banks in, and when we brought them in
    for oversight on our committee--they hadn't been in for 10
    years--they began to do things before they came to the hearing,
    in terms of wages.
        And, as you know, Bank of America, I think, is kind of the
    leader now in having increased the minimum wage up to about $20
    per hour. So, we need to do everything we can to encourage that
    in every way that we can.
        And when the banks--we will continue to bring them before
    us so that we can have them understand that we are very serious
    in this committee about doing what we need to do for all of the
    clients of the banks.
        Let me just ask Ms. Jackson, do you think that it is wise
    for us to ensure that the Federal Reserve has these open
    meetings when mergers are being proposed, and do you think we
    should have these advisory committees at every branch in all of
    the banks? What do you think?
        Ms. Jackson. Thank you, Chairwoman Waters. I totally agree.
    I think it would be beneficial. I sat on various advisory
    boards in other arenas, and I would definitely like to see that
    happen--
        Chairwoman Waters. Thank you very much.
        Ms. Jackson. I think we can all benefit from that.
        Chairwoman Waters. And thank you for your contribution here
    today, to everyone who came here today to help us learn more
    about what we could and should be doing.
        I yield back the balance of my time. Thank you.
        Chairman Perlmutter. The gentlelady yields back.
        The gentleman from Kentucky, Mr. Barr, is recognized for 5
    minutes.
        Mr. Barr. Thank you, Chairman Perlmutter, for your
    leadership in holding this very, very--
        Chairman Perlmutter. Mr. Barr, can I stop you?
        Mr. Barr. Sure.
        Chairman Perlmutter. Apparently, I was supposed to go to
    Mr. Posey.
        Mr. Barr. Sure.
        Chairman Perlmutter. Mr. Posey, you are now recognized. I
    am sorry I messed up the order--well, now he is going to leave
    us.
        Okay. You are recognized for 5 minutes. I will take away
    what I said about Mr. Barr.
        Mr. Posey. Thank you very much, Chairman Perlmutter. I
    appreciate it.
        Professor Hughes, how should we measure the delivery of
    financial services to U.S. consumers, and what does your
    research suggest about how well the U.S. financial system meets
    those metrics?
        Ms. Hughes. That is a very interesting question,
    Congressman. In preparing for this testimony, I was thinking
    about the importance of serving rural and small communities,
    because one of the strengths of our economy is specifically due
    to the fact that we had banking services available across the
    country pretty early in our nationwide economy, with the
    railroads and telegraphs and things of that sort.
        So, the lifelines of small communities include community
    banks and community national banks where people get loans, and
    small business lending is vital. Because we had an economy,
    when I was a child, where large corporations dominated the
    number of people who worked.
        But that is not true anymore. Startups and small
    businesses, battered badly through the pandemic but helped by
    banks and others--small business lending is vital to the
    continued prosperity in our communities, to the ability of
    people to recognize the American Dream by building new
    businesses.
        And Main Street cash services are also very important. We
    have heard from time to time that there have been problems with
    banks banking Main Street businesses that were cash-intensive.
    So, I would like very much to see the services that are needed
    by consumers and small businesses to be an important point of
    focus for the committee as a whole and for this subcommittee in
    particular.
        Mr. Posey. Thank you. Can you comment on how the course of
    financial system regulation has impacted the incentives for
    bank mergers over the last several years?
        Ms. Hughes. We see ebbs and flows in the interest of bank
    regulators in approving mergers and acquisitions, but mostly we
    have been seeing encouragement or not dissuasion from that.
        And I think that there is a concern that we are seeing a
    lot of mergers and acquisitions at the moment. There is a lot
    of money, capital around to assist with this, and that is fair.
    But I think we need to continue to have a well-balanced dual
    system which includes the States as charterers of banks and
    ILCs and licenses for other kinds of providers of these
    services.
        Mr. Posey. Have recent regulatory changes in bank capital
    requirements, such as risk-weighted capital, provided
    incentives for banks to merge?
        Ms. Hughes. I don't think there can be much question,
    although I do not have data to prove it. I think the capital
    requirements, especially as applied to small banks, may be a
    problem, but that is something for which I know there is some
    data, but I don't have the data. I suspect that the American
    Bankers Association would have some of that data, and that
    other organizations would as well; I just don't.
        Mr. Posey. Okay. Can you explain how scale economies in
    banking and other financial services have played a role in
    driving the bank mergers?
        Ms. Hughes. Certainly. As Mr. Reuter was testifying, the
    cost of technology, the cost in certain ways of compliance has
    continued to grow, and we have added responsibilities without
    necessarily looking at older requirements to see if they are
    still needed or if they are in some ways duplicative.
        So, scalability is a big factor, I believe. It is not just
    how many deposits you have or how much unimpaired capital and
    surplus you have to use for the bank measure of making a loan
    if you are using section 84 of the National Bank Act, for
    example, but it is a big factor driving consolidation, and it
    has been a big factor all the way back to the Supreme Court's
    first case, Philadelphia National Bank, which continues to be
    the standard for mergers, even when the market has change very
    dramatically.
        Mr. Posey. Thank you. I see my time is about to expire, and
    I yield back.
        Mr. Reuter. Mr. Chairman, could I make a--
        Chairman Perlmutter. Mr. Reuter, did you have something you
    wanted to add?
        Mr. Reuter. I just wanted to comment that the American
    Bankers Association has been very supportive of tailoring,
    which would make a huge difference in what we are talking about
    here.
        Chairman Perlmutter. Thank you. Thank you, Mr. Posey. The
    gentleman's time has expired.
        The gentleman from New York, Mr. Meeks, who is also the
    Chair of the House Foreign Affairs Committee, is now recognized
    for 5 minutes.
        Mr. Meeks. Thank you, Mr. Chairman, and thank you for
    holding this very timely hearing.
        Let me ask Mr. Reuter first, in the past several years, we
    have seen that it is becoming more difficult for new banks to
    be created to help serve their communities. And this is
    especially true in communities where bank consolidations have
    led to access challenges for people of color, but, particularly
    in districts like mine, they are becoming banking deserts.
        So What do you believe is the biggest challenge to de novo
    bank charters, and what do you think that we can do in Congress
    to assist and ensure that de novo banks are successful?
        Mr. Reuter. Thank you for that question, Congressman Meeks.
    As I mentioned in my opening testimony, there are two things I
    think make a big difference: regulatory burden; and the
    investment required in technology. U.S. policymakers could make
    a big difference on the regulatory burden by tailoring. We as a
    bank are very different when compared to JPMorgan Chase and
    Bank of America, yet some of the compliance infrastructure and
    things we have to put in place are very much the same.
        From a technology standpoint, there are great opportunities
    for banks to partner with fintechs and we are doing that every
    day, but where it becomes an issue is when we are competing
    with those same organizations or like organizations and they
    are not regulated at the same level. That drives up our cost of
    business because we are competing with a branch infrastructure
    that they do not have.
        I agree with you wholeheartedly that branches are very
    important in the community, and it is something that we take
    very seriously.
        Mr. Meeks. Thank you. Thank you very much for that.
        Let me ask Ms. Gonzalez-Brito, your organization is very
    engaged in the process of bank mergers, particularly analyzing
    bank mergers and community benefits. How banks comply with the
    Community Reinvestment Act (CRA) is critical to that analysis.
    As you know, the banking regulators are rethinking the CRA's
    regulatory framework.
        So my question to you is, in what ways can CRA play a more
    meaningful role in the bank merger process, and are there
    specific policies this committee should advocate for regarding
    CRA's role in bank mergers?
        Ms. Gonzalez-Brito. Thank you for that question. In terms
    of CRA, we agree with Chairwoman Waters that hearings are
    extremely important for bank mergers, and we would ask that the
    CRA require hearings and require community benefit agreements
    in order to encourage banks to actually meet with the community
    and engage around community need.
        The other piece that I think is incredibly important is
    that CRA be race-conscious. It is something that would really
    ensure that we are meeting the needs of Black, Indigenous, and
    people of color. And so we really need to ensure that, as CRA
    moves forward, these things are included.
        And I would just add that the Bank Merger Act is also
    important to ensure that review of mergers and acquisitions is
    not harming communities.
        Mr. Meeks. Thank you for that.
        I will go to Ms. Hughes quickly, because there are a lot of
    issues and questions in regards to fintechs and fintech
    companies. And I heard some talk, for example, that fintech
    companies operate the way they were doing to help with the PPP
    loans efficiently and effectively. I agree with Chairwoman
    Waters and her statement. We had to do certain things on our
    side also.
        So, it is something that is important. But we have this
    debate going on oftentimes in regards to fintechs--I was
    talking to some members of my staff who actually say that they
    don't know the last time that they visited a physical bank. I
    talk to my daughters, who are young, and they are now doing
    things online with loans and basically utilizing fintechs.
        Nevertheless, as indicated, fintechs are largely dependent
    on banks to meet their commitments to their investors and their
    customers also. And just this past August, the FDIC and the OCC
    issued guidance for how banks and fintechs could partner and
    the concerns that existed, some of which were mentioned by the
    witnesses here today and other Members.
        So, Ms. Hughes, what is your reaction to that recently-
    issued guidance, and are there legal or regulatory gaps with
    the bank-fintech partnership model that Congress should still
    consider looking at and possibly closing?
        Ms. Hughes. Thank you so much, Congressman Meeks, for that
    question, or Chairman Meeks for different purposes, for that
    question.
        The August 2021 guidance that was issued for community
    banks to use fintech partners, I think is going to be very
    valuable. I think Congress should pay careful attention to what
    it does and whether it begins to resolve the kinds of questions
    that community banks have had in this arena so that they can
    take advantage, as I mention in my prepared statement, of some
    of the facilities and bring them in as vendors. I am going to
    use, ``vendor,'' not, ``partner.''
        Chairman Perlmutter. Professor Hughes?
        Ms. Hughes. Yes.
        Chairman Perlmutter. I am going to have to cut you off. The
    gentleman's time has expired.
        And now, I would like to recognize the gentleman from
    Kentucky, Mr. Barr, and I mean it this time.
        Mr. Barr. I thank Chairman Perlmutter for that, and I thank
    him also again for his leadership, and for holding this very,
    very important hearing that underscores the problem that we are
    seeing in bank deserts, with bank consolidation, and with the
    lack of new bank formation that is impairing our local
    economies.
        I applaud my good friend, Greg Meeks, for identifying this
    problem in his area in a more urban congressional district. I
    have a similar problem with rural banking deserts in Kentucky.
    We have talked about the solution. I also want to applaud my
    friend, Mr. Auchincloss, for identifying this in a more
    suburban district.
        And the data on the dearth of de novo bank formation in
    recent years, combined with the trends in bank consolidation
    and closure, are troubling to all of us, because too many
    communities are left without access to traditional financial
    services.
        This committee advanced Mr. Auchincloss' bill that calls
    for a study, and I appreciate the American Bankers Association
    and Mr. Reuter for pointing out that the ABA endorsed Mr.
    Auchincloss' bill that would commission additional studies.
        But I would respectfully, Mr. Reuter, argue that another
    study is insufficient. You have identified yourself in your
    testimony that we know what the solution is. The solution is
    tailoring, regulatory tailoring.
        And my bill, which is also, Mr. Reuter, endorsed by the
    American Bankers Association but was not mentioned in your
    testimony, is the actual solution. It is the solution that you
    just prescribed. H.R. 2561, the Promoting Access to Capital in
    Underbanked Communities Act, would provide targeted temporary
    phase-in of regulatory capital requirements to fuel new bank
    formation and bring banking services to underserved areas.
        This is precisely the bill, Mr. Reuter, that your
    organization has endorsed. It goes beyond what Mr. Auchincloss
    has done. I applaud Mr. Auchincloss for his leadership. I
    applaud the ABA for endorsing his bill. But his bill,
    respectfully, is just another study. My legislation is the
    solution. It is the solution to the lack of new bank formation
    in Mr. Auchincloss' district. It is the solution to the lack of
    new bank formation in my rural district, and it is the solution
    to the lack of new bank formation in Mr. Meeks' district, an
    urban district.
        So my question to you is, why should we have another study?
    Why shouldn't we just go ahead and pass the ABA-, ICBA-endorsed
    legislation that actually implements the regulatory tailoring
    that is required, Mr. Reuter?
        Mr. Reuter. First of all, Congressman Barr, thank you for
    your sponsorship of that bill. And I agree with you. I think
    another study just lets more time go by and more bank
    consolidation occur. So, I agree 100 percent.
        Another thing I would like to point out in the cost of a de
    novo is one of the things you have to raise to start a bank is
    capital. And what you are seeing is some individuals and some
    groups form a fintech versus a bank because, due to the
    regulatory arbitrage, the market is valuing them higher.
        And anybody who is making an investment to run a bank or
    run any company needs to have a return, so, again, that's why a
    level playing field is very important. But thank you for your
    sponsorship of the bill, and I agree with you wholeheartedly.
        Mr. Barr. Thank you very much.
        And, Professor Hughes, let me talk about why this is so
    important. A recent FDIC study showed that large banks are much
    more likely than small community banks to have minimum
    requirements for small business loan amounts and less likely to
    offer tailored small business loan products. Often, small
    businesses rely on the relationship banking and the community
    ties of small banks, especially those banks that are de novo
    charters and smaller. PPP was an illustrative example of the
    value of small community banks for the smallest businesses.
        Professor Hughes, what impact does the trend in
    consolidation and the closure of community banks have on small
    businesses, particularly in rural, underserved areas, and what
    does it mean for small entrepreneurs and startups?
        Ms. Hughes. Thank you, Congressman Barr, for that question.
        It is very important to have lending facilities in
    communities of the types that we have just been discussing:
    inner city deserts small community and suburban areas; and
    rural communities. And we need to have robust opportunities for
    lending maintained in those communities so that all of the
    capital in the country doesn't flow to larger cities, as we
    have been seeing in some cases over the last 50 years.
        So we need to maintain the ability and we need to be
    certain that there are realistically tailored--I am going to
    use that word because I think it is the best word we have heard
    today for this--tailored ability for small banks to originate
    loans, smaller loans for startups, perhaps, than they might
    give other kinds of businesses because we need startups. We
    need small businesses. They are the growth opportunity. And we
    need to be certain that we have the best means of addressing
    the way in which startups and small businesses contribute to
    our economy, employ lots of people, provide benefits, but also
    keep our small communities alive--
        Chairman Perlmutter. Professor, I'm sorry; I have to cut
    you off again. Everybody keeps asking you their question right
    at the end of their 5 minutes. So, I apologize for cutting you
    off.
        I would like to now yield 5 minutes to the gentleman from
    Georgia, Mr. Scott, who is also the Chair of the House
    Agriculture Committee.
        Mr. Scott. Thank you, Chairman Perlmutter.
        Ladies and gentlemen on the panel, I am concerned about how
    technology and artificial intelligence is reshaping our banking
    system. And nowhere is my concern as great as it is impacting
    African Americans. Let me share with you why I say that.
        According to the Census Bureau, the rate of home ownership
    for African-American families sits at 44 percent, versus 74
    percent for White people. This huge and dramatic 30-point gap
    is a major contributor to racial economic disparities, and it
    is especially impactful in home ownership, which is where we
    develop and nurture our wealth consideration.
        So, I am concerned that this new technology, the use of
    artificial intelligence, and this inherent bias seem to be
    contributing factors in rejecting Black home loan approvals.
    And not only do Black home applicants receive higher loan
    rejections, they also suffer from race premiums on interest
    rates, paying as much as 8 percent or more on mortgage
    interest.
        Ms. Hughes, you and Ms. Henry-Nickie,tell me, in your
    opinion, am I right here? Can you all see this disparity? And
    how detrimental is this secret bias hidden in some fintechs'
    lending systems for African Americans and other minority
    consumers who may be seeking a mortgage? How impactful is this?
        Ms. Hughes. Congressman, would you like me to go first or
    Ms. Henry-Nickie to go first?
        Mr. Scott. Oh, I would love for either one. Go ahead, Ms.
    Hughes, and then Ms. Henry-Nickie. I want to get both of your
    points on this. I only have 2 minutes.
        Ms. Hughes. Fair lending laws in the United States apply to
    banks, and they should be not causing either unwarranted
    rejections of mortgage applications or race premiums in
    applications.
        I have not had an opportunity to study the degree to which
    fintechs and artificial intelligence may be contributing to a
    shift, but it is conceivable that Dr. Henry-Nickie has more
    data on that subject. So while I believe that we need to be
    sure that people are evaluated fairly, I don't have the data to
    give you a better response. I would ask--
        Mr. Scott. Ms. Henry-Nickie, would you comment, please?
        Ms. Henry-Nickie. Thank you. You raise a crucial, important
    question that nobody else has sort of addressed today, and that
    is, what is happening to the state of the banking system when
    it comes to broadening access to credit for African American
    and Hispanic communities? And at the heart of that, at the
    heart of your question stands fintech.
        To Mr. Reuter's point, leveling the playing field means
    that we need to figure out ways to ensure that our consumer
    protection framework applies equally to banks, nonbanks, and
    fintech lenders. There is a good amount of research coming up
    showing that fintechs have done an incredible job, I think a
    commendable job in expanding access to credit, but they are
    capable, just as their conventional lender counterparts, of
    reproducing particularly pricing disparities.
        At the heart of this is the kinds of data sources that they
    draw on to inform the machine learning algorithmic models. We
    have talked ad nauseam about machine learning bias here. And
    all of these are in play around suppressing that 44 percent
    number and driving it even lower.
        We need the CFPB to have a leg up when it comes to fairly
    protecting consumers across all of the means, particularly when
    it comes to fintechs. And they are shaping the market, but they
    are escaping their responsibility on the oversight around
    consumer protection. And that is what explains and is at the
    heart of how these disparities will continue to grow and not
    improve in the future.
        Mr. Scott. Thank you very much.
        Chairman Perlmutter. I thank the gentleman.
        Mr. Loudermilk from Georgia is recognized for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman.
        I have been concerned about the future of our marketplace
    lending ever since the Majority made the misguided decision to
    restrict access to credit for low- and moderate-income
    consumers by replacing the OCC's True Lender Rule. Both the
    True Lender and the Valid-When-Made principles are essential to
    having a robust financial lending nationwide marketplace.
        Ms. Hughes, how have the bank-fintech partnerships been
    affected by this returning to the legal uncertainty that we
    were in a few years ago?
        Ms. Hughes. The True Lender Rule, as I said in my
    statement, had big support and lots of criticism. But the
    concept that was underlying it that was very important to me
    was the concept of assigning specific responsibility for
    complying with Federal and State law.
        So, the True Lender Rule had that benefit. It did have some
    pieces that particularly irritated the States from their
    traditional interest in consumer protection. And I think it is
    unclear right now how much the repeal will affect that
    marketplace, but I think it is worth paying attention to on a
    longer term.
        However, I would say that one of the reasons that makes
    this complicated is the True Lender Rule cannot come back
    unless Congress specifically authorizes the bank regulators to
    engage in regulation in that respect.
        My hunch is that the uncertainty that was expressed will
    continue to a degree, and one of the questions that is present
    in this is, should the partners of banks, as opposed to the
    banks themselves, be entitled to exportation of rates that we
    have had since the Civil War, in the National Bank Act?
        Mr. Loudermilk. Thank you for that. One of the things that
    any business needs is some level of stability, and uncertainty
    creates problems in the market, which basically hurts the
    consumer.
        Other concerns I have is--one is I have always thought that
    George Orwell's, ``1984,'' was a futuristic novel, but, based
    on some of the proposals that we have been seeing coming out of
    the other side, it appears that my colleagues on the other side
    of the aisle actually see it not as a novel, but as a best-
    practices guide for Big Government.
        We have just heard about the proposal to monitor every
    American's bank accounts. That is truly Orwellian, in my
    opinion. One of the other proposals we have heard recently is
    having the Federal Reserve or the U.S. Postal Service become a
    bank. This would have the government essentially replace the
    private sector banking system and give the government in itself
    direct access to everyone's transactions.
        Apparently, this is what the Administration wants, because
    the President's nominee for Comptroller of the Currency said
    just a few months ago, ``We should end banking as we know it,''
    which inevitably would be taking away the private sector from
    it.
        Ms. Hughes, what would the consequences be for consumers
    and the economy under these types of proposals?
        Ms. Hughes. Yes. Congressman, frankly, I am not certain
    that the idea of postal banking is a good one, when we have so
    many options currently in some communities and we need to
    build, through de novo applications and resistance to closing
    of branches. I don't see a need for postal banking to be
    allowed, even though it was a factor and it was still present
    in some way when I was a small child.
        I think that I would prefer to have the banking system, in
    many respects, be made more robust in these communities that
    some of your colleagues across the aisle have been discussing.
        I think that the banks already monitor the influx and outgo
    of every account. My understanding of the proposal is that it
    would require additional reporting, not additional
    recordkeeping, because the banks have to keep records of every
    transaction down to about $100, if not more, and they have been
    doing that for many years.
        But reporting at that level is a very different matter, and
    one that I understand at some level the interest in, and at
    other levels, I think that would be a crushing blow of
    compliance responsibility and cost for the banks that are
    serving rural, suburban, and small towns and small businesses.
    Especially for small businesses, that would be very burdensome,
    and it would bother me greatly.
        Mr. Loudermilk. Thank you, Mr. Chairman. I yield back the
    balance of my time.
        Chairman Perlmutter. The gentleman yields back.
        Mr. Reuter. Mr. Chairman, could I make one comment?
        Chairman Perlmutter. Sure, Mr. Reuter, go ahead.
        Mr. Reuter. I would like to comment on the Federal Reserve
    holding direct consumer accounts and put a little exclamation
    point on the impact it would have for us as a bank. Sixty
    percent of our deposits are consumer retail deposits, and that
    is what we put into work into our community.
        And so, it is a bit mind-boggling for me to think that
    someone in Washington, D.C., would know better how to deploy
    those deposits in our community than the 3,000 employees I have
    who live here, work here, and send their kids to school here.
    So, I find that proposal very troubling.
        Chairman Perlmutter. Okay. Thank you, sir.
        The gentlewoman from New York, Ms. Velazquez, who is also
    the Chair of the House Committee on Small Business, is now
    recognized for 5 minutes.
        Ms. Velazquez. Thank you, Chairman Perlmutter. Thank you so
    much for this hearing.
        Ms. Gonzalez-Brito, in 2018, California became the first
    State in the country to enact Truth in Lending Act (TILA)-like
    requirements for business purpose loans. Senator Mendez and I
    are currently preparing to reintroduce small business TILA
    legislation here at the Federal level.
        First, can you please explain how the enactment of this
    legislation in California has brought some much-needed
    guardrails for small business loans, particularly those offered
    by nonbank lenders, without impacting the availability of
    credit?
        Ms. Gonzalez-Brito. Thank you, Congresswoman. This is a
    really important question. We are really proud of our State
    Truth in Lending Act in California. We helped to make that a
    reality, along with the Responsible Business Lending Coalition.
        So what this provides, what the law provides is, as small
    businesses have a hard time accessing credit with traditional
    banks, they often are stuck with looking at these very
    expensive, high-cost lenders.
        And so, it is imperative that this law does allow small
    businesses to know the details of the loan they are getting
    into so that they can make better decisions.
        I would say that TILA in California, through rent bank
    charters and industrial loan charters, banks are evading or
    trying to evade laws, so we have to be really careful about
    that, where they try to secure a charter outside of California
    in order to not have to be subject to the State laws.
        Ms. Velazquez. Can you also talk about why legislation at
    the Federal level is so necessary?
        Ms. Gonzalez-Brito. Because of the evasion by charters at
    the local level, it is really important to have Federal
    legislation in order to be able to stop that kind of evasion of
    consumer protection laws at the local level, and we support
    that.
        Ms. Velazquez. Thank you.
        Ms. Jackson, Mr. Reuter, what steps is the banking industry
    taking to increase the number of branches in low- and moderate-
    income (LMI) communities and communities of color, and how can
    Congress help promote the number of branches in this community?
        Ms. Jackson, let me start with you.
        Ms. Jackson. Okay. Thank you for your question. And,
    basically, I am not that knowledgeable about it, but what I
    will say is that I think that the banking industry has taken
    steps to make banking easy and accessible for all, regardless
    of whether there are branch locations down the street.
        We just want to use online banking and mobile banking and
    bank from your business and office settings, and convenience
    and accessibility are all important.
        Ms. Velazquez. Mr. Reuter?
        Mr. Reuter. Congresswoman, I would answer with a couple of
    things. I would agree with Ms. Jackson. We are making lots of
    technological tools available. But I will also tell you that,
    in addition to branches, our officers and employees are on the
    ground in the community.
        One of the fundamental changes in banking is that people
    don't walk into a branch as often for a loan anymore, even a
    mortgage. We are meeting at their home, or whatever the case
    may be. At the same time, I would also tell you there is a very
    rigorous process with CRA, when we are going to open or close a
    branch, to look at the impact to an LMI community. So, there is
    existing regulation in that area.
        But part of the nature of this hearing is how banking is
    changing, and, as Ms. Jackson pointed out, it is technology,
    but that has also put us on the ground more. So, I would argue
    that feet on the ground, walking a neighborhood, is really
    powerful as well.
        Ms. Henry-Nickie. Can I just add a comment to the record
    there on this question? We have an opportunity to revisit the
    Community Reinvestment Act. And there are serious questions
    around the utility, the value that retail branches bring to
    communities of color and low-income communities in particular.
        The goal should be in this sort of discussion how to
    encourage the growth, but not just encourage the growth of
    banking, but also how to maintain the infrastructure that we
    already have. There is no one one-to-one replacement of, close
    a branch and then switch a consumer online to a mobile
    application.
        We know that relationship-building is so incredible for
    small businesses, particularly those that need to walk in with
    their bank statements and explain why perhaps during the last 2
    weeks, inventory was low and that impacted cash flow.
        So, as the Acting Comptroller has signaled, he is ready to
    revisit this Modernizing CRA Act, let's tailor the presence of
    the banking infrastructure to the communities that need it
    most.
        Ms. Velazquez. We saw it during COVID when all of those
    minority and underserved communities that didn't have branches
    of banks in their communities or preexisting relationships, how
    difficult it was for them to access the help that they needed.
        Thank you, Mr. Chairman, I yield back.
        Chairman Perlmutter. The gentlelady yields back.
        The gentleman from Texas, Mr. Williams, is recognized for 5
    minutes for his questions.
        Mr. Williams of Texas. Thank you, Mr. Chairman.
        As Democrats try to figure out how to pay for their massive
    expansion of government programs through the reconciliation
    process, they have come up with a proposal that would force
    banks and credit unions to report all inflows and outflows of
    customers' bank accounts over $600 to the IRS. When I first saw
    it, I thought it was a joke.
        Now, there are many issues with this type of proposal. I
    want to just name a few of them. From a privacy perspective,
    the IRS does not have a good track record of using Americans'
    tax data responsibly. We saw during the Obama Administration
    that conservative nonprofits were being targeted for their
    beliefs, and this proposal has the potential to take this kind
    of overreach even further.
        From a data security perspective, the IRS is the target of
    over a billion cyber attacks a year. We don't have the clarity
    on how all this additional data on Americans' financial
    transactions will be kept secure from the bad actors.
        From an administrative perspective, it would be extremely
    costly for financial institutions to implement, almost
    impossible. We would be better off if banks could do what they
    are supposed to do and be focused on hiring more loan officers
    to get more money to Main Street businesses, not dealing with
    increased compliance costs, hiring more compliance officers,
    and creating less opportunities for small business to borrow
    money.
        And, finally, the Democrats are claiming that this will
    generate over $200 billion in new tax revenue. Well, that is a
    bogus number. It is an absurd estimate, based on half-thought-
    of and half-baked assumptions with no grounding in reality. But
    why should reality get in the way of a good story, right?
        So, as you can tell, I have a lot of issues with this
    proposal. But, Mr. Reuter, I wanted to get your thoughts on it
    as well, since you have been a banker for over 34 years. Can
    you discuss some of the negative consequences that this new
    reporting proposal would place on your bank--and you have done
    it a little bit today--and thousands of other financial
    institutions all across the country if it were to become law?
        Mr. Reuter. Thank you for that question, Congressman
    Williams. And you did a great job of summarizing my concerns,
    privacy being the first. I think a lot of individuals will
    rethink whether to have a bank account if they think everything
    they have is being reported to the IRS.
        Also, security--no matter how well the IRS does their job,
    they are a much bigger target. And if we increase the pot of
    gold, if you will, sitting there with everybody's transactional
    information, I only think the attacks will increase.
        And then, administratively, the cost would be significant.
    I know that Professor Hughes mentioned that we already track
    data, but it would still be costly to report it. We don't track
    it in the manner that is being contemplated here. We might look
    for anomalous activity or fraud, but we aren't tracking it in a
    way that meets the format of what the IRS is looking for.
        And putting this burden on the banking industry, the
    purpose of this hearing, one of the things I am hearing is
    branch closings, consolidation, all of those concerns. This is
    yet another regulatory burden that would only further
    consolidation in the industry, which I don't think anybody on
    this witness stand or in this hearing wants to see more of.
        Mr. Williams of Texas. Thank you. You did a great job with
    PPP, and everybody talked about it, and now we are going after
    you. It doesn't make sense.
        We heard in this hearing that innovation will help drive
    financial inclusion.I couldn't agree more and think we need to
    empower the private sector, new concept, empower the private
    sector to come up with new solutions to give more people access
    to financial services. Unfortunately, Democrats want to make
    this harder by increasing taxes on businesses and decreasing
    their incentive to bring these new innovations to the
    marketplace.
        So, Mr. Reuter, with the time we have left, I wanted to
    give you the opportunity to discuss the effects of increasing
    taxes in a time that it is just unbelievable that we think it
    would put more burden on the taxpayers and small business would
    have on innovation in the banking industry?
        Mr. Reuter. Any time you increase taxes, you take money out
    of the economy that is put to work. You reduce capital. You
    reduce retained earnings and funds available for investment. I
    am opposed to increased taxes, because I think it will act
    against the stimulus and the momentum we have in the economy
    right now. So, I just think it is a bad idea.
        Mr. Williams of Texas. Well, you are right. And the economy
    still is pretty good because many of the 2016 tax cuts are
    still in force. But to increase taxes is a total burden; it is
    a total downer for small businesses. Small businesses are
    already playing defense, because they don't know what the heck
    is down the road, and it gets into less jobs, less opportunity,
    basically less taxpayers. So, we need to cut taxes.
        With that in mind, Mr. Chairman, I yield back.
        Mr. Foster. [presiding]. The gentleman from California, Mr.
    Sherman, who is also the Chair of our Subcommittee on Investor
    Protection, Entrepreneurship, and Capital Markets, is now
    recognized for 5 minutes.
        Mr. Sherman. Thank you. I will start with a few
    observations, and I actually have a question or two hidden in
    here somewhere.
        I want to commend the chairman of this subcommittee for the
    passage of the SAFE Act as a provision of the NDAA. Several of
    us have cosponsored that legislation. And the idea that those
    who engage in legal business actually carry around huge
    quantities of cash is absurd.
        I also want to point out that this is a [inaudible]
    Subcommittee in that I believe four--well, four of the people
    who have already asked questions are Chairs of their own
    committees in the House of Representatives.
        One of the bills we are considering here today that is
    listed for consideration in the UA is the Third Party Vendors
    Act. I have concerns about this. [Inaudible] the subject of a
    separate hearing. I think that we would want to know whether
    the existing authority to force credit unions to sever
    relationships with problematic vendors is sufficient.
        The questioner just before me talked about our efforts to
    enforce tax laws, and it is clear what some in the other party
    and maybe even a few in my party would like to see, which is
    that the new tax become a tax only on wages. Wage earners get a
    W-2 form to collect [inaudible].
        But an awful lot of the income in this country is raised
    through profits and capital gains, so to make sure that
    increasingly sophisticated mechanisms are available to hide
    that from the IRS and scuttle any effort for the IRS to keep up
    with those methods.
        Then, we see an effort to take the cryptocurrency
    alternative of hidden money. Who wants to hide their money? The
    [inaudible] occasional terrorist to evade taxes. We are on our
    way to a situation where the income tax nominally affects the
    wealthy, but actually affects only wage earners.
        I am concerned with the industrial loan company loophole to
    the basic rule in our economy, which is that we keep commerce
    separate from financial services. We see that [inaudible] are
    still looking toward creating a financial institution.
        I commend Chuy Garcia for his discussion draft. He has done
    a good job of grandfathering certain ILCs because they have
    been fine. But we see that Rakuten, in effect, the Amazon of
    Japan, is looking to create an ILC here in the United States.
        Ms. Henry-Nickie, what risks do you think are associated
    with having a Walmart or a Japanese alternative given an ILC
    and FDIC insurance [inaudible]?
        Ms. Henry-Nickie. Congressman Sherman, what I think I heard
    you ask is, what are the risks of having these nontraditional
    players, large players, now sort of show up and shape the
    financial services market? And I think the risk to consumers is
    great. These institutions do not come to this market with an
    organic culture of consumer protection, an organic culture of
    building and creating wealth for communities of color.
        And so, I try to think about systemic solutions and harken
    back to the CFPB's larger participant rule, that availability,
    that jurisdiction that is available to the CFPB, and hoping
    that they, under new leadership, will be more aggressive and
    assertive in revisiting the kinds of institutions that fall
    under a larger participant rulemaking, and be more flexible.
        When you have Amazon, to Ms. Brito's testimony, playing in
    the financial services space, deciding who gets credit, who
    gets to sell, and really sort of shaping the lives of startups,
    entrepreneurs, and small businesses, particularly for minority-
    owned and women-owned businesses, we want those activities to
    be examined, and to be supervised.
        We want there to be substantive guidance around these
    fringe intermediaries that seem like they are on the edge of
    the market, but they are so large. They are shaping the market
    and changing all of the trends even as we speak here. So, I
    really want us to reexamine how the CFPB does its work there.
        Mr. Sherman. We have heard from many Members whose
    constituents are trapped in a banking desert. And if you are in
    a desert, you can become delirious. You can run toward a
    mirage. You can drink brackish water. And we have to make sure
    that those answers [inaudible] not mirages.
        I yield back.
        Mr. Foster. Thank you.
        The gentleman from North Carolina, Mr. Budd, is now
    recognized for 5 minutes.
        Mr. Budd. I thank the chairman, and I thank the panel as
    well.
        We have seen a lot of peer-to-peer payment services come on
    the scene in the last several years, including ones where they
    don't have to hold traditional bank accounts. They can make
    payments and transfer money. There is a lot of great promise
    here to help underserved communities.
        This question is for you, Ms. Hughes: How can fintechs and
    banks work together? How can they collaborate to expand access
    to financial services, especially for these underserved
    communities?
        Ms. Hughes. This is a very interesting question,
    Congressman Budd. I think that we have to be very careful to
    protect community banks and community national banks and
    smaller regional banks, as Mr. Reuter suggested, by not taking
    deposits away from them.
        I am concerned every time I see an advertisement that
    suggests that you can deposit money with somebody who isn't
    claiming to be a bank. I realize that they may have a bank
    supporting them, but I think we should be very cautious about
    that, even though there are opportunities for inclusion in some
    of those areas that fintechs can provide.
        But I would prefer to see a perpetuation and even
    strengthening of the opportunities that local banks with
    relationships with their depositors are offering. At the same
    time, I think we will see services that are provided. But among
    the services, because we don't let securities firms take
    deposits, insured deposits by the FDIC, I don't believe that we
    should have fintechs do that either. As much as they offer
    certain forms of promise, I think we risk undermining the
    capacity of regional and community banks with, both State and
    Federal charters, to provide lending opportunities in their own
    communities of service.
        Mr. Budd. Thank you for that. I would still want to look
    for opportunities for collaboration.
        I want to change the question up a little bit. Ms. Hughes,
    this is still for you. Earlier this year, Democrats led a joint
    resolution to revoke the OCC's final True Lender Rule. And we
    think that really restricted access to affordable credit, hurt
    small businesses, hurt consumers, and created a lot of
    uncertainty in an industry that ultimately negatively impacts
    borrowers.
        So, Ms. Hughes, how has the repeal of the True Lender Rule
    affected consumer choice and their access to credit?
        Ms. Hughes. Congressman, I regret to tell you that I think
    it is too early to answer that question. I think the prospect
    that there could be some shifts of not having a True Lender
    Rule are present. I think that the remarks that have been made
    about the opportunities for partnerships, because certainly
    fintechs can originate loans at much lower cost than banks can,
    but it is important to recognize that those loan originations
    may come with other costs to local communities.
        And I know that you, among others on the panel on both
    sides of the aisle, are passionate about keeping local
    opportunities available in rural areas, in suburban areas, and
    in urban bank deserts, and I think that this is one of the
    places where we have to be especially cautious.
        But, essentially, I have stopped paying attention to the
    True Lender Rule as it was because, until Congress reauthorizes
    it, it is a dead letter. I have been focused instead on how we
    can support the banks that still exist or that may become
    available in the three sets of communities that are currently
    experiencing the negative side of bank consolidation. And I
    just stopped paying attention on June 30th, when the rule was
    repealed.
        I also would say and could provide information to you
    separately that there are some costs to the lenders that may be
    attributable, that were not necessarily described by the OCC.
    So, if that needs to be an offline conversation, let's have it.
        Mr. Budd. Certainly. Thank you.
        In my remaining seconds, Mr. Reuter, is there anything you
    see driving the trend of closures and consolidation among rural
    community banks?
        Mr. Reuter. I think rural community banks--I grew up in a
    town of 500 people in Wisconsin, on a dairy farm. Rural
    community banks are very important, and I think they are on the
    ground making loans, doing things. So, I think rural banking
    remains strong. One of the challenges will be them garnering
    deposits.
        So, again, to the extent we allow fintechs to be able to
    draw deposits out of those communities without being regulated
    the same as banks, I think that is a threat for rural banking
    as we know it today.
        Mr. Budd. Thank you, sir.
        And thank you, Mr. Chairman. I yield back.
        Mr. Foster. Thank you.
        The gentleman from Texas, Mr. Green, who is also the Chair
    of our Subcommittee on Oversight and Investigations, is now
    recognized for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman.
        And I thank the witnesses for appearing. This is a very
    timely hearing.
        And, Mr. Budd, I want to thank you for your advocacy,
    because I, too, am concerned about rural banks. I have
    relatives who live in rural communities.
        But I am very much concerned about small banks. I have had
    at least two groups of persons who are trying to acquire a bank
    de novo, and they are having extreme difficulties with the de
    novo process.
        I am going to agree with you, Mr. Reuter; the process has
    to be reformed. It is very time-consuming. Money is on the
    line. The paperwork is enormous. And it just seems to take too
    long. I am not sure how we reform it, but there is something
    that has to be done to let us get more banks because, looking
    at the intelligence that has been shared with me by staff, in
    2014 and 2016, there were no de novo charters issued, zero.
    That is quite disturbing just to see that number, zero, for 2
    years.
        These fintechs don't have to comply with CRA. They don't
    have to have physical facilities located in communities, and
    they don't pay FDIC fees. So, we are making it pretty easy for
    them to create these deserts because they are not regulated to
    the same extent as banks are. I am very much concerned.
        Let me ask you, Ms. Hughes, to what extent do you think
    fintechs are contributing to the banking deserts?
        Ms. Hughes. Congressman Green, this is a really interesting
    question. And I don't know that we have data, but what we do
    have, as many witnesses have suggested this morning, is a
    significant unlevel playing field.
        And to the extent that we want to have banks--and banks
    perform many valuable functions in our economy--we need to be
    sure that they--I don't want to say that they are protected
    from competition, because that is not the right decision, but
    they need to not be undermined by people who can disrupt and
    disintermediate what we have used for all time in this country
    to support local economies and local economic growth.
        And that is as important today, and it is more important
    today in certain communities, rural communities, in inner-city
    communities that don't have many banks, so they can't get easy
    loans because they don't have relationships, and even suburban
    communities.
        I have lived in just about every one of those kinds of
    communities in my life, all along the northern tier, I would
    have to admit. My father was from Wenatchee, Washington, which
    is a small town; Wilmington, Indiana, is only a little bigger.
    My mother was originally from Donnybrook, North Dakota.
        So what I think is important is that we not turn our backs
    on those communities. And it is not clear to me that we have
    sufficient incentives for fintechs to continue to help in those
    communities. And, if we don't have sufficient incentives for
    them to help in those communities, then we have to be sure that
    we retain robust chartered--whether Federal or State--banks
    available to serve those communities, who are still responsible
    for job growth, startups, small businesses--
        Mr. Green. I hate to intercede, but I have to go to Mr.
    Reuter quickly.
        Mr. Reuter, same question: To what extent are fintechs
    contributing to the bank deserts that we are seeing?
        Mr. Reuter. I think the lack of a level playing field is
    absolutely contributing. We have talked about the online small
    lending capabilities they have where they are not regulated the
    same. They are taking deposits out of those communities.
        When I talk to rural bankers, one of their biggest
    challenges is source of funding to make loans in the community.
    So, to the extent we let those tech companies extract deposits
    and not be regulated the same, that is a negative.
        And, to the previous Congressman, I think the way you
    enhance more collaboration is you do make it a level playing
    field. I am not against competition. I just want to make sure
    that we lean into the trust that is already there in the
    banking system.
        And I think you, as policymakers, deserve a lot of credit
    for that trust and resiliency. So, let's not forget the
    history, and let's make sure the new technology abides by the
    same rule.
        Mr. Green. Mr. Chairman, I don't have my timepiece up, so I
    don't know how much time I have left, and I want to be
    respectful of you.
        I am going to simply close with this: We are at a point now
    where African-American banks are about to become an endangered
    species, and we have to do something. We have to do something
    to protect them and to assure us an opportunity to have more.
    And I want to stand with those who want rural banks protected.
    You have a friend in Al Green.
        We have to get together, Mr. Budd. Thank you, everybody.
        I yield back.
        Chairman Perlmutter. The gentleman yields back. Thank you.
        The gentleman from Tennessee, Mr. Kustoff, is now
    recognized for 5 minutes.
        Mr. Kustoff. Thank you, Mr. Chairman. And thank you for
    calling today's hearing.
        Thank you also to the witnesses for being here.
        Ms. Jackson, I wanted to discuss a bill, the Payment Choice
    Act, which is H.R. 4395. It would require retail businesses to
    accept cash payments and would not allow retail businesses to
    charge a higher price to customers paying with cash.
        My question to you is, of course, there are rights to
    privacy when people make purchases and sales. I think that is
    an important part of cash. But could you talk about--you talked
    in your testimony, your written testimony, about cash, about
    the importance of cash as it relates to financial privacy. Ms.
    Jackson?
        Ms. Jackson. Thank you for your question.
        And I am not too certain on what I--I can't recall what I
    wrote in my statement, but I do believe in the bank that I am
    working for now, we do honor the privacy. The cashless, cash
    for retail, for retail banking is something that I think should
    continue to happen. I don't want to see it go away. And I am
    not sure if I am answering your question correctly.
        And so, we just stick by our model. We continue to do the
    best we can to reinvest into the community and we listen to the
    community. We listen to their needs.
        Mr. Kustoff. I don't know if you know if there is any data
    out there, but are Americans in rural communities and more
    urban communities more likely to use cash than people in other
    areas?
        Ms. Jackson. I would probably say yes. And you are correct,
    I don't have the data on that, but I would probably say, yes,
    that would be accurate.
        Mr. Kustoff. Thank you very much, Ms. Jackson.
        Mr. Reuter, in your banking system, and you have banks all
    over, do you know if there is any data or can you say
    subjectively that people in rural areas or more urban areas are
    more likely, to use cash than those in other areas?
        Mr. Reuter. I do not know whether there is a difference
    between rural and urban. I can tell you there is a difference
    in that minority communities and low- to moderate-income
    communities use more cash.
        Ms. Henry-Nickie. Can I just offer for the record one
    interject here, that the 2019 FDIC survey looks at different
    kinds of ways that consumers are transacting in the banking
    system. And what is really helpful is how they unpack the use
    of check cashing, and bill payment services by racial and
    socioeconomic demographics.
        If you look at those tables, you kind of get a sense that
    people who have disabilities, those who live in Indigenous
    American communities that tend to be rural, that tend to be
    remote and spatially isolated, overwhelmingly use these
    services more so than other groups.
        That gives you a sense that they probably--these are stores
    that you need cash to transact in are likely to be the kinds of
    communities that need to continue to have our retail sector
    accept our legal tender, cash, and then think of digital
    payments as some sort of supplement to expanding the way that
    we interact and engage with these communities.
        But that is a good source of data that helps you proxy
    which communities still rely heavily on transacting in cash.
        Mr. Kustoff. Thank you.
        Mr. Reuter, if I could, there have been several questions
    about the $600 IRS reporting question. I think Ranking Member
    Luetkemeyer and Congressman Williams asked you about that. And
    you talked about the--now, set aside the privacy concerns, just
    the administrative hurdles that that would place on your bank.
        And all I know is what the news reports are. Apparently,
    there is some negotiation in raising that limit from $600 maybe
    up to $10,000. Even if that were to change, does that affect
    your opinion on what that does to you administratively,
    administering these requirements for your banks?
        Mr. Reuter. No. We would still be opposed, because the
    effort would be the same, and all of the other issues, the
    privacy and security are in existence.
        And I would like to connect it back to the conversation we
    just had on cash. I think one of the things I heard is that
    people like the anonymity and the privacy of cash. This goes
    completely counter to that line of thinking.
        Mr. Kustoff. Thank you very much.
        I yield back my time. And thank you to the witnesses.
        Chairman Perlmutter. The gentleman yields back.
        The gentleman from Illinois, Mr. Foster, who is also the
    Chair of our Task Force on Artificial Intelligence, is now
    recognized for 5 minutes. And he actually is the person who
    wanted to talk about the future of banking, whether or not
    technology was going to cause the elimination of banking or
    whether mergers and acquisitions are too much government
    burden. But I will yield to the gentleman from Illinois.
        Mr. Foster. Thank you, Mr. Chairman, for stealing about
    half of my talking points for the beginning of my testimony.
        Chairman Perlmutter. Sorry.
        Mr. Foster. But you are actually correct. There is some of
    this existential banter going on between fintech at one end,
    and small, traditional community banks at the other. And the
    part of the fintech model that relies on regulatory arbitrage
    has very little support on either side of the aisle here. And
    leveling the playing field, in that sense, I think has to be
    one of our goals here.
        But the part of the business model for fintechs that relies
    on the efficiencies of scale, I think we have to look at much
    more carefully. For example, a lot has been said about the
    value of small community banks in the PPP program, but there
    were examples of small fintechs who were able to help tens of
    thousands of small businesses get loans, often with 15 minutes
    online.
        And so, there are advantages of the digital economy.
        Professor Hughes, you mentioned a couple of questions back,
    that if a fintech was capable of originating a lower-cost loan,
    that would be detrimental to the communities they serve. Could
    you go a little deeper into that, because it sort of confused
    me? How would a community be hurt by having an option of
    getting a lower-cost loan online?
        Ms. Hughes. I don't know that we are thinking necessarily
    about that, Congressman Foster. What I intended was to suggest
    that the origination piece of how fintechs work is a model that
    is very attractive.
        It may be because they do not have all of the regulatory
    requirements that are on banks, so they can perhaps originate
    loans faster and for less money.
        The problem is that, if you want banks to be in business--
    and I am not opposed to fintechs by any means, this is a real
    struggle--banks have to make money. And one of the ways banks
    make money is through loans. They don't make money--they make
    money on fees, but they also make money on loans.
        The loan balance comes back into the bank, and because of
    fractional reserve requirements, the loan can be recycled into
    the community. So, a small amount can become $5,000 of new
    money in the community in a very short period of time.
        That is not necessarily going to happen if fintechs take
    over more of the lending, unless they are working in
    partnership with banks that would otherwise be doing the same.
        But we want to be sure they are not subject to fractional
    reserve banking. They are subject to corporate level if they
    are corporations, corporate level capital requirements that are
    very different.
        So, we don't get the synergy from lending that we get from
    lending under the fractional reserve requirement system that we
    have been using in this country for many years and that banks
    are observing.
        Mr. Foster. Right. I understand. And that is exactly an
    example of the sort of regulatory arbitrage advantage that the
    fintechs may have.
        Now, The Wall Street Journal was running a series of
    articles about the stress of rural banks, I don't know,
    probably about a year ago. They ran a series of very
    interesting articles, and they have examples, for example, of
    small rural banks that didn't want to continue in the small
    town they lived in, so they moved, and established a secondary
    branch in the nearest big city, and were holding onto the rural
    things just to extract deposits.
        Because frankly, the bind they were in is that there are no
    profitable business investments in small, dying rural towns, to
    put it bluntly.
        And so, they didn't see a future there, and they were
    actually extracting--even though these were traditional
    community banks, they ended up extracting deposits and then
    investing them at best in the nearest big city.
        How do we deal with that trend, or is that just part of the
    free market decision-making of banks? Does anyone want to
    respond to that? It is something I have struggled with--I have
    represented very rural areas, and I am trying to figure out
    what to do with that sort of dynamic. It has been a struggle
    with which I have dealt. Does anyone have any ideas how to--
    yes?
        Ms. Henry-Nickie. I think there is no relationship between
    labeling a bank, the size of a bank, and the risk the bank
    poses to a community. Community banks are just as well-
    positioned as a Wells Fargo to extract wealth out of any
    community, and we need to think about ways to empower them, I
    think, to work with collaborative partners like community
    development financial institutions (CDFIs) to reintroduce cash-
    to-credit programs that help to repurpose the deposits that
    they control and invest it in low-cost, responsible credit
    products, particularly for small businesses.
        I would like to dismiss the notion that community banks,
    because they are community banks, do better in lower-risk work
    than other kinds of financial intermediaries. We need to think
    holistically about all of the systems, all of the loan products
    that are present in the community, and ways to encourage that
    legislatively as well as regulatorily.
        Mr. Foster. Thank you. And--
        Ms. Gonzalez-Brito. Can I just add something, Mr. Chairman?
        Mr. Foster. Yes.
        Ms. Gonzalez-Brito. Just in terms of rural communities, in
    California, our members are really concerned about the closure
    of branches and the impacts that has, for instance, on
    reinvestment back into those communities.
        So, it is really important that CRA require of banking
    institutions, a CRA investment back into communities,
    effectively those that are underserved like rural communities.
        I would add that broadband and the digital divide in these
    communities is great because of the lack of infrastructure. So,
    banking can help with that as well in terms of investing in
    broadband and the infrastructure in those communities.
        Mr. Foster. Okay. I am afraid the chairman has his finger
    on the gavel here, so I am out of time.
        Chairman Perlmutter. Yes. The gentleman's time has expired.
    I gave him--I have given everybody a little extra time. I gave
    him more, since this hearing was his idea.
        I now yield to the gentleman from Tennessee, Mr. Rose, for
    5 minutes.
        Mr. Rose. Chairman Perlmutter and Ranking Member
    Luetkemeyer, thank you for holding this hearing, and thank you
    to our witnesses for providing your expertise and your time
    today.
        I think that, as we work to shape the banking system of the
    future, we must look to innovation but also aim to implement a
    regulatory framework that allows banks of all sizes--of all
    sizes--to be successful.
        As a former community bank board member, I have seen and
    witnessed firsthand how the crush of regulation deters
    particularly our smaller banks from being able to succeed and
    thrive, and particularly to thrive in rural communities, as we
    have heard many of my colleagues say today.
        Between 2008 and 2020, over 13,000 bank branches closed in
    the U.S.--we have heard that data today--representing 14
    percent of all branches.
        Many communities report that, following a bank closure--and
    I have witnessed this firsthand--they also lose financial and
    community resources, including financial advisers and civil
    leadership. Sometimes, it is simple as the tee ball teams in
    your community not being able to find the resources to succeed.
        These losses leave communities with unanswered questions,
    instability, and less access to services. And, again, in the
    rural community, where my own farm is, I have witnessed this
    firsthand.
        Mr. Reuter, what factors do you see driving the trend of
    closures and consolidation among community banks?
        Mr. Reuter. I think you touched on one in your opening
    statement, Congressman, and that is the regulatory burden. We
    really need to look at tailoring so that it is lighter for a
    bank that is less complicated.
        What we operate at FirstBank, where we don't offer
    insurance or wealth management and other services, is much
    simpler. So, from a regulatory standpoint, it should have less
    regulatory burden.
        Also, I think the fintech, the level playing field, one of
    the benefits of doing that is, you get rid of the negative
    arbitrage that is there so that capital flows back into the
    banking industry and partnerships do form between tech
    companies and banks. And that also then, to me, leverages the
    trust and resiliency of the industry.
        So, I think those things would make a big difference in
    what is happening in rural markets.
        Mr. Rose. Thank you, and I certainly agree, as I have
    already said, about the regulatory framework. I think it is
    noteworthy that, when we implement huge regulatory expansions,
    that maybe in the eyes of folks sitting on high in Washington
    seem reasonable, when they make their way down to our local
    communities, they have a crushing impact on both the sustenance
    of our local small community banks and very much on new ones
    starting.
        Professor Hughes, what can we do in Congress to ensure the
    regulatory environment allows community banks to keep their
    doors open?
        Ms. Hughes. I think we have been talking about it all
    morning in terms of retaining the robustness of community
    banks, possibly by tailoring some of the requirements that they
    are operating under, that, as Mr. Reuter has suggested, are
    really designed to protect mostly the Deposit Insurance Fund
    from excessive risk-taking, which crops up every once in a
    while in every form of business. So, it is not unique to one.
        What I think we have, though, is a real crisis in bank
    deserts, and that, while we would like to think that there
    might be other models, like fintechs, that would address those,
    in some of those communities, the presence of a community bank
    that depends on relationships is going to be even more
    important going forward in helping small businesses and
    consumers get start-up money that they can't get from capital
    markets because they are too small, and getting loans to
    acquire business locations and things of the like that are
    important to building communities.
        So, unless we want to see a lot of desert ghost towns
    around the United States, we have to do what we can to lighten
    the load on community banks so that they can continue to be
    there because we do still have very valuable parts of our
    economy emanating from smaller communities, not tiny towns, but
    they are important.
        But we are seeing lots of startups in towns like
    Bloomington, Indiana, towns close to universities, and we need
    to be sure that there are adequate banking services on a
    relationship level, to protect the robustness of the economies
    in those communities on which we all actually depend.
        Mr. Rose. Thank you, Professor Hughes.
        I am pleased--and I might indulge the Chair for a few extra
    moments--to see that the Payment Choice Act is attached to this
    hearing. As an original cosponsor, I hope to see this
    legislation included in our next markup.
        Throughout the pandemic, we faced not only a coin shortage,
    but businesses were refusing to accept cash as a form of
    payment at an alarming rate, leaving many consumers unable to
    purchase necessities.
        Cashless policies disproportionately harm seniors,
    minorities, immigrants, low-income populations, and working-
    class communities such as exist across the Sixth District of
    Tennessee.
        Consumers want the freedom to conduct transactions in a way
    that works best for them. Of the 80 percent of non-bill
    payments made in person in 2020, cash was used for 28 percent
    of these transactions, despite the pandemic-driven shift in
    shopping behaviors.
        I believe that all consumers should have the freedom to
    choose to pay with cash at grocery stores, restaurants,
    businesses, or anywhere they choose.
        And I might conclude just by saying that, if we see some of
    the heightened regulation about reporting by financial
    institutions, I think we will see more consumers, particularly
    in places like the district that I represent, closing their
    bank accounts, and going purely to cash.
        Thank you for your indulgence. I yield back.
        Chairman Perlmutter. The gentleman yields back.
        You can all see my chairing style is to kind of allow
    people to keep going.
        Mr. Lawson, the gentleman from Florida, is now recognized
    for 5 minutes.
        Mr. Lawson. Thank you, Mr. Chairman, and Ranking Member
    Luetkemeyer, for hosting this hearing. This is a very, very
    important hearing that we are having today, and I want to thank
    all of the panelists for being here.
        There has been a considerable amount of discussion about
    banking deserts, almost like food deserts. And I know that
    between 2008 and 2016, about 25 percent of the banks and so
    forth have closed in rural areas which affect majority and
    minority during the Census tract.
        My question, to everyone is--because I don't see that there
    were any clear, distinct answers this morning, and maybe there
    are not any right now--since we are seeing this increase in the
    amount of bank deserts, what are the long-term consequences in
    majority and minority communities, regarding the economic
    opportunity and access to credit?
        What does this current trend in banking mean to low-income
    communities as we enter the economic recovery period of COVID-
    19?
        And this is open to the whole panel, because I guess it is
    something that we have to deal with, but I know there have been
    more and more.
        And then, there is some criticism about all of these
    options that low-income individuals have to go to different
    areas to get access to capital, their payday loans, and
    everything else. And people say we don't need them, but what is
    going to happen? Can you give us any idea of what the future is
    going to be for our rural communities?
        I represent quite a few rural communities myself, always
    have, and I see this trend all over the place, and I just
    wanted to get each one of your perspectives on where we are
    going from here, because of what has happened in the last
    couple of years.
        Ms. Gonzalez-Brito. Congressman, in terms of the long-term
    consequences for rural banking closures, I would say we saw
    that with bank PPP loans; half of the PPP loans that banks made
    were with branches within 2 miles of the borrower. So, if we
    don't have a bank branch, those relationships are not there,
    and we saw it very clearly during COVID.
        I would say that also when we talk about regulatory burden
    for banks, we really need to center the burden of communities
    of not having banking. We need to remember that these banks are
    profit-driven, and we need to be able to think about
    alternatives to serve communities that have never been served
    by the market.
        And that could include postal banking and public banking,
    and mission-driven banking, which takes the profit-driven
    motive to close branches out of the picture. Thank you.
        Mr. Lawson. Would anyone else like to respond?
        Ms. Jackson. I would like to add to that.
        I do agree with--the Beneficial State Bank is a mission-
    driven bank, just as the other panelists were saying, and I
    think just the fact that we always reinvest into our community
    is very important, it is very beneficial, and I think that will
    help out in some way if other banks can adopt our model that we
    are doing.
        Ms. Henry-Nickie. I would just add to these comments that
    banking deserts are a consequence of decisions, of banks saying
    that these markets are no longer valuable to me.
        To fill that gap, just like fintechs have done since the
    great financial subprime crisis, we need gap fillers to now
    come in and see the opportunities in this market.
        And to do that, we need to really lean in on encouraging de
    novo bank charters. Black-owned banks see the value in Black
    communities. Minority depository institutions have always seen
    the value in our communities.
        We need to encourage their growth, encourage them to hold
    on, as opposed to just sitting by as passive bystanders and
    letting them whittle away. We are 50 percent fewer in MDIs than
    we were in 2007.
        So, how do we replace the gap? By encouraging new physical
    branches and banks to grow in these communities, and whatever
    kinds of subsidies we can corral--because we can corral them--
    to facilitate and subsidize their growth, that should be our
    mission.
        Mr. Reuter. And, Congressman Lawson, I share your concern.
    I think it is a challenging issue because one of the drivers
    for branch closures--and I would like to point out, branch
    closing, we talked about it earlier, we have 50 percent of the
    banks we had at one time.
        And, if you look, it is universal across all neighborhoods
    that there is a reduction in branches. And it is really because
    of how people are using their bank. Half of our deposits are
    now made with someone taking a picture of their check.
        And so, in order for us to adapt and make the technology
    investments, we have to look at how customers are choosing to
    do business.
        But I will tell you that we are mission-driven as a
    community bank, because we only grow if we are serving the
    community that we are part of. And so, I share the sentiments
    of others.
        I don't support postal bankingz, because it is already a
    struggling entity for the same reasons that we are talking
    today. Technology has changed its business model. So, to layer
    another industry that is being attacked by technology on top of
    that, I am not sure that is a good doubling down on the U.S.
    Postal Service.
        Mr. Lawson. Mr. Chairman, thanks for letting me go over.
        With that, I will yield back. This is a topic that we need
    to bring up again.
        Chairman Perlmutter. If I didn't let you go over, I would
    have been in real trouble, since I let everybody else go over.
        The gentleman from Illinois, Mr. Casten, who is also the
    Vice Chair of our Subcommittee on Investor Protection,
    Entrepreneurship, and Capital Markets, is now recognized for 5
    minutes.
        Mr. Casten. Thank you, Mr. Chairman.
        I feel like I am under a lot of obligation to try to make
    up all the time you have allowed us to all go over, but I will
    do my best.
        Mr. Reuter, I want to start with you, and I just want to
    give you an opportunity. We talked a lot about the decline in
    small, local bank branches and the rise in fintechs and, in
    particular, given a lot of those fintechs are not regulated
    under the Bank Holding Company Act.
        Are there any concerns you have with fintechs' ability to
    serve the underbanked so long as they remain not subject to the
    Banking Holding Company Act, that you haven't already covered?
    And I just want to give you a chance. I know we have corners of
    that so far. Is there anything else you would like to add to
    that?
        Mr. Reuter. Thank you, Congressman Casten. I do have
    concerns. One of the concerns I have, we talked a little bit
    about, with the ILC charter. While I think it is well-designed
    for the purpose originally intended, you are seeing some of
    these fintechs and technology companies wanting to creatively
    get that charter to get access to the payment system.
        They want that, because they want the data. Where do you
    buy? How do you spend your money? Because they want to use that
    data in the advertising side of their business.
        So, if you think about it, their motives are very
    different. As a bank, we have always been in the trust
    business. I know everything about our customers based on their
    account information. It is part of why I am nervous about
    shipping all of it to the IRS.
        The difference is that banks make their money by taking in
    deposits and making loans. Their core business is not data,
    like many of these tech companies.
        Our fiduciary responsibility is different, and our motive
    is different, and our behavior has been different. So, yes, I
    have a big concern about turning over the banking industry to
    some of these technology companies.
        Mr. Casten. I am glad you raised the industrial loan
    corporations, because you have sailed directly into my second
    question for Ms. Gonzalez-Brito.
        Ms. Gonzalez-Brito, you talked with Mr. Meeks about some of
    the CRA issues that come into play with fintechs. Can you talk
    about what CRA issues or concerns you may have if a fintech is
    registered as an ILC and uses that to enter the banking system?
    Are they subject to the same rules as other players in the
    banking sector?
        Ms. Gonzalez-Brito. This is a great question. No, they are
    not, and they often use these charters to be able to evade
    local State protections that they have in relation to, for
    instance, interest rate caps.
        So, I find myself agreeing with Mr. Reuter on the
    importance of regulatory rules being equal across the playing
    field.
        And I am going to sound like a broken record, but these
    ILCs that are forming in other parts--or any part of the
    country, are not subject to CRA. And we need those fintechs, if
    they are taking deposits, if they are making loans in our
    communities, which they are, to have a CRA requirement.
        And then, lastly, I would just say that fair lending
    algorithms are being used that we don't understand, and
    sometimes, the CEOs don't even understand.
        So, it is incredibly important that we have regulatory
    oversight, especially on fair lending and fair housing.
        Mr. Casten. Thank you.
        And, with the time I have left, I want to pivot a little
    bit away from fintechs, because these things are overlaid.
        But a number of the crypto-based companies like Paxos and
    Anchorage and Protego have been asking for, and receiving,
    Federal trust charters from the OCC. And we are creating this
    sort of blurry area between fintech and crypto.
        Dr. Henry-Nickie, with my remaining time, I welcome your
    thoughts on what factors we should be taking into account
    reviewing bank charters from crypto companies, and, in
    particular, with a real focus on the volatility.
        We are essentially giving, as I think of it, 4X risk on
    deposits. What is the right way for us to be thinking about
    those charters and, in particular, with respect to the
    volatility exposure that this might place on depositors?
        Ms. Henry-Nickie. Thanks for the question, Congressman
    Casten. While I think it is a really important issue, I, too,
    am concerned about how these cryptocurrencies are playing
    inside our economy without figuring out how to manage the
    volatility and the vulnerability.
        I don't follow these issues as a scholar, and I think
    perhaps Ms. Hughes might be better-positioned to render an
    opinion on the subject.
        Mr. Casten. Okay.
        Ms. Hughes, we seem to always curse you with 30 seconds to
    answer a 10-minute question, but I will give you your best
    shot.
        Ms. Hughes. I will be happy to answer it separately,
    Congressman, so we can have that conversation.
        The rigorous evaluation of anybody who gets a Federal trust
    charter, or from the States that are offering charters, is
    still present, and I do not think that these companies are
    getting less rigorous reviews when they are getting these
    permissions.
        But one of the differences is the scope of the operational
    powers that they have, and when the States have been offering
    opportunities to these businesses, they have been cabined in
    certain fields that are not necessarily going to be in direct
    competition with the kinds of banks, the community banks, that
    we have been talking about so much today.
        I have the same problem. This is a long answer. We need to
    have a separate conversation about it. And I do think that we
    have different management issues--different risk-management
    issues with cryptocurrency because of price volatility than we
    have with traditional banks and even with some of the larger
    fintechs, including some that are now acquiring.
        Mr. Casten. Okay. Thank you, and notwithstanding my initial
    promise, it looks like our chairman is going to be managing
    penalty time at the end of this hearing. But I appreciate you
    all, and I yield back my penalty time.
        Chairman Perlmutter. The gentleman yields back.
        We will go now to the gentlewoman from Massachusetts, Ms.
    Pressley, the Vice Chair of this subcommittee. She is
    recognized for 5 minutes.
        Then we will go to Mr. Emmer, and then, we will go to Mr.
    Garcia to close out.
        Ms. Pressley?
        Ms. Pressley. Thank you, Chairman Perlmutter, for convening
    this hearing. I, along with many of my colleagues, have been
    sounding the alarm for many years about rising bank branch
    closures in predominantly Black and Brown communities, and the
    negative impact that this will have on small businesses owned
    by people of color. That impact was certainly made abundantly
    clear during the pandemic.
        Congress created the Paycheck Protection Program to serve
    as a lifeline to small businesses and their employees, but we
    now know proximity to banks played a significant role in who
    actually received funds. Half of bank PPP loans came from banks
    with branches within 2 miles of the borrower. Borrowers using a
    nearby bank received credit sooner, which was a critical
    advantage, as PPP money ran out rapidly.
        It is no surprise, but egregious nonetheless, that Black-
    owned businesses received only 2 percent of PPP loans from the
    CARES Act. According to the Boston Federal Reserve, one in five
    Black-owned small businesses had never even heard of the
    program.
        Ms. Gonzalez-Brito, nearly half of Black-owned businesses
    were wiped out in the early months of the pandemic. Can you
    briefly summarize the long-term impact these business closures
    will have on Black and Brown communities?
        Ms. Gonzalez-Brito. Thank you for that question. You are
    absolutely right; there was a disparate impact in terms of the
    way PPP loans were administered.
        And, if you think about the banks in communities of color,
    counties that are majority Black and Brown have about 27
    financial institutions per 100 people. For Indigenous Native-
    American communities, it is even less. And for the White
    communities that are majority White, we have over 40 branches.
        So, when we close branches in these communities, small
    businesses really suffer. We know that they need local banks to
    be able to really have this relationship that they trust and to
    be able to get the kind of support that they need, especially
    in a financial crisis.
        Ms. Pressley. Thank you. So, the closure of branches and
    consolidation of banks limits opportunities for Black-owned
    small businesses and, as a result, our broader communities.
        It is critical that Black and Brown voices are heard during
    the bank merger process and that Congress pursues every
    solution to close these gaps, including public banking and
    postal banking.
        Democrats control the House, the Senate, and the White
    House, and together we have made strides to exact economic
    justice in our pandemic recovery efforts.
        But, from the priority application period for minority-
    owned restaurants under the Restaurant Revitalization Fund, to
    the USDA loans for Black farmers, right-wing, private-interest
    groups have claimed reverse discrimination in the courts and
    blocked these overdue investments.
        Ms. Gonzalez-Brito, the Freedman's Savings Bank was created
    by Congress in 1865 to offer banking to newly-freed Black
    Americans. Can you please briefly summarize what happened to
    the Freedman's Bank and the millions of dollars that Black
    Americans deposited into it?
        Ms. Gonzalez-Brito. The Freedman's Bank is a good example
    of the way that wealth is extracted from Black Americans. And,
    unfortunately, when that bank was created, the mission and what
    it was created for was absolutely noble, but all of the
    trustees that were running that bank were White, they did not
    know the community, and not only did they not know, we are
    talking about a whole different timeframe in terms of White
    people in this country and the enslavement of Black Americans.
        And so, it is really important that as we think about the
    impact that this has, where the banks are actually run by
    people of color, that we have minority deposit institutions
    that are run by people of color, and that we support them with
    as much community support and government support that we can--
        Ms. Pressley. Thank you.
        Ms. Gonzalez-Brito. --in order to better serve the
    communities.
        Ms. Pressley. Thank you very much. And this is important
    history, which I think many are unaware of, and it just goes to
    show that there has been precise legislative harm done. From
    the Freedman's Bank to redlining to exclusion from the GI Bill
    and the Social Security Act, Black and Brown workers have been
    pushed out of our economic and financial systems for really far
    too long.
        So, race-conscious relief is necessary because the heart
    and harm was precise and race conscious. So, race-conscious
    relief is not discrimination; it is justice. It is a necessary
    step toward equality and liberation.
        Thank you, and I yield back.
        Ms. Gonzalez-Brito. Can I add one more thing? In terms of
    race-conscious initiatives, the special purpose credit program
    is one that banks really should be implementing. And we have
    been able to successfully work with some banks in California to
    be able to do that.
        It really focuses credit products on those communities that
    have been not only excluded but, as we talked about, had their
    wealth extracted from them. And so, we encourage banks to look
    at these kinds of programs, and we look forward to working with
    them to do that.
        Ms. Pressley. Thank you.
        Chairman Perlmutter. The gentlelady yields back.
        The gentleman from Minnesota, Mr. Emmer, is recognized for
    5 minutes.
        Mr. Emmer. Thank you, Chairman Perlmutter.
        Before I begin my remarks, I also want to thank Mr.
    Luetkemeyer and Mr. Reuter for bringing up the compliance and
    privacy concerns of requiring financial institutions to report
    transactional data to the IRS on all accounts with $600 or
    more.
        I led a letter with 141 of my colleagues on this issue, and
    we are watching it very closely.
        As we convene today to discuss modernizing financial
    services institutions, I implore my colleagues to think outside
    the box on how Congress can assist in improving the manner in
    which consumers access financial products and services, because
    that is what we are here for today.
        Congressman Perlmutter, I would like to recognize you for a
    moment for your work as the co-lead on our bill, the Credit
    Union Governance Modernization Act, a bill that thoughtfully
    revisits antiquated regulations that prevent credit unions from
    doing what they need to do: serve their communities.
        I am happy to see that this bill is noticed in this
    hearing, because it revises the procedure for expelling members
    from a Federal credit union to make it safer for the members
    and employees. It is imperative that we consider this
    bipartisan legislation in this committee.
        Financial institutions have the important responsibility of
    providing safe, reliable financial services for Americans
    across the country. But what happens when a credit union member
    makes threats of violence to other members or the credit
    union's employees? What happens when a credit union member
    repeatedly deposits fraudulent checks and jeopardizes the
    stability of their credit union? What happens when a member
    damages credit union property and places other members and
    employees in harm's way?
        Right now, due to the antiquated regulations that exist, it
    would be hard to remove members who make credit unions unsafe.
    My bill revises these regulations and crafts a process with an
    emphasis on due process and respect for members' ownership in
    the credit union to remove dangerous members so that credit
    unions can best carry out their obligation, again, to provide
    safe and reliable financial services for Americans.
        We really have to move banking into the future. And I guess
    with that, Ms. Hughes, if you don't mind--thank you, by the
    way, to all of the witnesses for being here today and for your
    time and participation and your expertise.
        Ms. Hughes, I want to direct this to you. Given the issues
    I just addressed, do you believe there is cause for a
    legislative solution, like the Credit Union Governance
    Modernization Act, to ensure credit unions' safety as credit
    unions provide financial services to their communities?
        Ms. Hughes. Congressman Emmer, I have to apologize and tell
    you that I have not read that bill, so I am not going to be
    able to comment about it very specifically.
        But I would say that the credit unions are a little bit
    different, but the idea that banks and credit unions cannot
    protect themselves from dangerous members is just appalling.
        The question then is, how do you establish parameters--if
    you want to legislate this--that will not have an unduly
    adverse effect on small businesses that have licenses from the
    States and the communities that are a part of the fabric on
    Main Street in many communities? How will we fashion this?
        And so, that is why I need to read the bill, and perhaps we
    can have an offline conversation about the bill if you remain
    interested in my views about it.
        Mr. Emmer. Just so everybody on this panel knows--because I
    know there has been a lot of techie stuff talked about, and
    this is kind of more like meat-and-potatoes stuff--the
    antiquated rules, as Chairman Perlmutter will tell you, and I
    am going to do this right now if I can do this in a streamlined
    fashion, would require a vote of the entire membership to deal
    with a member who is making violent threats against other
    members and/or credit union employees, who is threatening
    damage or committing damage to credit union property.
        This seems to be an antiquated way and, frankly, very
    difficult way to expel a member who is presenting these dangers
    to credit union employees and their customers.
        So, what this bill does is it streamlines that process
    while protecting the due process concerns so that they can make
    a quick decision under the right circumstances and make sure
    that everybody is safe and the credit union is protected.
        So, I do hope you have a chance to read it. I think you
    will be supportive of what we are doing.
        And, again, Chairman Perlmutter, I thank you for your work
    with us on this bill, and thank you for the time today. I yield
    back.
        Ms. Gonzalez-Brito. Chairman Perlmutter?
        Chairman Perlmutter. The gentleman yields back. I have read
    your bill, and it is meritorious, and it should be passed. That
    is my opinion.
        Mr. Emmer. Well, then it is done. Thank you.
        Chairman Perlmutter. Our final panelist is Mr. Garcia from
    Illinois, and he is now recognized for 5 minutes.
        Mr. Garcia of Illinois. Thank you, Chairman Perlmutter,
    and, of course, thank you to the ranking member for convening
    this important hearing.
        This hearing is called the, ``Future of Banking,'' but it
    is not just about CEOs and Wall Street. The future of banking
    is about the future of working-class neighborhoods like the
    ones I represent.
        My neighbors lost their homes in the Great Recession. Many
    lost small businesses during the COVID-19 pandemic. This isn't
    inevitable. Congress can create and enable a more equitable
    financial system.
        So today, I am introducing the Bank Merger Review
    Modernization Act, to strengthen oversight of bank mergers so
    our regulators aren't just a rubber stamp for creating mega
    banks.
        And soon, I will introduce the Close the ILC Loophole Act,
    to address the huge threat that the underregulated banks can
    pose to our markets and our financial systems.
        I would like to begin with a question for Ms. Gonzalez-
    Brito. Yesterday, the Committee for Better Banks reported that
    BB&T and SunTrust merged. Their new combined bank, Truist, not
    only fell short of the CEO's promise to Congress to open 15
    bank branches in low- to moderate-income areas, the merger
    slowed down the pace of opening bank branches in lower-income
    areas and increased the pace of bank branches in higher-income
    areas.
        Banks can be hard to come by in my neighborhood, and that
    means my constituents often need to turn to riskier loans.
        Ms. Gonzalez-Brito, it looks like these mergers have
    reduced access to financial services for the people who need it
    most.
        Does this new report square with your own work? Do bank
    mergers tend to limit access to capital for working-class
    people, and who is hurt when regulators serve as rubber stamps
    for bank mergers?
        Ms. Gonzalez-Brito. Thank you so much. This is a really
    important question, and it also goes back to Congresswoman
    Pressley's statement about making sure that community voices in
    the most impacted communities, Black and Brown communities, are
    at the center of any discussions around mergers and
    acquisitions.
        We are seeing that mergers and acquisitions are leading to
    not only a closure of bank branches, but they are also leading
    to less reinvestment, because where you had two banks prior to
    the merger reinvesting back into communities, you now have only
    one. And one plus one also doesn't equal two; it equals less
    than two.
        So what we really need is to ensure that any merger, before
    it is approved, has a public benefit and does not have a public
    harm.
        And I really want to thank you for your work on the Bank
    Merger Review Modernization Act. It is exactly what we need.
        I would just add--I want to go back to the credit union
    discussion, because I was surprised it took us this long to get
    there. But credit unions are not subject to the Community
    Reinvestment Act, and so we actually don't know how much they
    are reinvesting back into communities, and that is critical for
    low-income communities and communities of color.
        And I would say in relation to, I am not sure where this
    conversation went in terms of violence, but really what credit
    unions should be concerned about and what we are concerned
    about is that their membership actually doesn't represent the
    communities that they are in. And that is critical for a
    successful community and economic development and community
    development.
        Mr. Garcia of Illinois. Thank you for that.
        Dr. Henry-Nickie, last year, the FDIC approved deposit
    insurance applications for two new ILCs, the first in many
    years. Of course, a lot has changed since the last ILCs were
    approved.
        In 2005, Walmart's ILC application sparked fears about
    anticompetitive practices and the potential for financial risk
    of large commercial ILCs.
        And now, in the new world of Amazon, Facebook, and Google,
    it seems to me that the potential for corporate monopoly and
    abuse is greater than ever.
        Do you think that granting ILC charters to Big Tech or
    large commercial firms could threaten competitive markets,
    consumer privacy, or financial stability?
        Ms. Henry-Nickie. Thank you for the question, and also for
    your work in bringing this incredible piece of legislation to
    the House Floor. I think you are right in calling out the
    scariness that involves putting these massive firms that are
    really good at sort of killing competition and monopolizing the
    entire landscape.
        I would be tremendously concerned about those kinds of
    firms getting access to ILC charters, but I just want to go
    back a little to the question around race-conscious policies.
        In this legislation, giving the CFPB a vote to stop these
    kinds of--a scaling of bad bank practices is actually really
    important to maintaining our hold for communities of color on
    the bank branches that are remaining. And also, it is a really
    impactful way to generate new bank branches.
        Part of the consumer restitution work that the CFPB does is
    to legislate where that presence should be reinstated to help
    rehabilitate the damage and disinvestment that is done to
    consumers.
        So, thank you again for the incredible work. I really want
    this piece of legislation to advance and to pass because the
    CFPB can do a fantastic job of holding institutions accountable
    and stopping the spread of banking deserts through branch
    losses.
        Mr. Garcia of Illinois. Thank you so much.
        And thank you, Mr. Chairman, for your indulgence.
        Chairman Perlmutter. You're welcome. The gentleman yields
    back.
        Without objection, statements will be entered into the
    record on behalf of the following Members of Congress and
    organizations: the Honorable Donald M. Payne, Jr.; the American
    Financial Services Association; the Bank Policy Institute; the
    Credit Union National Association; the Electronic Transactions
    Association; the Financial Data and Technology Association; the
    Independent Community Bankers of America; the National Armored
    Car Association; and the National Association of Federally-
    Insured Credit Unions.
        I would like to thank our witnesses for your testimony
    today. Thank you for allowing me to be lenient with the Members
    in allowing their time to kind of run over. We appreciate the
    time that you have extended to us, and your expertise and your
    testimony today.
        The Chair notes that some Members may have additional
    questions for these witnesses, 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.
        Thank you very much. Thanks for your testimony.
        This hearing is now adjourned.
        [Whereupon, at 12:44 p.m., the hearing was adjourned.]

                                A P P E N D I X

                               September 29, 2021

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