[Senate Hearing 117-755]
[From the U.S. Government Publishing Office]
S. Hrg. 117-755
FAIRNESS IN FINANCIAL SERVICES: RACISM AND DISCRIMINATION IN BANKING
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HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE LEGACY OF DISCRIMINATION IN AND THE CURRENT REALITY OF
DISCRIMINATION IN FINANCIAL SERVICES
__________
DECEMBER 1, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-732 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, DECEMBER 1, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 34
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 35
WITNESSES
Lisa Rice, President and CEO, National Fair Housing Alliance..... 6
Prepared statement........................................... 37
Responses to written questions of:
Senator Sinema........................................... 109
Senator Ossoff........................................... 110
Marc H. Morial, President and CEO, National Urban League......... 7
Prepared statement........................................... 51
Responses to written questions of:
Senator Ossoff........................................... 113
Representative Byron Donalds of Florida.......................... 9
Prepared statement........................................... 88
Devon Westhill, President and General Counsel, Center for Equal
Opportunity.................................................... 10
Prepared statement........................................... 90
Janai Nelson, President and Director-Counsel, NAACP Legal Defense
and Educational Fund, Inc...................................... 12
Prepared statement........................................... 93
Additional Material Supplied for the Record
Statement submitted by U.S. Chamber of Commerce.................. 116
Letter submitted by National Urban League, National Action
Network, the Greater Washington Urban League, and the National
Action Network's Greater Washington, DC, Chapter............... 128
``The New FBI Site Is a Matter of Equity'', Angela D. Alsobrooks,
Washington Post, November 4, 2022.............................. 130
``The Spirit of J. Edgar Hoover Begins To Stir in Prince George's
County Perspective'', Courtland Milloy, Washington Post,
November 29, 2022.............................................. 132
Statement submitted by Renee King, Founder and CEO of Fund Black
Founders....................................................... 135
(iii)
FAIRNESS IN FINANCIAL SERVICES: RACISM AND DISCRIMINATION IN BANKING
THURSDAY, DECEMBER 1, 2022
U.S. Senate
Committee on Banking, Housing and Urban Affairs
Washington, DC.
The Committee met at 10 a.m., in room 538, Dirksen Senate
Office Building, Hon. Sherrod Brown, Chairman of the Committee,
presiding.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Chairman Brown. The Committee on Banking, Housing, and
Urban Affairs will come to order. Today's hearing is a hybrid
format. Our witnesses are in person. All five of you, thank
you. Our Members have the option to appear in person or
virtually.
When work has dignity, every American can fully participate
in and receive the benefits of our dynamic economy. Financial
services and products have played a critical role in helping
many families build wealth and plan for the future, whether
that means saving for college, retirement, or their first home.
Many Americans have been able to do just that. However, not
every community has gotten its share of the prosperity. That is
especially true for Black and Brown Americans, who are too
often shut out of the financial system because of
discrimination.
Let that sink in. In 2022, in the United States of America,
you can be turned away at a bank because of the color of your
skin.
The wealth and income disparities between White and
minority households are a consequence of the unequal access and
treatment minorities have faced. From accepting slaves as
collateral for loans, to Jim Crow, to redlining, to the
subprime mortgage crisis' predatory practices, to the current
crypto crisis, Black and Brown Americans have never had equal
access to or fair treatment in financial services.
Today's hearing is an opportunity for this Committee to
reckon with not only the legacy of discrimination, but the
current reality of the pervasive and pernicious discrimination
in financial services.
The 2021 FDIC household survey found that 11 percent of
Black households and 9 percent of Hispanic households were
unbanked, compared to 2 percent of White households. And for
Black Americans with checking accounts, it is not always
better. We know that some banks close checking accounts at
significantly higher rates in communities with more Black
residents.
The fact is that many Black and Brown Americans do not have
access to, nor do they trust, our financial system.
Think about Dr. Malika Mitchell-Stewart, a doctor, a
physician from Texas, who attempted to open an account and
deposit her signing bonus check. The bank tellers raised
questions about the check's authenticity and even her
employment as a doctor. They ultimately accused her of fraud
and they turned her away.
Or consider Clarice Middleton, an African-American woman.
As Emily Flitter described in her book ``The White Wall'', Ms.
Middleton, quote, ``shook with fear,'' unquote, as she stood on
the sidewalk outside a Wells Fargo branch in Atlanta after she
was accused of fraud.
She went to a Wells Fargo branch in a wealthy, mostly White
Atlanta neighborhood to cash a security deposit refund check.
Three bank employees examined the check and her identification,
but refused to look at the additional proof Ms. Middleton
offered. They declared the check fraudulent, and one employee
called the police.
And then there is Ryan Coogler, the director of the movie
``Black Panther'', which I recommend or I assume you have seen;
if not, I recommend. He was profiled while trying to withdraw
money out of his own account. He gave the bank teller his bank
card, PIN, and ID. The teller assumed Mr. Coogler was trying to
rob the bank. Mr. Coogler's case shows that even wealth and
fame cannot overcome or stop discrimination.
Black and Brown customers are viewed with suspicion
sometimes for just entering a bank and are questioned over the
most basic transactions. And because access to basic financial
services is how families build wealth, discrimination in
banking only worsens the racial wealth gap.
Many Black and Brown consumers have no place to securely
hold their funds. And when consumers are pushed out of
financial services, they are forced to rely on check cashers.
They have far fewer opportunities to build relationships with
financial institutions, relationships that matter when trying
to buy a home or start a small business.
The pandemic revealed the detrimental consequences for
minority consumers who have been unable to build that
relationship with financial institutions. Not only were
minority small business owners left out of important programs
like the Paycheck Protection Program, but small business owners
without banking relationships who were able to obtain Federal
aid were sometimes barred from accessing those important funds.
Congress has worked to address this fundamental unfairness
with legislation. Civil rights statutes like the Equal Credit
Opportunity Act and the Community Reinvestment Act seek to
ensure equal access to credit, and to combat discriminatory
practices, such as redlining.
The Civil Rights Act of 1964 outlawed discrimination in
certain places of public accommodation, such as hotels and
restaurants--we know that--but it does not cover banks. Federal
courts have held that the law enumerates specific types of
businesses. Those that are not on the list, such as financial
institutions, simply are not covered.
We must do more to ensure that all Americans have equal
access and equal treatment in financial services and products.
The lack of clear protections and the loophole within the
Civil Rights Act make it difficult to end discrimination and
make it hard for victims of racial discrimination to hold these
banks accountable.
Minority consumers also have access to less of their own
funds. One report found that Black and Latino consumers are
required to maintain a minimum balance of $821 and $879,
respectively, compared to a minimum balance of $648 for White
consumers. Black and Latino consumers, unlike White consumers,
simply do not have access, in too many cases, to their own
money.
Banks say they are committed to eradicating the legacy of
racism in our financial institutions. Many banks, as you know,
have sat at the table that the five of you are sitting at,
promising that. Yet a week after the CEOs of our largest banks
sat before this Committee and promised to fight against
discrimination, the American Bankers Association sued the
Consumer Financial Protection Bureau for updating its
examination manual to scrutinize unfair discrimination. Think
about that.
We know that Wall Street always attacks the CFPB, but their
opposition has reached, shall we say, frenzied levels with
Rohit Chopra at the helm. Under Director Chopra, the CFPB is
using all of its authorities to fight discrimination and they
have repeatedly gone after financial institutions for their
treatment of Black consumers.
Earlier this year the CFPB announced that it will examine
whether discrimination violates the Dodd-Frank prohibition
against unfair, deceptive, and abusive acts and practices. In
2021, the CFPB required a bank to pay $5 million to address
redlining that harmed Black consumers. Since its creation, the
CFPB has gotten $637 million from discriminatory institutions,
tens of millions of which have gone directly to minority
consumers who experienced that discrimination.
And it is no surprise that when an effective agency like
the CFPB actually works on behalf of consumers, no surprise
Wall Street does everything it can to stop it. We do not see
banks holding true to their commitments to fight
discrimination, simply put.
To ensure that all Americans have dignity in work, we must
work to end discrimination in banking.
Senator Toomey.
STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, and thank you to
our witnesses.
Equal treatment under the law is a fundamental American
value. Discrimination and racism are wrong and have no place in
our society. Unfortunately, they are a sad part of our Nation's
history. And even though we have made great strides in
dramatically reducing discrimination in our society, that does
not mean instances of racial discrimination never take place
today. Sometimes they do. And when they do occur, the
Government should enforce the antidiscrimination laws,
including in financial services.
However, in recent years some Democrats have sought to
advance a liberal legal theory called ``disparate impact.''
Disparate impact is not the same as discrimination--far from
it. Disparate impact theory punishes people if they make
business decisions that produce statistical differences in
outcomes between demographic groups, even if there is no
discriminatory motive. There can easily be differences in
outcomes when there has been absolutely no discrimination.
Now, in theory, defendants can prevail in disparate impact
cases if they can prove at trial that there was a business
justification for the policy that created the disparate
outcomes. But in practice, these cases entail significant costs
and reputational risks that can force even innocent defendants
to settle. In this way, disparate impact is a gift from liberal
Democrats to trial lawyers. It is also a boon to regulators
inclined to abuse their authority, including the CFPB.
For example, the Obama CFPB claimed to have discovered
discrimination, based on disparate impact, by auto lenders who
did not even know the race of the borrowers they were accused
of discriminating against. To underscore the absurdity of this,
not only did the lenders not know the race of the borrowers,
the CFPB did not even know the race of the borrowers that it
claimed were being discriminated against based on race. But
that did not stop the CFPB from discovering racial
discrimination.
The CFPB's actions were not authorized by statute. But to
make matters worse, they were based on flawed methodology,
badly flawed. The CFPB guessed race based on last names and ZIP
codes, even though they knew this method was flawed. For
instance, this methodology predicts there is an 89 percent
chance that Chairman Brown is Black, and a 64 percent chance
that Senator Tim Scott is White.
Moreover, CFPB documents showed the agency knew that credit
scores and other business factors accounted for much of the
statistical disparities, and there was a significant risk the
CFPB would lose in litigation.
Nonetheless, the CFPB brought enforcement actions they knew
might very well fail in court because they determined
defendants have, and I quote, a ``powerful incentive to
settle,'' end quote, as we discovered in CFPB's internal
documents, and so they could drive these defendants to settle
cases where they might have been able to win. This is an
outrageous abuse of Government power, to pursue litigation
because you know the costs, economic and otherwise, would drive
an innocent person to settle.
In 2018, Congress overturned the CFPB's disparate impact
guidance for auto lending. Nevertheless, the Biden CFPB has
expanded its use of disparate impact theory, effectively
extending the very policy Congress overturned.
The CFPB has claimed the authority to supervise for
disparate impact in all consumer financial services and
products, based on an unprecedented reading of the Dodd-Frank's
grant of authority to prevent unfair, deceptive, or abusive
acts or practices, known as UDAAP. But Congress did not
authorize disparate impact under UDAAP. In the 12 years since
Dodd-Frank was enacted, the CFPB never previously claimed that
it had that authority.
Congress took the UDAAP language from the FTC Act. For
nearly a century the FTC never interpreted that language to
include discrimination or disparate impact, until after the
CFPB's novel reinterpretation.
This is exactly the kind of abuse of power the Supreme
Court recently ruled against in West Virginia v. EPA, when the
EPA, in the words of the Supreme Court, and I quote, ``claimed
to discover in a long-extant statute an unheralded power
representing a transformative expansion in its regulatory
authority,'' end quote.
They could have been describing the CFPB.
To make matters worse, the CFPB implemented this
controversial change in law by fiat, without even going through
a rulemaking. This overreach was possible because the CFPB is
structured to be unaccountable to Congress. It can simply take
funds from the Fed, which also is not subject to
appropriations, thereby doubly insulating the CFPB from
congressional appropriation and control. That is why the Fifth
Circuit recently found the CFPB unconstitutional, holding that
its funding violates the Appropriations Clause of the
Constitution.
The court noted, and I quote, ``The Bureau's perpetual
insulation from Congress's appropriations power . . . renders
the Bureau `no longer dependent and, as a result, no longer
accountable' to Congress and, ultimately, to the people,'' end
quote. It is no surprise that this unaccountable agency
disregards the law. And it is no surprise the CFPB is already
being sued for its disparate impact overreach.
A harmful effect of the CFPB's unauthorized expansion of
disparate impact is that it creates tremendous uncertainty. Any
action taken by financial institutions may subject them to
disparate impact liability, even if they have no way of knowing
whether a disparate impact will occur. They will likely have to
pass on the costs of liability to consumers, or just avoid
potential frivolous litigation by not offering services and
products in the first place. So the expected outcomes of
disparate impact liability are higher costs and less access to
financial services for low-income families, which
disproportionately harms minorities.
The Biden administration should stop abusing its authority
to advance this misguided, liberal legal theory.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Ranking Member Toomey.
I will introduce today's witnesses. Ms. Lisa Rice, from
Toledo, Ohio, is the President and CEO of the National Fair
Housing Alliance, one the Nation's leading experts on fair
housing in lending policies. Welcome, Ms. Rice.
Marc Morial is the President and CEO of the National Urban
League. He previously served as mayor of his hometown of New
Orleans, and was the President of the U.S. Conference of
Mayors. President Morial, welcome.
Mr. Morial. Thank you.
Chairman Brown. Byron Donalds represents Florida's 19th
Congressional District. Before holding office, Representative
Donalds worked in the banking, finance, and insurance industry.
Congressman Donalds, welcome.
Mr. Devon Westhill is the President and General Counsel at
the Center for Equal Opportunity. He served as the top civil
rights official at the United States Department of Agriculture.
Mr. Westhill, welcome.
Janai Nelson is the President and Director-Counsel at the
NAACP Legal Defense and Educational Fund. Prior to joining LDF
she was Associate Dean for Faculty Scholarship and Associate
Director of the Ronald Brown Center for Civil Rights and
Economic Development at St. John's University School of Law.
Ms. Nelson, welcome.
Ms. Rice, please begin your testimony.
STATEMENT OF LISA RICE, PRESIDENT AND CEO, NATIONAL FAIR
HOUSING ALLIANCE
Ms. Rice. Thank you. Chairman Brown, Ranking Member Toomey,
and other distinguished Members of the Senate Banking
Committee, I am so appreciative of you for inviting me to
testify today.
The National Fair Housing Alliance is the Nation's only
national civil rights organization solely dedicated to
eliminating all forms of housing and lending discrimination and
creating well-resourced, healthy, vibrant, resilient
communities. I can empathize with people like Ryan Coogler, who
although being one of the world's most noted and award-winning
film directors, was falsely accused of being a bank robber and
detained by police when trying to withdraw money from his own
bank account. I, too, personally have experienced differential
and humiliating discriminatory treatment when trying to access
services from financial institutions. No one should have to
experience these types of indignities.
Discrimination in financial services is built on our
Nation's enduring legacy of discriminatory policies and
practices. Thousands, literally thousands of race-based laws,
like the Indian Removal Act, Jim Crow laws, Black Codes, the
Home Owners' Loan Corporation Act, the National Housing Act,
and many other statutes and policies put in place over the last
400 years created inequitable systems like residential
segregation. In fact, we are more segregated today than we were
100 years ago because of these discriminatory policies. We have
a biased appraisal system, unfair zoning policies, the dual
credit market, and biased algorithms that are still in place
today, impacting millions of people.
In addition, too many people experience unfair treatment
and denial of critical financial services and products. The
ongoing failure of financial services providers to fair serve
all consumers and communities harms individuals and
neighborhoods, stifles innovation, restricts economic progress,
generates wealth loss, and makes the U.S. less globally
competitive.
The cost of discrimination is incalculable. According to
research from the Brookings Institution, homeowners in
predominantly Black neighborhoods have lost, cumulatively, $162
billion in wealth due to appraisal bias. Another study found
that eliminating bias against communities of color would have
resulted in an additional 770,000 Black homeowners and an
additional $218 billion in sales and expenditures. But due to
biased policies and practices, consumers, our society, and the
economy lost out on these benefits. Citigroup estimates that
eliminating racial inequities for Black consumers alone would
add $5 trillion to the U.S. GDP over a 5-year period.
The Fair Access to Financial Services Act fills a critical
gap in the fabric of our Nation's civil rights and consumer
protections, and is vital to ensuring people can fully
participate in our modern-day economy and that our society can
thrive. It covers discriminatory practices not precluded by the
Civil Rights Act of 1866, the Fair Housing Act, the Community
Reinvestment Act, and the Equal Credit Opportunity Act. A fair,
open, and equitable marketplace promotes economic health and
wealth for people, communities, and the greater society,
solidifying our position as a global leader, and making our
Nation stronger.
The Nation's history of discrimination, segregation, and
financial exclusion reverberate to this day, having massive
consequences in the lives of everyday Americans who simply want
to use the services that are necessary to fully participate in
our economy. Congress has done well to pass hard-earned
legislation aimed at preventing this history from being
repeated, but more can be done to close loopholes in our civil
rights enforcement infrastructure to better protect people of
color and other marginalized consumers from discrimination in
financial services.
The Fair Access to Financial Services Act is an important
step in the right direction, and we look forward to working
with the Committee and Members of Congress on this legislation.
Chairman Brown. Thank you, Ms. Rice.
Mr. Morial, welcome.
STATEMENT OF MARC H. MORIAL, PRESIDENT AND CEO, NATIONAL URBAN
LEAGUE
Mr. Morial. Thank you very much. Chairman Brown, Ranking
Member Toomey, and Members of the Committee, I want to thank
you for the opportunity to testify before you this morning.
I lead the National Urban League. We serve over 300
communities through a network of 92 affiliates across the
Nation. Since 1910, we have been in the forefront of the effort
to build generational wealth within the Black community and
other underserved populations. Throughout our work we have seen
the dire consequences of an American financial system that has
systemically cutoff and shut out individuals, families,
businesses, and communities of color from access to capital.
Nearly 150 years after the closing of the Freedman's Bank,
in the wake of a global pandemic that revealed the true extent
of the economic insecurity of communities of color, given all
that we know about the historical systemic bigotry of banks and
Governments against communities of color, even after the end of
slavery and Jim Crow, and in the shadow of an outrageous
coordinated attack by some against the newly systemic efforts
to address the harms of bigotry, I can think of no more
important hearing than this one today.
When people of color suffer racist engagement in the
financial marketplace it causes substantial monetary and
nonmonetary harm to both them and to this Nation. Depending on
how racist behavior occurs, be it systemic, digital, in person,
community members are often unaware or unable to prove that
they received disparate treatment or discriminatory outcome.
In 2021, 4.5 percent of U.S. households--that is 5.9
million people--were unbanked or underbanked or in banking
deserts, meaning that no one in the household had a checking or
savings account at a bank or credit union. The likelihood of
being unbanked is even higher for Black and Hispanic families.
Eight percent of Black households, 8.4 percent of Hispanic
households are unbanked. Only 1.7 percent of White households
are unbanked.
Less than a decade ago, during the Great Recession,
comparably sized banks closed at higher rates in markets
serving communities of color between 2009 and 2014, with some
Black and Hispanic communities losing half of their bank
branches. This uneven distribution of bank branch locations
exacts a cost on residents of communities of color in the form
of greater traveling distance and time to the nearest banking
facility. These practices create banking deserts in which
predatory payday lenders, check cashers, and other nonbank
services thrive, thereby implicating banks and facilitating a
market dynamic where the financial services environments in
communities of color are dramatically different in terms of
quality, experience, and expense from those in White,
nonminority neighborhoods.
In addition to the reluctance to operate in communities of
color, another source of racial discrimination may be bank
employees' discretionary power and practices in charging costs
and fees. Bank employees wield discretionary power in racially
executing bank policies. They determine how much a customer
pays in costs, and customers may face varying fees depending on
whom they talk to at a bank. These concerns regarding
discrimination and bias have led to lawsuits rightfully brought
by the U.S. Department of Justice Civil Rights Division, which
illuminated the widespread discriminatory practice including
loan officers who refer to some subprime loans in minority
communities as ``ghetto loans,'' as minority people as ``mud
people.''
The consequences of these acts were reflected in the data
in the National Urban League State of Black America 2022
Equality Index. Black are less likely to be approved for
mortgages than White Americans. The disparity rate is 41
percent. The home ownership rate for Black Americans, after
plunging down to 40 percent in the aftermath of the Great
Recession, has climbed back to 43, but compared to Whites at
74.4. This is a wide disparity.
I want to just outline that the National Urban League is in
the forefront of ``Greenlining'' initiatives by investing
directly in the communities we serve. And our new Empowerment
Center, a $250 million-dollar, mixed-use real estate project in
Harlem, which combines financing from every single tool, new
markets tax credits, low-income tax credits, equity, and debt,
will provide thousands of jobs for Harlem, and provide a new
headquarters for the National Urban League, high-quality retail
stores, and a new Civil Rights Museum. We can greenline versus
redline.
Today I am proud to say that the bill that you all have
proposed would fill important gaps, Senator Brown, in this
ecosystem of protections necessary to protect people from
systemic discrimination in the marketplace.
And I want to close with this point, which is an important
point. Every study, whether by Brookings or McKinsey shows that
if we close the racial wealth gap in this Nation by eliminating
discrimination in access to capital, in wages, and in home
ownership, the impact on the American economy will be $2 to $3
in GDP. Let us understand that systemic discrimination affects
not only Black and Brown communities but affects the Nation at
large. This is about the America of the 21st century.
So I thank you, and I look forward to the question-and-
answer period.
Chairman Brown. Thank you, Mr. Morial
Mr. Donalds, welcome.
STATEMENT OF REPRESENTATIVE BYRON DONALDS OF FLORIDA
Mr. Donalds. Chairman Brown, Ranking Member Toomey, thank
you for inviting me to testify on this important topic of
racial discrimination in financial services. Having had a
career in financial services myself I can speak firsthand to
the issues and the complexities of our capital markets here in
the United States. As a Black man, I understand the burden of
discrimination and racism, and I am thankful that
discrimination is illegal in our country.
Is our financial system perfect? No. Is it far superior and
far more inclusive in comparison to the rest of the world?
Absolutely.
While I could point to the loss of banks in minority
communities post Dodd-Frank or highlight the frivolous
regulatory red tape that negatively impacts economic growth in
these communities, I would like to start off with the most
glaring, obvious fact. Our markets cannot flourish and best
serve consumers when they are saddled with regulatory
uncertainty. Government agencies should not expand their own
authorities in ways that subvert the stated purpose, avoid
congressional review, and break the law. It is harmful, it is
illegal, and it is unconstitutional.
Case in point. The CFPB's lawless steps to address ``gaps''
and ``unfairness,'' quote/unquote, in the financial services
industry. The CFPB's use of the Unfair or Deceptive Acts or
Practices authority contradicts the Dodd-Frank Act's treatment
of unfairness and discrimination, which under the law are two
separate and distinct concepts.
The heavy hand of Government is weighing down American
consumers through infinite rulemaking and guidance. This way of
governing is not in good faith, and it is not a sustainable way
of conducting business for the people. Discrimination and
racism should absolutely be taken seriously, and that is why
there are laws in place, such as the Equal Credit Opportunity
Act and the Civil Rights Act.
Disparate impact cannot be used as a justification for
Government overreach. I think everyone in this room today would
agree that there is progress to be made in growing economic
opportunity for all Americans. But that is impossible with a
financial activist mindset infused with bad policy
prescriptions that do not solve the problem.
I have worked in financial institutions, and there are two
colors financial institutions are concerned with: green and
red. There are two categories considered: creditworthy or risk
prone, and I would add my start in financial services was as a
credit officer. I underwrote loans, so I know this firsthand.
There is no subliminal mission to deny access to products
based off of race, sexuality, religion, or any other
identification of the sort. Banks prioritize handling business,
and if any individual meets necessary standards to conduct
business with them that is what banks will do. Taking credit
risk into account is responsible banking. It is not racism or
discrimination.
We should prioritize ways to help struggling individuals
prosper. How can we help create better outcomes for consumers?
Well, there are about four basic ways. One, collaboration
between Government and private sector is key to address nuanced
issues. Agencies should adhere to the rulemaking process.
Engaging equally with all stakeholders creates a full picture
that prevents undue harm on consumers or unintentional
consequences. And I would add, our economic history is replete
with unintentional consequences that come from Capitol Hill.
Number two, relax de novo banking requirements. Since Dodd-
Frank, almost half of the community banks in the United States
have failed, and that has had a critical impact on minorities.
We see the impact this has had on minorities at the beginning
of the pandemic, with the PPP program. It was not the case of
banks not wanting to engage with minorities. It was simply that
there was not a preexisting relationship which inhibited small,
minority-owned businesses from getting to the first round of
PPP. Long story short, if there are not banks in the area, how
are those businesses in that area going to be able to get to
the consumers? If there is no existing relationship, how are
you going to be able to make that thing work, especially when
PPP was dropped on everybody in the United States at a moment's
notice?
Number three, actions taken by agencies should be based on
unbiased data, not anecdotal evidence or assumptions. Agencies
should also assess actions taken by industry leaders to ensure
there is not duplication between regulators' actions, what
banks are already doing to address the needs of underserved
communities.
Number four, financial literacy should be prioritized.
Discrimination and disparate impacts are not the same, and we
have got to understand that equal opportunity does not
necessarily mean equal outcomes. If individuals lack credit
worthiness that impacts other outcomes relating to financial
services, we should be looking at ways to address that, like
alternative data, in order to shore up their credit worthiness.
The reality is not every American will reach a place of
financial wealth, but most Americans can reach a place of
financial health.
In closing, racial discrimination in financial services is
illegal. It was before this hearing. It will be after this
hearing. Expanding of Government is not needed or justified.
Chairman Brown. Thank you, Mr. Donalds.
Mr. Westhill, welcome.
STATEMENT OF DEVON WESTHILL, PRESIDENT AND GENERAL COUNSEL,
CENTER FOR EQUAL OPPORTUNITY
Mr. Westhill. Thank you, Chair Brown, thank you, Ranking
Member Toomey, and to the Committee Members as well. I am very
happy to be here. I think this is an important topic.
I am Devon Westhill. I run an organization called the
Center for Equal Opportunity. Our mission is right there in the
name. We advance color-blind equal opportunity and
nondiscrimination in America.
That mission is of both professional and personal
importance to me. I have written and spoken widely on the
topic, including before the U.S. Congress earlier this year at
a hearing on discrimination and the civil rights of Asian
Americans. More fundamentally, I am a Black man from the South
with a Vietnamese wife, with whom I share, like so many other
people in this country, two beautifully multiracial babies.
My primary concern here today is how the mission to promote
nondiscrimination is carried out. In particular, I am worried
about the decision of the Consumer Financial Protection Bureau,
the CFPB, to utilize a disparate impact analysis to identify
unlawful discrimination in financial services.
So let me expand a little bit on what Ranking Member Toomey
mentioned about disparate impact. Disparate impact claims are
distinct from disparate treatment claims because plaintiffs are
not required to show any intent to discriminate under disparate
impact theory. To establish a disparate impact claim, a
Government agency or private plaintiff must show that a
practice or policy that is nondiscriminatory by its terms, in
its intent, and in its application disparately affects members
of a protected class. I go into further detail in my written
testimony.
But it is hardly ever the case that disparate impact will
result from decision or policy but instead by how much and
whether you can identify the direct cause of it.
If you do not take anything else away from what I say here
today, take this: disparity is not discrimination. Disparity is
not bias. Disparity is not racism. These things are distinct.
And there is a problem in underestimating discrimination and
bias and racism. I admit that. That is clear. But I think we
also have to admit that there is a problem in overestimating it
as well.
And calling something discrimination or racism or bias when
it is not is also problematic. It makes little sense to equate
imbalances in one way or another, such as in the racial
composition of loan recipients, with discrimination. Imbalances
often have a multitude of contributing factors and do not
always disfavor minorities.
The sentiment is well summed up, as so often is the case,
by economist Thomas Sowell in his book, Discrimination and
Disparities: ``If there is not equality of outcomes among
people born to the same parents and raised under the same roof,
why should equality of outcomes be expected, or assumed, when
conditions are not nearly so comparable?''
The CFPB's use of disparate impact may harm minorities
most, in fact, and I think that is what Congressman Donalds was
getting at, in terms of the unintended consequences of
rejiggering certain things in CFPB examination manual. It can
encourage race-based decisionmaking in financial services. The
outcome-focused approach to disparate impact analysis
disincentivizes for potential defendants or covered entities,
regulated entities, the use of legitimate race-neutral policies
and instead encourages race-based decisionmaking, just the
opposite of what civil rights laws like the Equal Credit
Opportunity Act are meant to do, for fear of liability.
But more directly, creditors will be perversely
incentivized to judge consumers in part by the color of their
skin rather than, as should be the case, their financial risk
based on generally accepted credit assessments, in order to
achieve a predetermined racial balance. That is not something
we should be encouraging. Taking race into consideration in
making any decision has never been a boon for minorities in
America. This creates profound business uncertainty and
whiplash as well, that flows to consumers, which will
disproportionately harm minorities.
I think there is also a disregard for the plain language of
the ECOA in case law. The Supreme Court has consistently held
that statutes that provide a disparate impact cause of action
must contain ``effects'' or ``results'' like the Court has
found in the Fair Housing Act, the Age Discrimination in
Employment Act, and Title VII of the Civil Rights Act of 1964.
The Court has refused to hold disparate impact claims
cognizable under statutes that lack such language like Title
VI. The ECOA, like Title VI, contains no effects-based or
consequences-oriented language.
I could go on for quite some time about the increased costs
in litigation of threat of litigation that businesses will face
under disparate impact regimes and how that flows to consumers
and hurts most minority consumers and low-income consumers.
We ought to carefully and thoughtfully work to reduce
racial discrimination as much as possible in this country, a
country that in so many ways has sanctioned it, not just for
preferred classes or races but for everyone, every single
individual. I am committed to that. But I think disparate
impact is a very dangerous theory that can turn on its head
that mission. Thank you.
Chairman Brown. Thank you, Mr. Westhill.
Ms. Nelson, welcome. Thank you for joining us.
STATEMENT OF JANAI NELSON, PRESIDENT AND DIRECTOR-COUNSEL,
NAACP LEGAL DEFENSE AND EDUCATIONAL FUND, INC.
Ms. Nelson. Thank you. Thank you, Chair Brown and Ranking
Member Toomey and Members of the Senate Banking Committee. It
is an honor to be here. My name is Janai Nelson, and I am the
President and Director-Counsel of the NAACP Legal Defense and
Educational Fund, and I am grateful for this opportunity to
testify about racial discrimination by financial institutions.
There have already been many examples cited, and I will
cite one more, that speaks to the disparate treatment and
discrimination that so many Black people face in this country,
and that goes underreported in our society. Less than a year
ago, in 2021, December, a Black man by the name of Peter Wogbah
went into a U.S. Bank in Bloomington, Minnesota, and requested
a cashier's check from his business account. The tellers
refused to issue the check and told him the money was
unavailable, even after he called U.S. Bank's 1-800 number to
confirm the wire funds were there. The tellers told Mr. Wogbah
to go to a different branch and to get the check there. They
then called the police.
This discrimination has severe consequences. Unfortunately
his story is not unique. This is an underreported phenomenon,
and Black people and other people of color are
disproportionately denied equal access to financial services
that are essential to creating economic opportunity, the
opportunity that some have referenced here today. By depriving
communities of color equal access, these financial
institutions, which are intended to serve the public, the
entire public, deprive certain communities of an equal
opportunity to save for the future, to invest in a business, to
buy a home, and importantly, to build intergenerational wealth.
According to the Brookings Institute, communities of color
have fewer options when it comes to financial services than
majority White neighborhoods. Banks in these neighborhoods
often require higher initial deposits, minimum account
balances, and as a result, the Federal Reserve found that an
estimated 40 percent of Black Americans are either unbanked or
underbanked.
People of color are also denied loans at higher rates and
are offered worse terms than other borrowers. In 2022, the FDIC
found that Black borrowers are more likely to be denied
mortgages and pay higher interest rates than White borrowers,
even when controlling for other factors. And that point must be
underscored because this debunks the myth that it only requires
motive. When you control for other factors and racial
disparities still result, that is evidence of discrimination.
The Federal Reserve also found that approximately 14
percent of small Black business owners received all the
financing they sought from banks compared to 34 percent of
White small business owners.
Discrimination by financial institutions imposes
significant costs on communities of color, and we have written
about this. Our Thurgood Marshall Institute produced a
publication, ``The Black-White Racial Wealth Gap'', which I
commend to this Committee.
And I want to underscore what some of my colleagues have
already said, and that is that the cost is not borne by
communities of color alone. It is borne by our economy, that
could be thriving, that could be far more expansive if this
discrimination did not occur. And when we think about the
calculus between the cost of any outcome to preventing
discrimination, we must also think of the lost economic gain
that results from racial discrimination in financial services.
As has been mentioned, this U.S. economy suffers from a
loss of $1 trillion to $1.5 trillion between 2019 and 2028, as
a result of racial discrimination in financial services. And
the Federal courts have made it very difficult for individuals
who are harmed by financial institutions to use existing civil
rights statutes to address racial discrimination.
And I will give three brief examples. The Civil Rights Act
of 1964, prohibits discrimination in public accommodations for
people who have a disability but not based on race. That
disparity must be fixed. ECOA prohibits racial discrimination
by lending, and the Fair Housing Act does, but it does not
address non-credit transactions. That is an omission that must
be addressed.
And while Sections 1983 and 1982 of the Civil Rights Act of
1866 prohibit racial discrimination in contracts, the Supreme
Court and other courts have narrowed the ability to use those
statutes effectively, most recently in Comcast v. National
Association of African-American-Owned Media, where the Supreme
Court imposed a reading of Section 1981 that imposes a high
burden on harmed individuals and makes it harder for them to
hold financial institutions accountable, imposing a ``but for
causation'' requirement.
So we must do more to address racial discrimination by
financial institutions. We applaud you, Chairman Brown, for
introducing this legislation. This bill makes clear that
financial institutions have the same obligation not to
discriminate on the basis of race as any other public
accommodations. We are encouraged to see legislation being
proposed that would eliminate barriers to the Supreme Court
created by the Comcast case, and we look forward to working
with this Committee to ensure full financial inclusion for
communities of color.
And I look forward to your questions, especially
exploration of the definition of discrimination and what it
entails.
Chairman Brown. Thank you, Ms. Nelson.
My first question is addressed to Ms. Rice, Mr. Morial, and
Ms. Nelson together. Just to be clear, in the year 2022, do
financial institutions discriminate against Black and Brown
consumers? Ms. Rice?
Ms. Rice. Yes. In fact, we just released yesterday the Fair
Housing Trends Report, which showed, Senator Brown, an 8.7
percent increase in the number of housing discrimination
complaints filed. This is the largest number of complaints
filed by consumers that we have ever seen. We have never seen
this level of discriminatory complained filed by consumers. And
we saw an increase in not only the number but the percentage of
mortgage lending discrimination complaints. In fact, lending
complaints increased by 66 percent from over the previous year.
So yes, it is alive and well, and we must address it.
Chairman Brown. Mr. Morial.
Mr. Morial. I would add that, in 2022, the effect of long-
term systemic discrimination remains real in this country. It
is seen in the consistent disparities in mortgage denial rates.
It is seen in the disparity in home ownership. It is seen in
the disparity of the lack of access to both loan and equity
capital by Black businesses. It is seen in the relative size of
Black businesses versus White businesses in this country.
So the responsibility is to deal with discrimination as it
exists today, but also an important responsibility to
understand the historic systemic discrimination which causes
the American economy to underperform, because human capital, a
great talent, is being limited and restricted because of
discrimination in the financial services industry.
Chairman Brown. Thank you. Ms. Nelson, same question. Does
discrimination exist in financial services?
Ms. Nelson. Absolutely, and it exists in a number of
different forms. Many like to focus on discriminatory motive,
which is very clear and explicit, and we have given a number of
examples of that. But it can also exist when there are race-
neutral policies that result in racial disparities that are
evident and avoidable.
Discrimination occurs when disadvantage is imposed as a
result of your race. That can happen because there is an
explicit intention to do so or it can happen as a result of
policies that either mask a nefarious intention or that
perpetuate and exacerbate existing racism in our society.
So it exists in all of those forms, and it exists,
unfortunately, in profound ways in our financial system. We
have spoken about disparities in home ownership, wealth. We
have spoken about discrimination in the ways in which Black
homes and homes of color are appraised, and my colleague at the
end of the table has done amazing research on that front.
But there are many other dimensions to this, including the
PPP loans that Black businesses received in comparison to White
businesses. There was a significant gap in what the Government
doled out to businesses owned by different groups of people in
this country.
Chairman Brown. Thank you, Ms. Nelson. The CFPB recently
made updates to its Unfair, Deceptive, or Abusive Acts or
Practices exam manual to better protect people and communities
from illegal discrimination. Again, starting with you, Ms.
Rice, and Mr. Morial, and Ms. Nelson, do you think the CFPB
update making clear that discrimination is covered by UDAAP was
an important move for the CFPB to make?
Ms. Rice. Yes, I do. Actions can be both unfair and they
can be discriminatory. And I will lift up an example of a case
that the CFPB brought under UDAAP in conjunction the Navajo
Nation to stop an illegal tax refund scheme that steered
consumers of color, including many members of the Navajo
Nation, to a very high-cost, exploitative tax refund
anticipation loan product. The CFPB used its authority under
UDAAP to bring this action, which again was both discriminatory
and unfair.
So the clarifications that the CFPB recently made, they are
not a new approach. They are not an overreach. They are a
clarification of the policies and standards that the CFPB has
used all along. And I think it is critically important for
regulatory agencies to provide additional clarity so that all
stakeholders can understand how those regulatory agencies are
interpreting the law. That case was brought in 2015.
Chairman Brown. Mr. Morial.
Mr. Morial. Number one, all the talk about regulatory
certainty, the CFPB's guidance is designed to create for those
who are regulated more certainty as to how this statute will be
interpreted. But it is troubling, and it is an act of betrayal
for some who, in the wake of the murder of George Floyd,
trumpeted their commitment to a new day for racial equity, to
then turn around and go through the back door and challenge
this guidance in court. And we are going to continue to call
out the notion that once you play uptown and you pray downtown,
Senator Brown, where, on one hand you say, ``We are going to do
things differently,'' but then you turn around and file a
lawsuit against something which is designed to create more
regulatory uncertainty.
So I agree with Ms. Rice, but I want to add that
perspective because I think it is very important that you
cannot, on one hand, say, ``We want regulatory certainty,'' and
then on the other hand, when regulatory certainty is ordained
in a guidance, you walk to the courthouse and you challenge it,
after you have made so many public statements about your
commitment to racial justice. So it is important for this
Committee to understand that perspective.
Chairman Brown. Thank you, Mr. Morial. Ms. Nelson.
Ms. Nelson. Yes. So to be clear, the CFPB has the authority
to regulate discriminatory conduct as an unfair practice under
Dodd-Frank. And I know this Committee know knows that in order
to constitute an unfair practice under Dodd-Frank, a practice
has to satisfy three prongs. One is that it is likely to cause
substantial injury to customers, two, that that injury is not
reasonably avoidable, and three, that that injury is not
outweighed by countervailing benefits to consumers or
competition. And in the words of then FTC Commissioner Rohit
Chopra, discriminatory practices from many financial
institutions are three for three, when you consider each of
those considerations.
That discrimination must be addressed by regulatory
agencies. That is their charge. It is not beyond the scope of
their authority to do so. And we hope that there will be
additional reinforcement to allow this agency to do its work
and to fill the gaps that I identified in my testimony, in our
current Federal statutes, that are important but do not take us
all the way in protecting against racial discrimination in
financial services.
Chairman Brown. Thank you. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
Mr. Westhill, you made what I thought was an important
point, the gist of which was we should not underestimate
discrimination where it exists, and we should call it out and
fight it. But it also important not to find discrimination
where it does not exist.
I am wondering, so you and Congressman Donalds, both Black
men who grew up in the South, I wonder if either or both of you
would care to briefly address--I mean, I am sure you have seen
and experienced discrimination in your lifetimes. Could you
just reflect on how important it is that we get this right, in
other words, see discrimination where it exists and fight it
and not choose to find it where it does not exist?
Mr. Westhill. Yeah, I am happy to respond to that. Thank
you very much for the question, Senator. I think it is terribly
disempowering if we tell young minority kids in this country
that there is discrimination everywhere, there is racism
everywhere, there is bias everywhere, that it is
institutionalized, that you are going to see it at every turn.
That is terribly disempowering. Why would you want to really
try your best and succeed and achieve when you know you cannot
do it anyway, when you are being told that over and over again?
I think that overestimating bias or racism or
discrimination is terribly disempowering and is not helpful.
What we really should be doing is putting our finger on exactly
what that is and being careful about the way we speak.
I think the dictionary definition of discrimination is
something very akin to intentional prejudicial treatment.
Disparate impact is not that. That is a gap in outcomes.
Senator Toomey. Congressman.
Mr. Donalds. I agree with what the gentleman said. The only
thing I would really add to it, Senator, is if you are going to
get into issues associated with what the outcomes are--let us
take home ownership, for example--well, there is a lot of
criteria that goes along with it. Number one, what is your
credit score? Because if you have 700 credit score it is much
easier to qualify for a home loan versus if you have a 600
credit score. Number two, what is the value of the home you are
trying to buy? Number three, do you have a downpayment for the
home you are trying to buy? If you take a look at home prices
throughout the United States, what is happening is they are
actually rising, in part because the material to build a home
is rising.
So if your income level is X but the cost of the home
continues to rise, that is going to have a negative impact
overall in your ability to acquire the home. If you want to get
into the situation of looking at money you want to borrow for a
small business, and one of the things we are talking about is
are there impacts on disadvantaged communities, minority
communities because of the way banking is structured in the
United States right now, I would say yeah. But that fault lies
here on Capitol Hill. Because like I said in my testimony,
since the passage of Dodd-Frank, community banking in the
United States has been eviscerated.
So if you are trying to get a business loan, typically how
that works is you have a relationship with the lender in the
local community bank. If community banks are gone, what is your
relationship? And a Wells-Fargo checking account is a banking
relationship. That is a place where you deposit your money. As
a former Wells employee I can say that.
Senator Toomey. Yeah, and you are absolutely right.
Empirically, there is no disputing that after Dodd-Frank the
launching of new community banks in America simply stopped. It
just ended.
Mr. Westhill, in your testimony you pointed out that
disparate impact theory is actually intention with the
constitutional guarantee of equal protection because it
promotes race-conscious decisionmaking. Could you elaborate on
that at all?
Mr. Westhill. Sure. So basically what you are doing, if you
are telling regulated entities that they have to get the
outcome right, there is going to be a look, right, at the skin
color, at the ethnicity, at the gender or what have you of the
individuals that are asking for a loan or whatever the
situation is, because they are trying to avoid liability. That
actually encourages racial discrimination. It does not do away
with racial discrimination.
Think about that hiring manager, for example, who, at a
large bank needs to get his numbers right in terms of the
diversity initiatives that the bank has launched. We have heard
about something like this fairly recently. And so they are
looking at the individuals that they are interviewing more
closely for their skin color. And it does not always mean that
those individuals are getting the job or getting the loan
either.
Senator Toomey. Right, and I wonder if the Congressman or
Mr. Westhill would comment on this. So we know that the CFPB
used fraud data and methodology in the past. Now they are
claiming to have more authority to expand the use of disparate
impact. What is the net effect that--if they get their way, if
the CFPB gets its way, what is the net effect on the cost and
the availability of credit and financial services in minority
communities, in your view?
Mr. Donalds. Oh, I am going to tell you right now the cost
is going to skyrocket, because what you are going to do is you
are going to have to bring in, frankly, more middle managers
into every banking institution to deal with the new loopholes
that CFPB is going to create. Everybody is going to have to
double-check and triple-check boxes. All that does is add more
costs to delivering credit into these communities, or any
community for that matter, in the United States. And at the end
of the day, as somebody who underwrote credit--so I did this as
a living--everything that you lend has a cost to the bank. And
if the costs are prohibitively more expensive because of the
unintended consequences of a regulatory burden from the CFPB--
which, by the way, is still unconstitutional in my opinion--
then what will happen is the costs will be borne by the
consumer in higher credit costs. And if you are talking about
people in the United States who are the lower end of the
socioeconomic spectrum, the burden will fall on them more than
anybody else, and you might actually dry up lending
opportunities in the process as well.
Mr. Westhill. Yeah, I was just going to make that point. I
think not only are costs going to skyrocket, as Congressman
Donalds suggested. It may be the case that services are just
not provided at all. You know, it is too cost prohibitive or
the liability is too great to even provide the services, and it
is going to fall disproportionately on minorities, senior
citizens, immigrants, individuals who cannot afford to have
that sort of scenario play out.
Senator Toomey. Thank you very much.
Senator Menendez [presiding]. Thank you. The Chair has had
to go to another hearing so I am going to ask my questions, and
then Senator Reed will follow up.
First of all, welcome to all of you, particularly my
constituent, Mr. Morial, who we are proud to claim as a New
Jerseyan, so it is good to see you.
I just wanted to make one comment and that is that the
system as it is, is not working for us. So if we think the
system as it is, is working just fine then something is wrong.
I am proud to be a cosponsor of Chairman Brown's Fair
Access to Financial Services Act, but in my view in order to
root out discrimination and promote equitable access in the
financial system we need to start at the top with our
regulators. Right now there is a staggering lack of diversity
in leadership positions at the institutions that set and
enforce the rules of the financial system. As a result, Black
and Latino communities lack representation at the table when
these critical decisions are being made.
So I would like to ask Ms. Rice and Ms. Nelson, what are
the consequences of underrepresentation of minority voices
among financial regulators?
Ms. Rice. Sure, I am happy to start off there, Senator
Menendez, and thank you for the question. So I think it is
critical because bringing diverse representation to the table
when rules are being set increases the likelihood of creating a
more accurate rule. It also increases the likelihood of
ensuring that we have the right data brought to bear. I mean,
that is one of the reasons that we had the foreclosure and
financial crisis in 2008, because we had the wrong data, right?
We were being informed by the wrong information in the lead-up
to the crisis.
But it also makes sure that the rules that we craft are
accurate and we are considering how those rules are going to
impact all market segments. So it is extremely important.
Ms. Nelson. Yes, I would agree, and I think this panel
demonstrates that when we are looking for diversity it is
important that we have a diversity of thought, a diversity of
experiences, people who understand the plight of communities
that suffer racial disparities that we have outlined today, and
people who have not traditionally had access to credit, access
to equal financial services, those who have experienced direct
discrimination, based on motive or based on impact. Because
those voices, as Ms. Rice has said, will impact how we think
about policy and how we create policy that can remedy those
harms and not perpetuate them.
Senator Menendez. Well I can tell you from my own
experience of 30 years in Congress between the House and the
Senate, if I and others like me were not here, issues that are
critically important to our communities would just not be
either brought up or pressed. And that does not mean that
others are not well intentioned but they are not doing it. They
are not putting political capital on the table to make it
happen.
One of my concerns has been the Federal Reserve has a well-
documented diversity problem. In its 108-year history, the
Federal Reserve has never had, for example, a Hispanic regional
bank president. And this is an institution that is making some
of the most important decisions in our economy.
Let me ask you, the FDIC found that nearly 6 million
households in the country are unbanked. These families have no
access to checking accounts, debit cards, credit cards. Instead
they use cash for day-to-day purchases. And another 14 percent
of Americans are underbanked, which means they rely on money
orders and other alternative financial services to complete
transactions.
Mr. Morial, in your work have you found that the unbanked
and underbanked populations are disproportionately people of
color?
Mr. Morial. They are disproportionately people of color,
and the reality is that in communities that are banking
deserts, payday lenders, check cashers, informal lenders
proliferate, and they rent money at uxorious interest rates,
they rent money on abusive terms, and they proliferate. And if
you go into any community across America--you can go into
Newark or you can go into Jersey City or you can go into
Patterson in New jersey, you can go into Providence, you can go
into Philadelphia, Pittsburgh, Scranton, or Harrisburg--and you
go in the Black and Brown communities, you are going to see an
active effort to use television advertising, radio advertising,
street teams to market these types of services in these
communities.
So it is a double-edged sword. The banks are not there, but
the predators are there, and it has a negative impact on Black
and Brown and underserved, and I might even add, such is the
case in many rural communities, such is the case in many
communities that happen to also be White or Asian. Underserved,
underbanked communities are a haven, a breeding ground for
predatory financial practices.
Senator Menendez. One final question and then Senator
Warren is next. According to the New York Times, Wells Fargo
conducted fake interviews with women and minority candidates
for positions that had already been filled. The bank reportedly
undertook these fake interviews to artificially boost diversity
statistics in an attempt to satisfy an internal goal to
interview at least one woman and one person of color for each
position. That information, uncovered by the New York Times, is
not only highly offensive, it suggests to me a systemic bias
and discrimination at the bank, but raises questions of a
broader pattern.
Ms. Nelson, if a bank is bringing in candidates of color
for positions they already filled, just to create an illusion
of diverse hiring practices, can we say that bank is making a
good faith effort to promote diversity, equity, and inclusion?
Ms. Nelson. No, we cannot. We cannot. I think it is quite
clear that that is----
Senator Menendez. That speaks to the culture, right?
Ms. Nelson. Absolutely, and it speaks to the notion that
there is already an idea as to which is worthy of working at a
bank and who is preselected as a preferential candidate in that
workplace, and that candidates of color have already been ruled
out of the equation.
Senator Menendez. Thank you very much. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
So the 2008 financial crisis was triggered by big banks and
other financial institutions targeting communities of color
with predatory mortgage loans. So to ensure that that never
happens again, Congress made it illegal, under the Dodd-Frank
Act, for any company offering consumer financial products to
engage in, and I am going to read the language, ``unfair,
deceptive, or abusive acts or practices,'' or UDAAPs, as they
are known, with the acronym. Congress also created the Consumer
Financial Protection Bureau and put it in charge of enforcing
these laws.
Under Dodd-Frank, a bank commits an unfair practice if
three conditions have been met. First, that the practice in
question would likely cause substantial injury to the consumer;
second, consumers could not reasonably avoid that injury; and
third, the injury is not outweighed by other benefits to
consumers or competition. So I want to talk through what that
unfairness standard means in practice.
Ms. Nelson, you are an expert on civil rights law so let me
run through an example with you. Say somebody walks into a bank
wearing a cross around their neck, and the bank teller takes
one look at them, refuses to help, and tells them to leave,
maybe even calls the police to kick them out. Ms. Nelson, do
you think that situation would cause the consumer substantial
injury?
Ms. Nelson. Absolutely.
Senator Warren. First element. OK. Do you think the
consumer could reasonably have avoided the injury?
Ms. Nelson. I do not see any way they could.
Senator Warren. OK. And do you think there might be some
public or economic benefit to the bank teller for doing what
they did, that would outweigh----
Ms. Nelson. No.
Senator Warren. OK. Good. All right. So we have gone
through the test that Congress wrote into Dodd-Frank to define
unfair practices. Ms. Nelson, would you conclude that this
bank, if it met these three tests, may have violated Dodd-Frank
by unfairly discriminating against a customer on the basis of
their religion and that regulators should probably take a
closer look at this bank?
Ms. Nelson. Yes, they should.
Senator Warren. OK, good. And if the bank cannot do this
because of someone's religion, do you think the bank should be
able to do this because of someone's race?
Ms. Nelson. Absolutely not.
Senator Warren. All right. I agree, and that is why I am
very glad that the CFPB is cracking down on discriminatory and
other potentially unfair practices under the law when it
updated its examination procedures earlier this year. This
ensures that the CFPB examiners are doing what Congress told
them to do--root out unfair practices against consumers,
whether the unfairness is because of their religion, their
race, or their sex.
And yet the United States Chamber of Commerce and other
lobbyists for big banks have come out in full force to claim
that CFPB examiners investigating potentially unfair
discriminatory practice amounts to, in their words, ``abuse.''
Now listen to that again. The bankers claim that the CFPB
is engaging in abuse of the big banks if it stops those banks
from discriminating against customers based solely on race.
Wow.
So over and over, the banks have been caught red-handed
discriminating against customers. My colleagues were just
talking about it. In 2011, Bank of America agreed to pay $335
million for charging Black and Latino customers higher rates on
mortgages. In 2012, JPMorgan Chase got caught doing the same
thing and paid $55 million in penalties. In 2017, Wells Fargo
got caught doing the same thing and agreed to pay $175 million.
Mr. Morial, your organization has been on the front lines
protecting consumers against unfair practices. Can you tell us
a little about the impact these practices have on consumers?
Mr. Morial. Well, thank you very much, Senator Warren, and
thank you for your leadership.
Settlements are never effective to help people recover the
wealth that they have been stripped of. And settlements alone
do not form, I think, an effective deterrent to future
discrimination and a continuation of the practices which led to
the lawsuits. You and I both know, and this Committee knows,
that when the financial crisis took place the taxpayers of this
Nation rode in on their stallion and rescued these banks
because of the thought that if they did become destabilized and
went under, the broader economic impact would be severe.
So at that time the idea of the CFPB is that there needed
to be a stronger methodology and enforcement to prevent the
reoccurrences of the kinds of practices that brought us to fall
of 2008, which was a tragic moment for this Nation. I testified
before this very Banking Committee in 2010, on that crisis and
on the need for CFPB, and on the fact that a false narrative
had been created by the financial services industry that it was
lending to Black and Brown people that caused the crisis. And
in this Committee, with statistics and charts and graphs, that
theory, that narrative was debunked.
And so once again we have to push back against any notion
that CFPB somehow is going to negatively impact the
availability and access to capital for Black and Brown
communities. Such an argument is preposterous and disrespectful
to the long history of this Nation in trying to overcome
systemic discrimination.
So CFPB is an essential, very important agency, and for
those that do not support it, give me something better. But
having nothing is not an option.
Senator Warren. All right. Thank you very much. I
appreciate your longtime work in this, and I appreciate your
strong voice in this. You know, the idea that the banks will
continue to argue quite openly that they want to protect their
ability to discriminate against people based on race is truly
outrageous, and I applaud the CFPB for saying not on their
watch. Not going to happen.
Mr. Morial. Thank you.
Senator Warren. Thank you. And I now recognize Senator
Warner. Sorry about that.
Senator Warner. Sorry, Mr. Chairman. Great to see the
panel.
Mr. Chairman, are you open at all to a brief second round
of questions?
Chairman Brown [presiding]. Perhaps, but you have not done
your first round.
Senator Warner. No, I understand.
Chairman Brown. Let me say it this way. If your first round
is so outstanding that you deserve a second round----
[Laughter.]
Senator Warren. Wait. Is that the test?
Senator Warner. There is a----
Chairman Brown. Senator Warner----
Senator Warner. I am just saying----
Chairman Brown. ----I do not know how the hearing is going
to go.
Senator Warner. No, I know. The reason is this. There is a
decade-long, ferocious competition that has been going on
between Virginia and Maryland, shocking as that may be, over
the location of the FBI headquarters. And certainly very
distinguished Members of this panel have weighed in on that
issue. And many Members of this panel I am very familiar with,
and my sense is that issue may be raised by good friend, the
Senator from Maryland.
The only reason I would like to come back, if he chooses to
raise that, is that, you know, I think the Biden administration
has been very good at charging the GSA and the FBI to come up
with a set of criteria on what is in the best interest of the
FBI, its workforce, and for the first time ever, on a major
selection of a Federal building, has put in as one of the
criteria equity, which is all about fairness and all about
something I know you care about, and I know Senator Warren
cares about, and I care about, and Members on both sides of the
panel care about.
I have tried not to kind of elevate this into the press
because Maryland and Virginia's enormous frustration with the
last Administration was that after years of work, starting
under the Obama administration, on having a fair process--and
we were down to the final straws, and we are going to duke it
out between the two jurisdictions--Maryland delegation is
suddenly starting to say, ``Well, you know what? We do not like
the criteria because it actually includes what the FBI might
need themselves, and if we do not get what we want, we are
going to go to the White House and change the criteria,'' the
exact critique we made to the Trump administration, at the 11th
hour, coming in and changing the criteria, and taking that
process totally aside because a suspicion many of us had that
they did not want the FBI headquarters moved out of D.C.,
because lord knows, you might have a hotel that would then
compete with the Trump hotel.
And I am all for equity being part of the consideration in
this decision, and I just was going, if my friend, the Senator
from Maryland, was going to raise this issue, I was going to
make the point that, one, I think the Biden administration has
laid out fair criteria and I was going to make the point that
the Springfield location is one that is 60 percent people of
color, 40 percent foreign born, hits a whole host of criteria
on the equity basis that are important.
I mean, listen. PG County, there are two sites, and they
are both great sites. They had strong equity issues to make as
well. And if that issue was raised I was going to make an
appeal, particularly with somebody I had known as well as the
National President of the Urban League, that I would urge you--
because, you know, I thought we were going to try to play by
the rules that the Administration has laid out. I was going to
try to make the plaintiff appeal to he and others on this panel
that let us make the presentation on equity issues about the
site that Virginia puts forward. He may not raise that, and I
would be----
Mr. Morial. I will just say, and I know the hearing is not
on this, you know, and my first choice was for the headquarters
to remain in Washington, DC. Honestly, my second choice, move
it to New Orleans.
[Laughter.]
Senator Warner. Touche.
Mr. Morial. My third choice was to move it to Newark, which
is near where I live now.
Senator Warner. Yes, sir.
Mr. Morial. And then my fourth choice was Maryland, and my
fifth choice was Virginia.
Senator Warner. And all I am asking, President Morial, is
that--and again, this is an all is fair in this process. Let me
be clear. When my friend, the Senator from Maryland, comes back
in this is a critically important decision for the people who
work at the FBI, for fairness for the whole region, and the
equity debate is an important one.
Mr. Morial. My team and I are open to listen.
Senator Warner. And all I am trying to say is we would love
to have the opportunity to make the same kind of presentation
to you about the equity issues. I had been concerned when the
Maryland delegation have said, ``If we do not get the outcome
we will go to the White House and try to change things,'' which
seems exactly a critique of the last Administration's
techniques. But all I would ask is that we have that
opportunity.
I do actually have questions on this subject, but if
somebody is waiting from the outside to come back in----
Chairman Brown. Senator Smith is next, so she is waiting.
Senator Warner. She is waiting?
Chairman Brown. She is waiting, yes.
Senator Warner. OK. Well, I will stop my questions. I
appreciate the Chairman's discretion.
Chairman Brown. Of course.
Senator Warner. But I would like to be able to come back.
Chairman Brown. I will try to include you.
Senator Warner. Thank you.
Chairman Brown. Thank you, Senator Warner.
Senator Smith is recognized from her office, from
Minnesota.
Senator Smith. Thank you, Chair Brown, and thank you,
Senator Warner, for that excellent demonstration about how to
seize the opportunity wherever you find it. I appreciated that.
I want to talk about the issue of discrimination in
mortgage lending. The Minneapolis Fed published a paper earlier
this year on this topic, and it laid out--we know that in the
Twin Cities area people of color are up to three times more
likely to be denied a conventional 30-year mortgage than White
applicants. The Minneapolis Fed's findings are not surprising.
The pervasiveness of this issue, though, is really jarring.
And, of course, we know that lenders consider multiple
factors when reviewing mortgage applications, many of which are
race neutral, at least on their face. However, this study
specifically focused on low-risk borrowers, and even when
controlling for differences in income or credit scores, and
even where a home is located, Black and Latino and Asian
borrowers continue to be denied at higher rates, based on the
findings of this Minneapolis Fed report.
Ms. Rice, can you talk to us about what the consequences
are of an economic system that so blatantly excludes families
of color from accessing home ownership, and what should we be
doing here in Congress to address this specifically?
Ms. Rice. Yes, thank you so much for the question, and you
are absolutely right. Study after study has found disparities
in access to credit for borrowers of color. For example,
Berkeley researchers have found that Black and Latino consumers
who had the same financial profile and the same credit scores
as their White comparative borrowers are being charged higher
rates when they do access mortgage credit by risk-based pricing
systems, and these are algorithmic models that are supposed to
take in a number of considerations and factor when pricing
risk. But they are pricing borrowers of color at a level that
is higher than their commensurate level of risk because of
multiple factors that are included in those black-box models.
Black and Latino consumers are paying $450 million every single
year--every single year--because they are being charged higher
rates than they are supposed to be charged.
There are many, many costs of discrimination in our
marketplace. And I am so glad you asked this question because I
often times like to quote and cite former Federal Reserve Board
of Governors Chairman Alan Greenspan, who talked precisely
about the costs of discrimination. And he said, and I am
paraphrasing, that discrimination--this is intentional
discrimination and unintentional discrimination--erects
barriers to the free flow of capital and labor to their most
profitable use. He also explained that bias in our markets
distorts outputs, creating higher cost of goods.
And I must say this. Discrimination increases the cost of
goods. Eliminating discrimination decreases the cost of goods.
It also decreases our national wealth. He talks about how
removing non-economic distortions like discrimination increases
yields and output, expands our economy, and generates higher
returns to both people and physical capital.
Discrimination, we know, is one of the major drivers of the
racial wealth gap, so let me just cite this. When you look at
families, when you just look at families, households with
children, Black households with children have one penny of
wealth for every dollar of wealth held by White families. That
is a penny on the dollar. Latino families have eight cents of
wealth for every dollar. That is a huge racial wealth gap, and
it is causing all kinds of downstream challenges and inequities
that we have to face. And we have said over and over again that
if we eliminate discrimination it benefits everyone. It is a
win-win. And this is something that we really seriously must
address. There are loopholes in the laws and we have to close
those loopholes.
Senator Smith. Thank you very much for that answer. And
this is near and dear to my work because the Minneapolis metro
area has the largest Black-White home ownership gap in the
entire country, and it is getting worse. It is not getting
better. According to the Minneapolis Fed, the Black home
ownership rate peaked in 1950 in Minneapolis.
So this is not a historic problem, meaning it is not a
problem that exists in history. It exists in the current world,
and the impacts of that discrimination are broad reaching.
So thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Smith.
Senator Van Hollen has been introduced marvelously by his
colleague in the next State, so Senator Van Hollen, of
Maryland.
Senator Van Hollen. Thank you, Mr. Chairman. I said to
Senator Warner seniority has its privileges. So since he raised
the issue of the siting of the FBI building I feel compelled,
Mr. Chairman, to focus on that issue. And I will say, if my
colleague wants additional time afterwards, so will I.
So I am going to start with you, Mr. Morial, because we are
talking about a different kind of discrimination. We are
talking about discrimination that has an impact on economic
opportunity and on the racial income wealth gap in the
Washington, DC, area. And that has to do with the siting of
Federal agencies. And if you look at the history of siting of
Federal agencies in the Washington, DC, area, there is no doubt
that the majority Black Prince Georges County has gotten the
short end of the stock. While Prince Georges County has about
20 percent of the region's workforce, it hosts less than 5
percent of the region's office space.
You have written a letter. You and other civil rights
leaders have written a letter to the President and to the head
of GSA on exactly this issue. Can you talk about your concerns
and how this does play into the discussion about income and
wealth equality?
Mr. Morial. When President Biden signed his Executive order
on racial equity one element of its implementation was its
impact on decisionmaking in the siting of Federal facilities,
not only in the DMV but all across the Nation, where
courthouses, where Federal buildings are located, to ensure
that communities of color, urban communities, communities where
Black and Brown people live, would get their fair share of
those investments.
So in this instance, the leadership of Prince Georges
County and many leaders in Maryland, including yourself, reach
out to many of us to suggest that Prince Georges County had not
been treated fairly in this decisionmaking historically, and
that while I said earlier, before you came into the room, that
my first choice was Washington, DC, my second choice was New
Orleans, my third choice was Newark, that it was OK if my
fourth choice was Maryland, and Prince Georges County, because
Prince George County, for the DMV, represents something
interesting.
When I attended law school here at Georgetown in the 1980s,
Prince Georges County was a predominantly White, suburban, and
rural community. It has since become the largest predominantly
Black county anywhere in the United States. And notwithstanding
the fact that there are many rising middle-class families in
Prince Georges County, there is still a high level of poverty,
a higher level of many, many challenges and issues that affect
communities of color.
So it seemed to make sense that in this instance, it is the
FBI insisted that it could no longer operate effectively solely
in downtown Washington, DC, that Prince Georges County made a
good-sense place to ensure that a Black community, a Black
jurisdiction would have the opportunity to host and be the home
of a facility that will employ literally thousands of people.
But then the second and third impact of it, in terms of
services and retail and hotels is almost immeasurable over a
period or an arc of probably 10, 15, 20, 25, 30 years.
So it was, Senator Warner, no slight to Virginia at all. It
was this sort of analysis.
But I also think that--I want to give some due credit,
because we are in a public hearing, to the fact that the
community leadership and the local elected officials in
Maryland got very active in reaching out and encouraging us to
think about this and to support this instance. This is not
something we would normally involves ourselves in, but because
of the President's commitment to racial equity, supported by
all of you, I think, here in this room, we think it is
important that the Administration be held accountable, to live
up to that, when these decisions take place.
So that the background here, and again, no slight to the
great State of Virginia. But sometimes when you face these
sorts of things, in order to correct the imbalance you have got
to do things differently, and I think here that is why Maryland
seemed to make a good choice. But again, Senator Warner asked
us to listen to what the people of Virginia, or the community
leaders of Virginia have to say, and while I have already
written a letter I am certainly willing to do that, along with
my staff, and I think the other civil rights leaders, because
it is a fair thing to do, and maybe there are some perspectives
on Northern Virginia that we are not aware of.
But we are sticking with Maryland for now, and New Orleans
and Washington and Newark----
Senator Van Hollen. Well, if I could, Mr. Morial, thank
you. Well, no, I would just say to my colleague from Virginia,
if he thinks that Virginia has some equities in this issue when
it comes to the diversity of the community and the fact that
Fairfax County has been overlooked, which it clearly has not,
then he will agree with me that when the FBI and GSA grade the
issue of equity that they will raise it from the low 15 percent
that it is to a higher amount that would reflect the President
and the Biden administration's commitment to equity. And the
President said, and I quote, when he issued that Executive
order, ``We need to make the issue of racial equity not just an
issue for any one department of Government. It has to be the
business of the whole Government.'' And I would submit that the
GSA and the FBI clearly have not gotten the message, given the
low weight they have given to this factor. And again, if my
friend, Senator Warner, wants to join me in urging the
Administration to raise the weight of that factor, we welcome
that.
Chairman Brown. Thank you, Senator Van Hollen.
We really were not planning a second round, and this has
been a rather unusual twist in our Committee process, but
Senator Warner, I appreciate it if you would actually spend
less time debating him on this and go into your round of
questioning. Then Senator Toomey wants to ask a couple of
questions and I will close. But go ahead.
Senator Warner. Thank you, Mr. Chairman. I appreciate the
courtesy, and I appreciate President Morial, we have worked
together on a lot of years, and I look forward to presenting
the facts, like 60 percent of the population of Springfield is
people of color, and 50 percent speak a language other than
English at home. And we actually, in our State presentation to
the GSA and FBI, included these equity issues, and I just do
not think we ought to be second-guessing the process.
But I think I will start with you, and make sure the whole
panel gets a chance to weigh in. One of the things that the
Chair and Senator Van Hollen and I completely agree is a huge
part of discrimination in the banking system comes from lack of
access to capital. And our historic institutions have not done
a very good job. We have talked many times of the complete
destruction of the vast majority of MDIs in this country after
the Great Recession of 2008 and 2009.
One of the areas that I firmly believe is a growth
possibility to really invigorate MDIs, also to take the fairly
small niche of the financial sector, banking sector, CDFIs,
community development and financial institutions, which by
definition have to lend 60 percent to low- and moderate-income
communities, and do more. This is one of the areas, and kind of
strange bedfellow, we found common cause with the former
Secretary of the Treasury, Mr. Mnuchin. But we were able to
secure a record $12 billion, $3 billion in grants, $9 billion
in Tier 1 equity, into these institutions. And I think that and
the next round on CRA is going to help push more capital into
these institutions so we can start.
Ms. Rice and I, we have had some debates over how we get
more Black and Brown home ownership and downpayment assistance.
I believe still there is a great opportunity to first
generation, first-time home buyers, disproportionately people
of color, give them a chance to acquire equity. Give them a 30-
year mortgage. Give them a 20-year rate. You know, double their
acquisition equity over a 10-year period.
But my question for everybody on the panel is--and again,
this is an area where I think the Chair has weighed in a number
of times as well--we know the Fed has to try to get inflation
under control. My concern is, and in their zealousness to get
inflation under control you could end up driving us into a
recession. And the very institutions that we have just come to
help may be the first in line, because while we have seen,
under COVID, 400,000 Black businesses lost, the good news post-
COVID is the fastest-growing rate of new businesses are Black
women.
Mr. Morial. Yes.
Senator Warner. But those businesses are going to get
squeezed the most in this next space.
So I have been talking about should there be, maybe not
looking at mark-to-market on CDFIs, maybe a little of a
regulatory forbearance. We need to put guardrails in place to
make sure that some of the progress coming out of COVID, for
entrepreneurs as well as CDFIs and MDIs, do not get washed
away, God forbid, if we fall into a recession.
Mr. Morial. Let me say a few things.
Senator Warner. And I would love to also hear from the
whole panel. Thank you, Mr. Chairman.
Mr. Morial. You are absolutely on point when you say that
strengthening MDI, minority depository institutions, basically
Black-, Asian- and Latino-owned banks, could make a difference
because their propensity to lend to Black potential homeowners,
to Black businesses and Black consumers is certainly greater
than mainstream banks. Combined, these banks probably have less
than $3 billion in assets. They are relatively small, even on a
combined basis.
So the growth opportunity is significant. What they need is
equity capital, because they can plus that up and lend it at a
greater rate. And so to the extent that you and this Committee
can find ways--and I would say, you know, to Senator Toomey
that this issue of strengthening Black businesses in the '70s,
the '80s, and the '90s, and even into the early 2000s, in the
Bush years, was an area of bipartisan consensus. There was a
tremendous effort, and this was one of these things that never
brought the same amount of partisan friction. So I would agree
with that, and I think we need to think about that.
As far as CDFIs are concerned, one way to assist CDFIs
would be to figure out a better way to fund the loan loss
reserve component of their capital structure. That tends to be
very difficult to raise the money, to sustain it, because that
is not money you are going to lend. That is money you raise and
you hold to offset nonperforming loans.
So CDFIs, but I would also offer this. Many CDFIs are far
more focused on real estate transactions, which are less risky
because they take a small position in a large project, versus
those like ours, the National Urban League's new Urban
Empowerment Fund, which we just launched, or relaunched, I
should say, which is our CDFI, which is primarily focused on
lending to Black-owned businesses.
So these are two areas I think we should double down, and I
think you are right that the impact of an overcorrection by the
Fed in raising interest rates too fast and too soon could be
devastating on some of the progress that is now being made in
the comeback of Black-owned businesses.
Chairman Brown. Thank you, Mayor. I am going to go to
Senator Van Hollen for his second round, and then to Senator
Toomey, and then I will close.
Senator Van Hollen. Thank you, Mr. Chairman. I just would
like to put into the record a couple of documents related the
earlier discussion Senator Warner and I had on the FBI. It is
the letter that Mr. Morial and his colleagues sent, it is an
op-ed piece in The Washington Post by Cortland Milloy
yesterday, and an op-ed piece by the County Executive of Prince
Georges County, that lay out very clearly the income and wealth
gaps that have been created, in part, by the unfair siting of
Federal agencies in places outside of Prince Georges County,
Maryland.
But on an area that Senator Warner and I agree on, CDFIs. I
chair the Appropriations Subcommittee that funds the Treasury
Department CDFI accounts, and we have worked to increase those
accounts every year, including, we hope, this year, as part of
the process. And it was great to work with Senator Warner and
others who really pushed hard about a year-and-a-half ago, to
get that new capital fund and the emergency funds. And I really
do think they are a critical part of our infrastructure for
getting more capital to lower-income communities across the
country.
And I want to talk also about the issue of banking deserts.
Baltimore city has now, in many places, become one of the worst
banking deserts in the country, in terms of lack of physical
banking locations. And that, of course, both in the city but
also other places around the country, means that more people
have to go rely on other sources of borrowing, including more
and more online financing, some of which provide important
protections but many do not. Many are sort of predatory engines
where if you do not read the fine print you get totally
overwhelmed with fees and unfair interest rates.
This came up yesterday in a discussion, or the day before,
in a discussion here in the Banking and Housing Committee with
the FDIC confirmation hearing for Marty Gruenberg, for example,
FDIC. We are pushing hard for the CRA. I think the CRA will
help address some of the changes that have taken place over
time that undermined the purposes and intent of the CRA. But
the reality is if you look today, fintech loans account for 57
percent of the unsecured personal loans. They are not covered
by the FDIC. They are not covered by CRA.
And so one overall question is how do we address that
issue? But if you could, Ms. Nelson, speak a little bit to the
impact of the trend that we are seeing where you have bank
branch closures, so there is no physical presence of the bank.
That means more people go online to get their loans, and a lot
of these online systems do take advantage of people. Could you
just talk about that trend and what we can do about it?
Ms. Nelson. Absolutely. So fintech does provide another
option for some persons who are seeking lending but it is not a
remedy to what we have described here today. Fintech also can
perpetuate discrimination, and there are a number of criteria
that have been harmful. For example, we have worked with
Upstart, which was using the SAT scores of universities as a
barometer for whether a particular borrower was creditworthy or
not, and as a result there were Black and Latino borrowers who
went to schools, including HBCUs, that did not have the
highest-ranked SAT scores and wound up paying almost $3,500 a
year more over the course of a year loan.
So it is those types of online services that are
unregulated, that are unsupervised in the way that they should
be that can perpetuate discrimination and create further
disparities.
I would also say that the Brooking Institution analyzed the
rates of bank closures in six metropolitan areas, including
Baltimore, as you mentioned, and found that census tracts with
higher rates of Black residents were more likely to experience
bank closures between 2010 and 2021. So this is a real
phenomenon and a trend that has not abated. And I will say that
if we think about the State of Pennsylvania, and we think about
the racial wealth gap there, where, in places like the
Philadelphia metro area, where the Black-White home ownership
gap is over 26 percent, and the Pittsburgh metro area that has
a gap of over 41 percent, bank closures and lack of access to
financial institutions can have a real impact that exacerbates
these already disturbing numbers.
Ms. Rice. Senator Van Hollen, I know we are over time, but
if I can just interject here because this is an extremely
important point. Banks have always, throughout the entire
history of the United States of America, disproportionately
closed their branches in communities of color as compared to
other communities. That has always been the case. It is still
the case today. Banks are closing their branches in
predominantly high-income, affluent Black census tracts at a
higher rate than they are closing their branches in low-income,
non-Black census tracts. So it is definitely a problem that we
have to fix.
When people are forced to go to payday lenders, fringe
lenders, it is important to note those entities primarily do
not report positive consumer behavior to the credit
repositories, increasing the likelihood that their consumers
will remain credit invisible and credit unscorable.
Senator Van Hollen. Thank you. Thank you all. Thank you,
Mr. Chairman. And my challenge to my colleague, Senator Warner,
still stands in terms of increasing the weight given to
diversity and equity in the FBI siting. Thank you all.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Toomey will have a couple more questions and then I
will close.
Senator Toomey. Thank you, Mr. Chairman. Let me begin by
observing. You know, I served in the House so I understand the
view of most House members with regard to this chamber, and
despite that, Congressman Donalds was kind enough to come over
here and testify. And to all the witnesses who have been very
patient during a discussion that may not have been central to
what you thought we were going to be here to talk about, I want
to thank you for your patience.
I would like to bring it back to a discussion about an
aspect of the CFPB's policy, and what I am specifically
referring to is, it strikes me as kind of shocking that the
CFPB applies this disparate impact theory to auto lending.
Congress demonstrates exactly what it thinks of this by
repealing that rule. And then they turn around and say, ``Oh,
OK. Well, in that case we will expand it and we will apply it
in a whole new way.'' It strikes me as a brazen overreach. And
I wonder, to what extent do either of you, if you care to
comment on this, think that that kind of action is, I guess,
the inevitable result of a construct where Congress has no
control over this entity? Congress has no say. They have no
reason to care whether what they are doing is completely
contrary to the wishes of Congress, because they know there is
nothing Congress can do about it. We do not control their
budget. We do not even indirectly control their budget. We have
no say over this. And I am wondering if either of you think
that the unconstitutional design contributes to this kind of
overreach. Congressman?
Mr. Donalds. It absolutely does. There is no doubt about
it, because they do not have to come and sit before you
gentlemen here in the Senate or us in the House, because they
do not have to go through the appropriations process. They
largely do what they want. There are some conversations with
whoever the President might be at the time, but other than that
they are completely unaccountable.
From what I hear over at the CFPB office building, they
have got the best in town and the greatest pizza oven. Why?
Because all they do is just go from company to company to
company, they do their investigations, they levy fines, and
they keep on moving.
To a broader point, if you want to address the core issue,
and this is actually to, I think, Senator Warner or Senator Van
Hollen's point about access to capital, you do not do it by
then leveraging an unaccountable agency to have more of a
regulatory burden on the financial institution. Because MDIs
and CDFIs are not going to solve that problem. The reason why
we have banks closing in communities all across the country is
because of the regulatory burden that has happened since Dodd-
Frank became law in 2010. That is the reason. So if we are
going to be serious about this and try to find access to
capital issues, it is by lobbying the CFPB to do more. It is
actually about reining them in once and for all and then
reexamining the banking regulatory structure here, on Capitol
Hill, that will allow the industry to flourish.
Senator Toomey. Thanks very much. Mr. Westhill?
Mr. Westhill. I would just say generally I am concerned
about the insulation that the CFPB has from congressional
oversight and authority. It is problematic in a number of
different respects, including the insulation that the director
has. It is outside a little bit the scope of what we are
discussing here in this hearing, but I will say that, you know,
I think there is a lot of legitimate criticism, reasonable
criticism of the rise of these sorts of Federal agencies, that
there could potentially be a legitimate fourth branch of
Government growing out of these agencies. And that is really
problematic to our constitutional separate of powers and
structure.
Mr. Donalds. Senator, real quick, if I may. The one thing
we have to acknowledge is--and I agree with what Senator
Menendez said--the system is not working. It is not working.
And the reason why it is not working is because of the
regulatory burden of we have to stop something from never
happening again. What has really happened is the big banks got
bigger. They got massively bigger. That is not working for
small communities.
So Congress has to address that from a meaningful way on a
regulatory basis, and a statutory basis, not by adding more
layers to try to fix a problem Congress created in the first
place.
Senator Toomey. Thank you very much, Mr. Chairman.
Mr. Morial. Senator Brown?
Chairman Brown. I have----
Mr. Morial. I am just compelled to offer this perspective.
CFPB's director is confirmed by the Senate. It is not an
unaccountable agency. The entire apparatus of Federal
regulatory agencies are designed to be insulated from political
interference so that political wins and decisions are not going
to impact them.
So if you challenge the structure of CFPB then you have got
to run the tables on all of the regulatory----
Chairman Brown. You are exactly right, and I am going to
cut you off. You are exactly right.
Mr. Donalds. Senator, if I may.
Chairman Brown. We are not going to have a debate here. You
have each spoken well about it. The CFPB director will be here
in 2 weeks, I believe.
Mr. Donalds. I would only add that the President of the
United States makes that appointment. So if the President is
making the appointment, to say that it is insulated from
politics is ridiculous. That is my only point.
Chairman Brown. OK. Thank you for that. Thanks to our
witnesses today.
Today's hearing has made it clear there are not civil
rights protections to prevent discrimination in financial
services. I urge my colleagues to work with me on the Fair
Access to Financial Services Act to help protect against
discrimination in banking.
We heard testimony and highlighted stories that show when
wrongdoing occurs in financial services and the bills come due,
too often Black and Brown communities suffer the most. Black
and Brown communities do not trust our financial institutions
in large part. They feel they need an alternative. We should
not accept risky alternatives such as crypto as a solution to
be excluded from traditional financial services because of
discrimination. Crypto is not the answer. It is not a civil
rights solution. That is why we should work to pass the Fair
Access to Financial Services Act to empower effective agencies
like the CFPB.
For Senators who wish to submit questions for the record,
due 1 week from today, Thursday, the 8th. To the witnesses,
please submit your responses to questions for the record within
45 days from the time you receive them.
Thank you again. The hearing is adjourned.
[Whereupon, at 11:54 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
When work has dignity, every American can fully participate in and
receive the benefits of our dynamic economy.
Financial services and products have played a critical role in
helping many families build wealth and plan for the future--whether
that means saving for college, retirement, or their first home.
Many Americans have been able to do just that.
However, not every community has gotten its share of the
prosperity.
That is especially true for Black and Brown Americans--who are too
often shut out of the financial system because of discrimination.
Let that sink in, in 2022. in the United States of America, you can
be turned away at a bank because of the color of your skin.
The wealth and income disparities between White and minority
households are a consequence of the unequal access and treatment
minorities have faced.
From accepting slaves as collateral for loans, to Jim Crow, to
redlining, to the subprime mortgage crisis' predatory practices, to the
current crypto crisis, Black and Brown Americans have never had equal
access to or fair treatment in financial services.
Today's hearing is an opportunity for this Committee to reckon with
not only the legacy of discrimination, but the current reality of the
pervasive and pernicious discrimination in financial services.
The 2021 FDIC household survey found that roughly eleven percent of
Black households and 9 percent of Hispanic households were unbanked--
compared to 2 percent of White households.
And for Black Americans with checking accounts, it's not always
better. We know that some banks close checking accounts at
significantly higher rates in communities with more Black residents.
The fact is that many Black and Brown Americans do not have access
to, nor do they trust, our financial system.
Think about Dr. Malika Mitchell-Stewart, a doctor from Texas who
attempted to open an account and deposit her signing bonus check. The
bank tellers raised questions about the check's authenticity and her
employment as a doctor. They ultimately accused her of fraud and turned
her away.
Consider Clarice Middleton, an African-American woman. As Emily
Flitter described in her book ``The White Wall'', Ms. Middleton ``shook
with fear'' as she stood on the sidewalk outside a Wells Fargo branch
in Atlanta after she was accused of fraud.
Ms. Middleton went to a Wells Fargo branch in a wealthy, mostly
White Atlanta neighborhood to cash a security deposit refund check.
Three bank employees examined the check and her identification, but
refused to look at the additional proof Ms. Middleton offered. They
declared the check fraudulent, and one employee called the police.
And then there's Ryan Coogler, the director of the movie ``Black
Panther'', who was profiled while trying to withdraw money out of his
own account. He gave the bank teller his bank card, PIN, and ID. The
teller assumed Mr. Coogler was trying to rob the bank.
Mr. Coogler's case shows that even wealth and fame can't stop
discrimination.
Black and Brown customers are viewed with suspicion for just
entering a bank and are questioned over the most basic transactions.
And because access to basic financial services is how families
build wealth, discrimination in banking only worsens the racial wealth
gap.
Many Black and Brown consumers have no place to securely hold their
funds. And when consumers are pushed out of financial services, they
are forced to rely on check cashers. They have far fewer opportunities
to build relationships with financial institutions--relationships that
matter when trying to buy a home or start a small business.
The COVID-19 pandemic revealed the detrimental consequences for
minority consumers who have been unable to build a relationship with
financial institutions.
Not only were minority small business owners left out of important
programs like the Paycheck Protection Program, but small business
owners without banking relationships who were able to obtain Federal
aid were sometimes barred from accessing those important funds.
Congress has worked to address this fundamental unfairness with
legislation.
Civil rights statutes like the Equal Credit Opportunity Act and the
Community Reinvestment Act seek to ensure equal access to credit, and
to combat discriminatory practices, such as redlining.
The Civil Rights Act of 1964 outlawed discrimination in certain
places of public accommodation, such as hotels and restaurants. but it
does not cover banks.
Federal courts have held that the law enumerates specific types of
businesses. Those that are not on the list, such as financial
institutions, are not covered.
We must do more to ensure that all Americans have equal access and
equal treatment in financial services and products.
The lack of clear protections and the loophole within the Civil
Rights Act make it difficult to end discrimination and make it hard for
victims of racial discrimination to hold these banks accountable.
Minority consumers also have access to less of their own funds.
One report found that Black and Latino consumers are required to
maintain a minimum balance of $821 and $879, respectively, compared to
a minimum balance of $648 for White consumers.
Black and Latino consumers, unlike White consumers, simply don't
have access to their own money.
Banks say they are committed to eradicating the legacy of racism in
our financial institutions.
Yet a week after the CEOs of our largest banks sat before this
Committee and promised to fight against discrimination, the American
Bankers Association sued the Consumer Financial Protection Bureau for
updating its examination manual to scrutinize unfair discrimination.
We know that Wall Street always attacks the CFPB, but their
opposition has reached frenzied levels with Rohit Chopra at the helm.
Under Director Rohit Chopra, the CFPB is using all of its
authorities to fight discrimination and has repeatedly gone after
financial institutions for their treatment of Black consumers.
Earlier this year the CFPB announced that it will examine whether
discrimination violates the Dodd-Frank prohibition against unfair,
deceptive, and abusive acts and practices.
In 2021, the CFPB required a bank to pay $5 million to address
redlining that harmed Black consumers.
Since its creation, the CFPB has gotten $637 million from
discriminatory banks, tens of millions of which have gone directly to
minority consumers who experienced discrimination.
And it's no surprise that when an effective agency like the CFPB
actually works on behalf of consumers, Wall Street does everything in
its power to stop it. We don't see banks holding true to their
commitments to fight discrimination.
To ensure that all Americans have dignity in work, we must work to
end discrimination in banking.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Mr. Chairman, thank you. Equal treatment under the law is a
fundamental American value. Discrimination and racism are wrong and
have no place in our society. Unfortunately, they are a sad part of our
Nation's history. Even though we've made great strides in dramatically
reducing discrimination in our society, that doesn't mean instances of
racial discrimination never take place today. When it occurs, the
Government should enforce the antidiscrimination laws, including in
financial services.
However, in recent years some Democrats have sought to advance a
liberal legal theory called ``disparate impact.'' Disparate impact is
not the same as discrimination--far from it. Disparate impact theory
punishes people if they make business decisions that produce
statistical differences in outcomes between demographic groups, even if
there's no discriminatory motive. There can easily be differences in
outcomes when there's been absolutely no discrimination.
Now, in theory, defendants can prevail in disparate impact cases if
they can prove at trial that there was a business justification for the
policy that created the disparate outcomes. But, in practice, these
cases entail significant costs and reputational risks that can force
even innocent defendants to settle. In this way, disparate impact is a
gift from liberal Democrats to trial lawyers. It's also a boon to
regulators inclined to abuse their authority, like the CFPB.
For example, the Obama CFPB claimed to have discovered
discrimination, based on disparate impact, by auto lenders who didn't
even know the race of the borrowers they were accused of discriminating
against. To underscore the absurdity of this, not only did the lenders
not know the race of the borrowers, the CFPB did not even know the race
of the borrowers that it claimed were being discriminated against based
on race. But that didn't stop the CFPB from discovering racial
discrimination.
The CFPB's actions weren't authorized by statute. To make matters
worse, they were based on flawed methodology. The CFPB guessed race
based on last names and zip codes, even though this method was flawed.
For instance, this methodology predicts there's: an 89 percent chance
that Chairman Brown is Black, and a 64 percent chance that Senator Tim
Scott is White.
Moreover, CFPB documents showed the agency knew that: Credit scores
and other business factors accounted for much of the statistical
disparities, and there was a significant risk the CFPB would lose in
litigation.
Nonetheless, the CFPB brought enforcement actions they knew might
very well fail in court because they determined defendants have a
``powerful incentive to settle'', as we discovered in CFPB's internal
documents, and so could be driven to settle cases that the defendants
might be able to win. This is an outrageous abuse of power--to pursue
litigation because the costs, economic and otherwise, would drive an
innocent person to settle.
In 2018, Congress overturned the CFPB's disparate impact guidance
for auto lending. Nonetheless, the Biden CFPB has expanded its use of
disparate impact theory--effectively extending the very policy Congress
overturned.
The CFPB has claimed the authority to supervise for disparate
impact in all consumer financial services and products, based on an
unprecedented reading of the Dodd-Frank's grant of authority to prevent
unfair, deceptive, or abusive acts or practices, known as UDAAP. But
Congress did not authorize disparate impact under UDAAP. In the 12
years since Dodd-Frank was enacted, the CFPB never previously claimed
it did.
Congress took the UDAAP language from the FTC Act. For nearly a
century the FTC never interpreted that language to include
discrimination or disparate impact, until after the CFPB's novel
reinterpretation.
That's exactly the kind of abuse of power the Supreme Court
recently ruled against in West Virginia v. EPA, when the EPA--in the
Court's words--``claimed to discover in a long-extant statute an
unheralded power representing a transformative expansion in its
regulatory authority.''
It could've been describing the CFPB.
To make matters worse, the CFPB implemented this controversial
change in law by fiat--without even rulemaking. This overreach was
possible because the CFPB is structured to be unaccountable to
Congress. It can simply take funds from the Fed, which also is not
subject to appropriations, thereby doubly insulating the CFPB from
congressional appropriations and control. That's why the Fifth Circuit
recently found the CFPB unconstitutional, holding its funding violates
the Appropriations Clause.
The court noted: ``The Bureau's perpetual insulation from
Congress's appropriations power . . . renders the Bureau `no longer
dependent and, as a result, no longer accountable' to Congress and,
ultimately, to the people.''
It's no surprise that this unaccountable agency disregards the law.
And it's no surprise the CFPB is already being sued for its disparate
impact overreach.
A harmful effect of the CFPB's unauthorized expansion of disparate
impact is that it creates tremendous uncertainty.
Any action taken by financial institutions may subject them to
disparate impact liability, even if they have no way of knowing whether
a disparate impact will occur. They'll likely have to pass on the costs
of liability to consumers, or avoid potential frivolous litigation by
not offering services and products. So, the expected outcomes of
disparate impact liability are higher costs and less access to
financial services for low-income families, which disproportionately
harms minorities.
The Biden administration should stop abusing its authority to
advance this misguided, liberal legal theory.
PREPARED STATEMENT OF LISA RICE
President and CEO, National Fair Housing Alliance
December 1, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF MARC H. MORIAL
President and CEO, National Urban League
December 1, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF REPRESENTATIVE BYRON DONALDS OF FLORIDA
Chairman Brown, Ranking Member Toomey, thank you for inviting me to
testify in front of the Committee on the important discussion
surrounding racism and discrimination in financial services.
As someone whose spent most of my career in the professional
financial services industry, I can speak firsthand on the issues in
this space and the complexities that make our capital markets the envy
of the world. As a Black man, I understand the burden of discrimination
and racism, and because of that, I am thankful that discrimination is
not legal in our country, and for laws that validate this fact. Is our
financial system perfect? No. Is it far superior, and more inclusive,
in comparison to the rest of the world, and is it constantly evolving?
Absolutely.
For a long time, our country has had a significant number of
unbanked people. Thanks to developments in fintech and banks leveraging
fintech partnerships, traditionally unbanked or underserved Americans
now have access to the products, tools, and resources that they need to
succeed and participate in the global economy.
There are several different ways that we could address gaps in our
banking system, and I'm sure that we will get into some of those this
afternoon. While I can certainly point to the breakdown of banking
relations in minority communities post Dodd-Frank or speak to some of
the frivolous red tape that ultimately negatively impacts minority
communities, I would like to start off with the most glaringly obvious
fact. Our markets cannot flourish and best benefit consumers when
contending with ambiguity and regulatory uncertainty. Secondly,
agencies cannot expand their own authorities in ways that contradict
statute, avoid congressional review, and dismiss the Administrative
Procedure Act (APA) and Congressional Review Act (CRA). It is harmful
and frankly, it is illegal.
Case in point--the Consumer Financial Protection Bureau's anarchic
steps to address ``gaps'' and ``unfairness'' in the financial services
industry. The CFPB's use of the Unfair or Deceptive Acts or Practices
(UDAAP) authority flagrantly contradicts the Dodd-Frank Act's treatment
of unfairness and discrimination, which under the law are two separate
and distinct concepts. Far too often, the heavy hand of Government
ushers in sweeping changes that radically transform our markets and
implicate American taxpayers and consumers--rejecting transparency and
denying debate by critical voices--through rulemakings and guidance,
and by expanding the scope of Government authority. This way of
governing isn't in good faith and, quite simply, is not a sustainable
way of conducting business for the people.
Discrimination and racism should absolutely be taken seriously, and
that is why there are laws in place such as the Equal Credit
Opportunity Act (ECOA) and the Civil Rights Act. Disparate impact
cannot be used as a justification for Government overreach. I think
everyone in the room today could find common ground in acknowledging
that there is progress to be made in closing the gap, but that isn't
possible with a financial activist mindset infused with disadvantageous
policy prescriptions that do nothing to solve the problem. I've worked
in several financial institutions and what I can tell you is that there
are two colors financial institutions are concerned with: green and
red. There are two categories considered: credit worthy or risk prone.
There is no subliminal mission to deny access to products based off
race, sexuality, religion, or any other identification of the sort.
Banks prioritize handling business, and if an individual meets the
standards necessary to conduct business with them, that is what the
bank will do every time. Taking credit risks into account is
responsible banking, it isn't racism or discrimination, and we've got
to stop governing in a way that assumes minority communities cannot do
better and figure out ways that can help individuals who are struggling
to prosper. How can we help create better outcomes for consumers?
1. Agencies should adhere to the rulemaking process. They should be
engaging equally with all stakeholders to have a full picture and
prevent undue harm on consumers or unintentional consequences.
Collaboration is key to address nuanced issues. There should be many
voices represented and given enough time to provide substantial
feedback.
2. We should relax de novo banking requirements. Since Dodd-Frank
the number of banks has declined, and that has a critical impact on
minority institutions. Two-hundred-and-fourteen banks have failed since
Dodd Frank was passed. \1\ We saw the impact this had on minorities at
the beginning of the pandemic, with the Paycheck Protection Program
(PPP). It wasn't a case of banks not wanting to engage with minorities.
There simply wasn't a preexisting relationship, which inhibited small
minority owned businesses from getting the first round of PPP.
---------------------------------------------------------------------------
\1\ https://www.fdic.gov/resources/resolutions/bank-failures/
failed-bank-list/
---------------------------------------------------------------------------
3. So much of our Government isn't working for the people. The
runaway, unaccountable, and financial activism-focused Consumer
Financial Protection Bureau (CFPB) is at the spear tip of this
worsening problem. As elected officials, it is imperative that we
empower consumers and businesses, not engulf them with bureaucratic
shackles that stifle economic freedom and access to capital. It is high
time for Congress to eliminate the CFPB and allow our free markets to
flourish. Earlier this year, I introduced legislation (H.R. 6409--
Repeal CFPB Act) with now Senator-Elect Budd of North Carolina to
abolish this consumer-last agency once and for all.
4. Actions taken by agencies should be proven by unbiased data, not
anecdotal evidence, or assumptions. Agencies should also assess the
actions taken by industry leaders to ensure there isn't duplication
between the regulators' actions and what banks are already doing to
address the needs of underserved communities. For example, BPI put out
30 best practices to address the needs of minority communities. Citi
Bridge has worked to connect small and midsize business with local
lenders for loans up to $10 million. Bank of America has 700 community
financial centers in low and moderate-income neighborhoods that help
connect the unbanked and underbanked to the products and financial
education they need. These actions do not align with the narrative that
the CFPB has created.
5. Financial literacy should be prioritized. Discrimination and
disparate impact are not the same, and we've got to understand that
equal opportunity doesn't necessarily mean equal outcomes. If
individuals lack credit worthiness and that impacts other outcomes
relating to financial services, we should be looking at ways to address
this, like alternative data. People should understand the fundamentals
of budgeting, saving, and borrowing. The reality is that not every
American will reach a place of financial wealth, but I believe most
Americans can reach a place of financial health.
6. Congress and this Administration should work together to address
inflation. This is why I am a proud colead of my colleague French
Hill's Price Stability Act, which would end the Fed's dual mandate and
ensure the central bank concentrates exclusively on containing
inflation. Inflation is one of the most harmful things to affect
minority communities. It has a negative impact that Americans feel
every day when they open their bills, fill up their gas tank, and stock
their fridge. This prevents individuals from being able to save and
move the needle economically. If people don't have money, they don't
have a reason to bank.
7. This Administration should explore the role that responsible
innovation and technology through Fintech can play in providing access
to capital and financial services to all. Fintech when done responsibly
has been shown to bridge the gap and break down traditional barriers to
financial services in underserved communities. This was seen very
clearly during the PPP process where fintech lenders were critical in
delivering PPP loans to underrepresented populations, particularly
Black-owned businesses during the pandemic. Studies have shown that
about 1 in 4 Black-owned companies applied with fintech lenders. By
leveraging the latest technology, fintech creates economic justice and
opportunity to deliver nimble and scalable financial, lending, and
payment solutions for every family and small business. Since the start
of this Administration, Federal financial regulators, especially at the
CFPB and FDIC, have shown an aversion to new financial innovations in
lending, payments, and other traditional banking functions under the
guise of their ``increased profiles'', without sufficient evidence to
substantiate these claims. The leaders at these financial regulatory
agencies would do well to remember the very real benefits provided by
fintech and technology-focused banks to underserved communities during
and after the Pandemic, and not regulate these innovations out of the
market, ultimately harming the consumers these agencies claim to help.
To close I would like to say this: Agencies must return to their
missions. My best advice to all agencies is to focus on your mission.
We in Congress have an obligation to balance and check agencies that
overreach. We are not doing that. This Congress and this Administration
owe the American people focus on the issues that actually matter to
Americans, and policy that moves the needle where it counts. The FTX
disaster is perfect model to illustrate how our current regulators and
the current legal framework are being used to pursue social campaigns
like climate change, abortion, and other wish list items of tomorrow,
rather than prioritizing the issues plaguing every American right now.
______
PREPARED STATEMENT OF DEVON WESTHILL
President and General Counsel, Center for Equal Opportunity
December 1, 2022
Chair Brown, Ranking Member Toomey, and distinguished Members of
the Committee, thank you for the opportunity to provide my testimony on
``Fairness in Financial Services: Racism and Discrimination in
Banking''.
My name is Devon Westhill and I am the president and general
counsel of the Center for Equal Opportunity. CEO is a nonpartisan,
nonprofit research and educational organization that for nearly 30
years has conducted studies and produced reports, monitored and advised
on Government action, and educated the public with the goal of
promoting colorblind equal opportunity and nondiscrimination in
America.
That mission is of both professional and personal importance to me.
I have written and spoken widely on this topic including before the
U.S. Congress earlier this year on discrimination and the civil rights
of Asian Americans. \1\ More fundamentally, I am a black man from the
American South with a Vietnamese wife with whom I share, like many
others in this country, two beautifully multiracial babies.
---------------------------------------------------------------------------
\1\ ``Discrimination and the Civil Rights of the Muslim, Arab, and
South Asian American Communities'': Hearing Before House Committee on
the Judiciary, Subcommittee on the Constitution, Civil Rights, and
Civil Liberties, 117 Cong. 1 (2022) (Statement of Devon Westhill)
https://www.congress.gov/117/meeting/house/114438/witnesses/HMTG-117-
JU10-Wstate-WesthillD-20220301.pdf.
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My primary concern today is how the mission to promote
nondiscrimination is carried out. In particular, I am worried about the
decision of the Consumer Financial Protection Bureau (CFPB) to utilize
a disparate impact analysis to identify unlawful discrimination in
financial services.
I will comment on why I think the concept is generally problematic.
I will then cover potential issues I see with the CFPB implementation
of disparate impact. I close by suggesting a better way forward and a
warning of potential legal risks.
Disparate Impact Generally
Disparate impact claims are distinct from disparate treatment
claims because plaintiffs are not required to show any intent to
discriminate under disparate impact theory. To establish a disparate
impact claim, a Government agency or private plaintiff must show that a
practice or policy that is nondiscriminatory by its terms, in its
intent, and in its application disparately affects members of a
protected class. If a claimant shows a disparate effect on a protected
class, typically the defendant must offer a ``legitimate business
justification'' for the practice or policy. If the defendant satisfies
this burden, then the claimant must demonstrate either that the
justification is phony or that another practice known to the defendant
both serves the same business purpose and has a smaller disparate
effect on the protected class. It need not be alleged nor proved, and
it does not even matter if the defendant proves that there was no
discriminatory motive.
It is hardly ever a question of whether disparate impact will result
from a decision or policy but instead, by how much and whether
it is a direct cause.
Disparity is not discrimination.
It makes little sense to equate imbalances in one way or another,
such as in the racial composition of loan recipients, with
discrimination. Imbalances often have a multitude of contributing
factors and do not always disfavor minorities. The sentiment is well
summed up, as so often is the case, by economist Thomas Sowell in his
book Discrimination and Disparities:
``If there is not equality of outcomes among people born to the
same parents and raised under the same roof, why should equality of
outcomes be expected--or assumed--when conditions are not nearly so
comparable?'' \2\
---------------------------------------------------------------------------
\2\ Thomas Sowell, ``Discrimination and Disparities'' (2018).
---------------------------------------------------------------------------
Indeed, to disregard this obvious truth leads to topsy-turvy
unintended consequences as Justice Samuel Alito cogently illustrated in
his dissent in Texas Department of Housing and Community Affairs v.
Inclusive Communities Project, Inc. \3\ where he wrote: ``No one wants
to live in a rat's nest.'' \4\ He was referencing the earlier Gallagher
v. Magner case involving a claim by slumlords in St. Paul, Minnesota,
that the city's efforts to combat rodent infestation would have a
disparate impact on racial minorities because of the resulting rent
increases for them. \5\ Justice Alito concluded: ``Something has gone
badly awry when a city can't even make slumlords kill rats without fear
of a lawsuit.'' \6\
---------------------------------------------------------------------------
\3\ Texas Dep't of Housing and Community Affairs v. Inclusive
Communities Project, Inc., 576 U.S. 519 (2015).
\4\ Id at 557 (Alito, J., dissenting).
\5\ Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010).
\6\ Inclusive Communities, 576 U.S. 519 at 558 (Alito, J.,
dissenting).
---------------------------------------------------------------------------
CFPB Use of Disparate Impact May Harm Minorities Most
Encourage race-based decision-making in financial services.
The outcome-focused approach to disparate impact analysis
disincentivizes for potential defendants the use of legitimate and
race-neutral policies and instead, encourages race-based decision
making--just the opposite of what civil rights laws like the Equal
Credit Opportunity Act (ECOA) are meant to do--for fear of liability.
Put more directly, creditors will be perversely incentivized to judge
consumers in part by the color of their skin rather than, as should be
the case, their financial risk based on generally accepted credit
assessment in order to achieve a predetermined racial balance. Taking
race into consideration in making any decision has never been a boon to
minorities in America.
Creating profound business uncertainty and whiplash that flows to
consumers.
With the change of political Administrations, the racial or ethnic
balance required to satisfy disparate impact analysis is subject to
change. There is no limiting principle that restrains any given
Administration from requiring businesses ensure the numbers come out in
any particular way. For example, one Administration, under a disparate
impact regime, may see fit to require creditors ensure Asian American
consumers receive loans at a rate commensurate with their
representation in the general population while another may demand the
rate be commensurate with the regional population. Still others may
require parity with State or local populations. Moreover, if the
precedent is established such that this change can be effectuated
outside of formal notice-and-comment rulemaking, as the CFPB has done
by merely publishing an updated supervision and examination manual, \7\
it can and will be done on a whim causing substantial uncertainty among
regulated entities and whiplash effect that benefits no one and
perhaps, places burdens on minorities most.
---------------------------------------------------------------------------
\7\ See generally Consumer Finance Protection Bureau,
``Supervision and Examination Manual'', https://
files.consumerfinance.gov/f/documents/cfpb-supervision-and-examination-
manual.pdf.
---------------------------------------------------------------------------
Disregard for plain language of the ECOA and caselaw.
The Supreme Court has consistently held that statutes that provide
a disparate impact cause of action contain ``effects'' or ``results''
language like the Court has found in the Fair Housing Act, Age
Discrimination in Employment Act, and Title VII of the Civil Rights Act
of 1964. \8\ Conversely, the Court has refused to hold disparate impact
claims cognizable under statutes that lack such language such as Title
VI. The ECOA, like Title VI, contains no effects-based or consequences-
oriented language. \9\
---------------------------------------------------------------------------
\8\ E.g., O'Connor v. Consol. Coin Caterers Corp., 517 U.S. 308
(1996); Bank of Am. Corp. v. City of Miami, 581 U.S. 189 (2017).
\9\ Equal Credit Opportunity, 15 U.S.C. 1691(a)(1), in pertinent
part prohibits discrimination ``on the basis of race, color, religion,
national origin, sex or marital status, or age.''
---------------------------------------------------------------------------
Disparate impact masks reasons and will stifle efforts to address why
there are a disproportionate number of a certain group not
meeting standards.
Factors such as a consumer's income, continuity of income, and
adequacy of collateral, among other factors that are differentially
distributed among applicants, are all relevant to credit decisions. An
undue focus on a numbers-driven theory can paper over fundamental
issues within certain demographic populations contribute to a failure
to meet lending standards. Such obfuscation can in turn lead to these
issues being neglected with, again, minorities perhaps the most acutely
affected.
Studies on financial inclusion suggest important ways to raise
lending standard success for the greatest number especially, low-income
and young consumers, minorities, and immigrants are innovation,
competition by lowering barriers to entry, and consumer empowerment
through financial education. Undue emphasis on achieving racial balance
can stifle business decisions which might otherwise spur innovation in
financial services to improve financial inclusion for traditionally
underrepresented populations.
Increased cost of doing business.
Disparate impact liability can raise costs for businesses through,
especially, litigation or the threat of litigation which may then flow
disproportionately to lower income Americans who on average are
disproportionately minorities.
Conclusion
We ought to carefully and thoughtfully work to reduce racial
discrimination as much as possible in a country that in so many ways
over its history has sanctioned it. Not just for preferred races, but
for every single individual. This is good and serious work and, as I
have indicated, I am both professionally and personally committed to
it. However, it is my position that the CFPB, or any agency, should
refrain from adopting disparate impact theory as a tool to presume
discrimination--much less to prove discrimination--for the consequences
we can anticipate, the failure in logic that entails, and the
likelihood of many other costs we cannot yet envision. There is a
better way.
Employ discriminatory intent fact-intensive balancing test.
Justice Kennedy's opinion in Inclusive Communities recognizes that
the disparate-impact approach can lead to very bad results and suggests
a fact-intensive inquiry instead is vitally important--similar to the
approach outlined in Village of Arlington Heights v. Metropolitan
Housing Development Corp. \10\ For example, Justice Kennedy warns the
lower courts against ``second-guess[ing]'' the nondiscriminatory
reasons for challenged policies, requires a ``robust causality
requirement'' rather than relying simply on racial disproportions, and
recognizes that ``racial quotas'' and ``racial considerations'' and
``abusive . . . claims'' can result from threatened and actual
lawsuits.
---------------------------------------------------------------------------
\10\ See Village of Arlington Heights v. Metro. Hous. Dev. Corp.,
429 U.S. 252 (1977).
---------------------------------------------------------------------------
Shrinking liberty, expanding Government, and inviting legal challenge.
The disparate impact approach to civil rights enforcement which
presumes discrimination rather than a data point among many to root it
out, is on shaky ground from a legal and policy perspective. It
disregards nondiscriminatory decisions and policies and encourages
race-conscious decision-making without congressional or judicial
permission. That is a disturbing abuse of power at the expense of
liberty and, if done by Federal agencies, the constitutionally limited
Federal Government. The Federal Government has an interest in
circumstances evincing racial discrimination, but the disparate impact
approach is typically used precisely because disparate treatment of the
basis of race has not been shown. The issue deepens here since it is
the Federal Government encouraging race conscious decision-making--
which invites a potential equal protection challenge.
And, as stated above, one should anticipate an additional legal
challenge given the Supreme Court's consistent position that disparate
impact claims are not cognizable under statutes lacking effects-based
language. That challenge could reach a Supreme Court potentially
sympathetic to the view Justice Clarence Thomas put forward in his
dissent in Inclusive Communities, just seven years ago:
``Statutes prohibiting on their face intentional discrimination
should not be extended by judicial or administrative fiat to encompass
disparate impact theories.'' \11\
---------------------------------------------------------------------------
\11\ Inclusive Communities, 576 U.S. 519 at 581 (Thomas, J.,
dissenting).
---------------------------------------------------------------------------
Upset efforts to address racial equity.
Finally, every Fortune 100 company--and many others--has now
adopted DEI programs. \12\ For example, the Fortune 1 company, Wal-
Mart, has devoted $100 million to its ``Center for Racial Equity.''
Governmental zeal to aggressively implement disparate impact analysis
in its oversight of the private sector may inadvertently frustrate
these efforts and potentially, discourage additional large, medium, and
small-sized enterprises from launching and allocating resources for
such efforts. If one supports these efforts, it is prudent to provide
space for them to play out and to study their progress in addressing
potential issues of diversity, equity, and inclusion.
---------------------------------------------------------------------------
\12\ Christopher Rufo, ``The DEI Regime'', City Journal, July 13,
2022, https://www.city-journal.org/the-diversity-equity-and-inclusion-
regime.
---------------------------------------------------------------------------
Again, I thank you for the opportunity to provide my testimony and
look forward to your questions.
______
PREPARED STATEMENT OF JANAI NELSON
President and Director-Counsel, NAACP Legal Defense and Educational
Fund, Inc.
December 1, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM LISA RICE
Q.1. Ms. Rice, we know that low home price appraisals can harm
families of color because home ownership is one of the greatest
means of intergenerational transmissions of wealth. What
efforts is your organization undertaking to ensure that home
prices are correctly valued and that appraisers have the tools
to make accurate appraisals?
A.1. The National Fair Housing Alliance (NFHA) is working with
a variety of allies across advocacy groups, industry, and
Government to promote fair and accurate appraisals.
Congressional Solutions
NFHA continues to work closely with the Senate Banking
Committee, House Financial Services Committee, and the White
House to consider and develop proposed legislation for much-
needed reforms.
March 29, 2022: The House Financial Services Committee held
a hearing entitled, ``Devalued, Denied, and Disrespected: How
Home Appraisal Bias and Discrimination Are Hurting Homeowners
and Communities of Color''. NFHA's President and CEO, Lisa
Rice, provided testimony and NFHA contributed to the discussion
draft legislation from Chairwoman Waters entitled, the ``Fair
Appraisal and Inequity Reform Act of 2022''. \1\
---------------------------------------------------------------------------
\1\ Hearing: Devalued, Denied, and Disrespected: How Home
Appraisal Bias and Discrimination Are Hurting Homeowners and
Communities of Color, before the House Financial Services Committee
(March 29, 2022), https://financialservices.house.gov/calendar/
eventsingle
.aspx?EventID=408296.
---------------------------------------------------------------------------
September 9, 2022: NFHA and other leading civil rights and
consumer advocates called on the House Financial Services
Committee, the Senate Banking Committee, and the Biden
administration to support meaningful appraisal reform
legislation. The advocates urged Congress to transfer
rulemaking authority for the Uniform Standards of Professional
Appraisal Practice (USPAP) and the Real Property Appraiser
Qualification Criteria from The Appraisal Foundation to the
Appraisal Subcommittee. \2\
---------------------------------------------------------------------------
\2\ NFHA Press Release, Leading Civil Rights and Consumer
Advocates Urge Congress to Enact Meaningful Appraisal Reform, https://
nationalfairhousing.org/leading-civil-rights-and-consumer-advocates-
urge-congress-to-enact-meaningful-appraisal-reform/.
---------------------------------------------------------------------------
Regulatory Solutions
January 2022: NFHA, Dane Law, and the Christensen Law Firm
(the ``NFHA Consortium'') released a report commissioned by the
Appraisal Subcommittee (the ``NFHA Consortium Report'') that
reviewed the extent to which USPAP and the Real Property
Appraiser Qualification Criteria (Appraiser Qualification
Criteria) encouraged or systematized bias. \3\ The NFHA Team
briefed the PAVE Task Force on the findings, which influenced
the PAVE Task Force Action Plans. NFHA's President and CEO Lisa
Rice was present at the PAVE release event with Vice President
Harris, Ambassador Rice, and Secretary Fudge.
---------------------------------------------------------------------------
\3\ Appraisal Subcommittee, Review of USPAP and AQB Criteria;
Focus on Fairness, Equity, Objectivity and Diversity, (June 4, 2021),
https://www.asc.gov/Pages/ViewWhats
New.aspx?ID=164.
---------------------------------------------------------------------------
2022-2023: Over the past year, NFHA has held briefings,
participated in panel discussions, and provided comment letters
to The Appraisal Foundation as it seeks to prevent appraisal
bias by reforming USPAP and the Appraiser Qualification
Criteria.
August 2022 to the present: NFHA and other advocates have
held regular meetings with the Federal Housing Finance Agency
(FHFA), Fannie Mae, and Freddie Mac to advise the GSEs on
methods for reducing appraisal bias in the Redesign of the
Uniform Residential Appraisal Report.
Education and Outreach
2022-2023: Over the past year, NFHA has briefed numerous
industry, Government, and advocate audiences on the risks of
appraisal discrimination and potential solutions. Audiences
included the PAVE Task Force, The Appraisal Foundation, the
Appraisal Institute, the American Society of Appraisers, the
Real Estate Valuation Advocacy Association, the Collateral Risk
Network, Fannie Mae, Freddie Mac, the Consumer Lender
Roundtable, and the Leadership Conference on Civil Rights Task
Force.
December 2022/January 2023: NFHA was prominently featured
in the ABC documentary of appraisal bias entitled, ``Our
America: Lowballed''. \4\ In addition, NFHA and the Brookings
Institution hosted a screening and panel event with opening
remarks by the Secretary of Housing and Urban Development
Marcia Fudge and Housing Financial Services Chair Maxine Waters
and closing remarks by Zixta Martinez, CFPB Deputy Director.
\5\ The panel included Julian Glover, producer of ``Our
America: Lowballed'' as well as noted economist and researcher,
Dr. Andre Perry, NFHA's CEO, Lisa Rice, and two appraisal
industry experts, Jillian White, SRA, and Joan Trice, Founder
of Collateral Risk Network.
---------------------------------------------------------------------------
\4\ NFHA Press Release, NFHA Featured in Newly-Released
Documentary ``Our America: Lowballed'', (Dec. 6, 2022), https://
nationalfairhousing.org/nfha-featured-in-newly-released-documentary-
our-america-lowballed/.
\5\ Brookings Institution Event, Examining Racial Bias in Home
Appraisals: Screening of ``Our America: Lowballed'', (Jan. 12, 2023),
https://www.brookings.edu/events/examining-racial-bias-in-home-
appraisals-screening-of-our-america-lowballed/.
---------------------------------------------------------------------------
NFHA regularly participates in industry and advocate
collaborations seeking solutions for appraisal reform,
including OCC Project Reach and the Appraisal Salon.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR OSSOFF
FROM LISA RICE
Q.1. Many studies have found that, in the run up to the Great
Recession, many lenders targeted communities of color for their
subprime mortgage products, at times without regard to the
borrowers' creditworthiness. A study published by the National
Bureau of Economic Research which examined high-cost mortgages
in metropolitan areas between 2004 and 2007 found that, even
after controlling for credit score and other risk factors,
African-American and Hispanic home buyers were 105 percent and
78 percent more likely, respectively, to have high cost
mortgages for home purchases. As we experience more turmoil in
mortgage markets today, has the National Fair Housing Alliance
noticed any similar behavior on the part of lenders which has
directly targeted communities of color? If not, what changed?
A.1. As described below, lenders continue to discriminate in
all aspects of the mortgage transaction, which causes harm to
consumers and communities of color and exacerbates the racial
housing and wealth gaps. We urge the Senate Banking Committee
to exercise strong oversight over the lending industry and the
Federal financial regulators. While the Department of Justice
(DOJ) has significantly increased its efforts to address these
harmful practices, the Federal financial regulators still lag
behind. Among other things, the Senate Banking Committee should
ask the General Accounting Office (GAO) to review Federal
oversight and enforcement of fair lending laws, focusing on:
(1) efforts to strengthen law enforcement procedures; (2)
challenges the Federal financial regulators face in their
efforts to detect discrimination and ensure compliance; and (3)
and how Federal regulators and executive agencies coordinate
with each other when appropriate. The GAO last conducted this
type of review 25 years ago (in 1996), \1\ which resulted in
significant policy changes and renewed efforts for robust fair
lending supervision and enforcement. The time is right to
conduct a new review of the scope and effectiveness of Federal
financial regulators' fair lending approaches and
methodologies.
---------------------------------------------------------------------------
\1\ The U.S. Government Accountability Office, ``Fair Lending:
Federal Oversight and Enforcement Improved But Some Challenges
Remain'', GGD-96-145, August 13, 1996, https://www.gao.gov/products/
ggd-96-145.
---------------------------------------------------------------------------
Redlining
In 2021, the DOJ undertook the ambitious ``Combatting
Redlining Initiative'' to root out redlining across the Nation.
\2\ Since that time, the DOJ has settled numerous cases and
required lenders to provide equal access to credit. \3\ While
we applaud the DOJ's much-needed effort, it is troubling to see
that lenders continue to starve communities of color for safe
and fairly priced credit.
---------------------------------------------------------------------------
\2\ DOJ, Justice Department Announces New Initiative to Combat
Redlining (Oct. 22, 2021), https://www.justice.gov/opa/pr/justice-
department-announces-new-initiative-combat-redlining.
\3\ See, e.g., United States v. City National Bank (Jan. 12,
2023), https://www.justice.gov/opa/pr/justice-department-secures-over-
31-million-city-national-bank-address-lending-discrimination; United
States v. Trident Mortgage Company (July 27, 2022), https://
www.justice.gov/opa/pr/justice-department-and-consumer-financial-
protection-bureau-secure-agreement-trident-mortgage; United States v.
Trustmark National Bank (Oct. 27, 2021), https://www.justice.gov/crt/
case/consent-order-united-states-v-trustmark-national-bank-wd-tenn.
---------------------------------------------------------------------------
Marketing
As lenders embrace new methods of customer outreach, they
may neglect to monitor compliance with the fair lending laws.
For example, the National Fair Housing Alliance's settlement
with Facebook identified ways in which the world's largest
digital marketing advertiser designed its advertising platform
in a way that not only allowed, but generated discriminatory ad
placements for housing, credit, and employment opportunities.
\4\ Moreover, the DOJ's settlement with Meta (Facebook)
resolved allegations that Facebook engaged in discriminatory
advertising for housing, credit, and employment by, among other
things, allowing lenders to determine who could see their ads
based on race and other protected characteristics. \5\ As
Facebook continued to offer this option, it seems that lenders
failed to monitor this third-party vendor for compliance with
the Fair Housing Act.
---------------------------------------------------------------------------
\4\ National Fair Housing Alliance, ``Facebook Settlement-Civil
Rights Advocates Settle Lawsuit With Facebook, Transforms Facebook's
Platform Impacting Millions of Users'' (March 14, 2019), https://
nationalfairhousing.org/facebook-settlement/.
\5\ DOJ, ``Justice Department Secures Groundbreaking Settlement
With Meta Platforms, Formerly Known as Facebook, To Resolve Allegations
of Discriminatory Advertising'' (June 21, 2022), https://
www.justice.gov/opa/pr/justice-department-secures-groundbreaking-
settlement-agreement-meta-platforms-formerly-known.
---------------------------------------------------------------------------
Appraisals
Numerous news stories \6\ as well as research by the
Federal Housing Finance Agency, Fannie Mae, Freddie Mac, Drs.
Junia Howell and Elizabeth Korver-Glenn, the Brookings
Institution, and the National Fair Housing Alliance \7\ have
documented the problem of appraisal undervaluations for
consumers and communities of color. Notably, lenders have
failed to monitor their third-party appraisal vendors, update
their Request for Reconsideration of Value policies and
procedures, and to control the risk of appraisal
discrimination.
---------------------------------------------------------------------------
\6\ See, e.g., Julian Glover and Mark Nichols, ``Our America:
Lowballed'', ABC (Dec. 2022), https://abc7.com/feature/our-america-
lowball-home-appraisal-racial-bias-discrimination/12325606/.
\7\ See FHFA, ``Reducing Valuation Bias by Addressing Appraiser
and Property Valuation Commentary'', FHFA Insights Blog (Dec. 14,
2021), https://www.fhfa.gov/Media/Blog/Pages/Reducing-Valuation-Bias-
by-Addressing-Appraiser-and-Property-Valuation-Commentary.aspx; Jake
Williamson and Mark Palim, ``Appraising the Appraisal'', Fannie Mae
(Feb. 2022), https://www.fanniemae.com/media/42541/display; Melissa
Narragon, et al., ``Racial and Ethnic Valuation Gaps in Home Purchase
Appraisals'', Freddie Mac Economic and Housing Research Note (Sept.
2021), http://www.freddiemac.com/fmac-resources/research/pdf/202109-
Note-Appraisal-Gap.pdf; Dr. Junia Howell and Dr. Elizabeth Korver-
Glenn, ``Appraised: The Persistent Evaluation of White Neighborhoods as
More Valuable Than Communities of Color'', Eruka (Nov. 2, 2022),
https://www.eruka.org/appraised; Andre M. Perry, Jonathan Rothwell, and
David Harshbarger, ``The Devaluation of Assets in Black
Neighborhoods'', The Brookings Institution Metropolitan Policy Program
(Nov. 2018), https://www.brookings.edu/wp-content/uploads/2018/11/
2018.11-Brookings-Metro-Devaluation-Assets-Black-Neighborhoods-
final.pdf; National Fair Housing Alliance, Dane Law, Christensen Law
Firm, ``Review of USPAP and AQB Criteria; Focus on Fairness, Equity,
Objectivity and Diversity'', (June 4, 2021), https://www.asc.gov/Pages/
ViewWhatsNew.aspx?ID=164.
---------------------------------------------------------------------------
Underwriting and Pricing
Studies have shown the bias hidden in underwriting
algorithms. For example, an investigation by The Markup has
found that lenders in 2019 were more likely to deny home loans
to people of color than to White people with similar financial
characteristics--even when they controlled for newly available
financial factors that the mortgage industry for years has said
would explain racial disparities in lending. \8\
---------------------------------------------------------------------------
\8\ Emmanuel Martinez and Lauren Kirchner, ``The Secret Bias
Hidden in Mortgage Approval Algorithms'', The Markup (Aug. 25, 2021),
https://themarkup.org/denied/2021/08/25/the-secret-bias-hidden-in-
mortgage-approval-algorithms.
---------------------------------------------------------------------------
Similarly, studies show that pricing discrimination
continues to harm consumers of color. For example, \9\ a study
from the University of California-Berkely found that both
online and face-to-face lenders charge higher interest rates to
African-American and Latino borrowers, earning 11 to 17 percent
higher profits on such loans.
---------------------------------------------------------------------------
\9\ Robert Bartlett, Adair Morse, Richard Stanton, and Nancy
Wallace, ``Consumer Lending Discrimination in the Fintech Era'',
University of California-Berkeley (Nov. 2019), http://
faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?-
ga=2.234059549.2013228870.1674166818-1765184121.1674077388. See also
Laura Counts, ``Minority Homebuyers Face Widespread Statistical Lending
Discrimination, Study Finds'', Newsroom Berkeley Haas (Nov. 13, 2018),
https://newsroom.haas.berkeley.edu/minority-homebuyers-face-widespread-
statistical-lending-discrimination-study-finds/.
---------------------------------------------------------------------------
Regulators need to do more to understand the data and
algorithms that lenders use to grant access to credit. As
stated by Lisa Rice, President and CEO of the National Fair
Housing Alliance, ``Any type of data that you look at from the
financial services space has a high tendency to be highly
correlated to race.''
Refinancing
Finally, it seems that lenders have fallen short in
including consumers of color in the refinancing boom that
allowed borrowers to take advantage of historically low
interest rates. Researchers at the Federal Reserve Bank of
Boston found that Black, Latino, and Asian borrowers were
significantly less likely than White borrowers to take
advantage of low mortgage interest rates during the pandemic.
\10\ For example, according to a Bloomberg News analysis of
Federal mortgage data, only 47 percent of Black homeowners who
completed a refinance application with Wells Fargo in 2020 were
approved, compared with 72 percent of White homeowners. \11\
---------------------------------------------------------------------------
\10\ Kristopher Gerardi, Lauren Lambie Hanson, and Paul S. Willen,
``Wealth Accumulation During COVID-19'', Federal Reserve Bank of Boston
(June 22, 2021), https://www.bostonfed.org/publications/current-policy-
perspectives/2021/racial-differences-in-mortgage-refinancing-distress-
and-housing-wealth-accumulation-during-covid-19.aspx.
\11\ Shawn Donnan, Ann Choi, Hannah Levitt, and Christopher
Cannon, ``Wells Fargo Rejected Half Its Black Applicants in Mortgage
Refinancing Boom'', Bloomberg News (March 11, 2022), https://
www.bloomberg.com/graphics/2022-wells-fargo-black-home-loan-
refinancing/?leadSource=uverify%20wall.
---------------------------------------------------------------------------
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR OSSOFF
FROM MARC H. MORIAL
Q.1. One of the most important metrics in determining
eligibility for a mortgage, a key wealth-building tool, is a
credit score. One of the top service providers for credit score
reporting, FICO, no longer offers online services in Spanish
through their customer portal known as myFICO. Additionally,
only one of the three major credit bureaus offers online
services in Spanish on their websites.
What does a lack of Spanish-language services mean for
Spanish-speaking families in places like Dalton or Atlanta,
Georgia, when it comes to building generational wealth?
A.1. The National Urban League supports all public and private
sector policies, services and programs that provide timely,
meaningful access for persons with Limited English Proficiency
(LEP) Many entities nationally and within the State of Georgia
administer numerous programs that provide funds and services
directly to State and local governments, Public Housing
Agencies (PHAs), and for-profit and nonprofit organizations,
such as Urban League affiliates, to implement critical LEP
housing and community development programs and activities.
According to the American Community Survey, \1\
approximately 25.9 million individuals, roughly 9 percent of
the U.S. population, are considered LEP. Approximately 83
percent of all LEP residents speak one of eight languages:
Spanish, Chinese, Vietnamese, Korean, Tagalog, Russian, Arabic,
and Haitian Creole. About 64 percent of the LEP population
speaks Spanish. Home ownership represents a substantial source
of generational wealth--especially for Latino and LEP
households. Home equity represents 67 percent of the net worth
of Latino households compared to 41 percent for White
households--higher than any other community of color in the
country.
---------------------------------------------------------------------------
\1\ ``Spotlight on Serving Limited English Proficient Consumers''.
Consumer Financial Protection Bureau, www.consumerfinance.gov/data-
research/research-reports/spotlight-serving-limited-english-proficient-
consumers/ (Nov. 2017).
---------------------------------------------------------------------------
LEP consumers have experienced substantial barriers in the
consumer financial marketplace. Whether these barriers include
financial disclosures, written documents solely available in
English, the lack of bilingual employees, or limited
interpretation services at financial institutions, these
consumers remain underserved. Families of color continue to
face barriers to access the mortgage and credit markets, as
well as a lack of adequate oversight and enforcement to protect
their rights in financial services.
Disadvantaged credit scores and reporting have led to
decades of discrimination in employment, lending policies, debt
collection, and criminal prosecution that have left minority
families vulnerable to financial insecurity. Unequal access to
financial services and credit reporting is not the only thing
that hampers efforts by minority and LEP households to
establish financial security and accrue lasting wealth. The
legacies of redlining, underinvestment, and a prevalence of
alternative banking within these communities have also made
minorities more likely to encounter discriminatory lending
practices and adverse credit score impact.
Practices such as formal and informal redlining prevented
many Black and Latino households from purchasing a home.
Minority households are also denied mortgages at a rate much
higher than White Americans. And through limited fair access to
credit and credit reporting systems, many minority households
and other LEP applicants have been unable to access home
ownership and the wealth-building opportunity it provides. Even
when credit is available, many homeowners in these same
communities end up paying more for their mortgage loans.
In 2021, the Consumer Finance and Protection Bureau (CFPB)
issued a statement encouraging `` . . . Financial institutions
and services to seek and better serve LEP consumers while
complying with State, Federal, and other legal requirements. As
well as efforts to assist compliance with the Dodd-Frank Act,
the Equal Credit Opportunity Act (ECOA), and other applicable
laws.'' Increased oversight and regulation, as well as resource
education and advocacy, will improve outcomes for the LEP
population.
Q.2. What role can greater language accessibility for critical
services like credit reporting play in narrowing the racial
wealth gap in communities across Georgia?
A.2. According to a 2021 report from the Federal Reserve, \2\
Black and Latino households typically earn half of what the
average White household earns, and only have 15 to 20 percent
of the net wealth of White households. Improved access for LEP
households to retrieve financial and credit reporting services
can provide opportunities to build wealth and provide paths out
of historical inequality in wealth accumulation. Greater access
to credit reporting services and improved enforcement of the
1974 Equal Credit Opportunity Act will reduce barriers to
overcoming discrimination that is often hidden in financial
policies and products that aim to be bias-free.
---------------------------------------------------------------------------
\2\ Aladangady, Aditya, and Akila Forde. ``Wealth Inequality and
the Racial Wealth Gap''. www.federalreserve.gov, 22 Oct. 2021,
www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-
the-racial-wealth-gap-20211022.htm.
---------------------------------------------------------------------------
One of the Urban League's goals is to give consumers
practical, actionable information that they can use in pursuing
their own financial goals and in making financial decisions. We
strongly believe that our frontline, consumer-facing wealth-
building programs and services must offer information and tools
to help consumers build the financial knowledge and skills that
they need to make well-informed financial decisions for
themselves and their families to serve their own financial
goals. For the LEP community across Georgia and other
geographies, this includes access in consumers' native
languages to consumer financial education materials. Urban
League Affiliates typically offer this information directly
through their websites and/or Spanish-translated websites and
make it available to LEP consumers through community service
channels and at community roundtables throughout the State.
Additional Material Supplied for the Record
Statement submitted by the U.S. Chamber of Commerce
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Letter submitted by National Urban League, National Action Network, the
Greater Washington Urban League, and the National Action Network's
Greater Washington, DC, Chapter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
``The New FBI Site Is a Matter of Equity'', Angela D. Alsobrooks,
Washington Post, November 4, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
``The Spirit of J. Edgar Hoover Begins To Stir in Prince George's
County Perspective'', Courtland Milloy, Washington Post, November 29,
2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement submitted by Renee King, Founder and CEO of Fund Black
Founders
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]