[Senate Hearing 117-755]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-755


  FAIRNESS IN FINANCIAL SERVICES: RACISM AND DISCRIMINATION IN BANKING

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

                                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

                              ----------                              

                       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.
---------------------------------------------------------------------------
    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.
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    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

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Letter submitted by National Urban League, National Action Network, the 
  Greater Washington Urban League, and the National Action Network's 
                    Greater Washington, DC, Chapter

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   ``The New FBI Site Is a Matter of Equity'', Angela D. Alsobrooks, 
                   Washington Post, November 4, 2022

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   ``The Spirit of J. Edgar Hoover Begins To Stir in Prince George's 
 County Perspective'', Courtland Milloy, Washington Post, November 29, 
                                  2022

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   Statement submitted by Renee King, Founder and CEO of Fund Black 
                                Founders

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