was adopted to address redlining and over thirty years has made a significant contribution to the revitalization of many low and moderate income communities in both urban and rural areas  are indeed rare but when they do occur we do not hesitate to take strong action including referrals to the department of justice our record of justice demonstrates our firm  act examination processes i will also discuss how a national banks c r a evaluation and rating can be adversely affected by evidence of unlawful discrimination let me begin by saying there is no room for unlawful lending discrimination in the national banking system and o c c fully expects banks to serve the credit needs of their community including needs in low and moderate income areas the o c c has a comprehensive and rigorous fair lending oversight program which is the foundation for ensuring that national banks comply with their lending laws we also conduct examinations of national banks to evaluate whether they're meeting the credit needs of their communities as required by the community reinvestment act and each c r a examination of a national bank examiner not only evaluates the manner in which the bank is meeting the credit needs of the community but the examiner also considers the nature and extent of any unlawful discrimination or other illegal credit practices in which the bank may have engaged the joint c r a regulations of the federal banking agencies provide that evidence of unlawful discrimination or other illegal credit practices has an adverse effect on a bank c r a evaluation therefore if there is evidence of unlawful discrimination that information is taken into account in the bank c r a evaluation and the examiner's findings are discussed in the public performance evaluation or p e the interagency c r a rules further provide guidance on the factors that will be considered in determining whether a bank or a rating should be adjusted as a result of such evidence these factors include among other things the nature of the violation the extent of the problem whether the bank self identified the issue and whether the bank has an it has initiated corrective action let me assure you that the c treats evidence of fair lending violations as a negative factor when assessing the c r a performance of national banks and we have lowered the c r a ratings of national banks in several instances based on such evidence for example ratings have been lowered from outstanding to satisfactory and from satisfactory to needs to improve based on discriminatory or other illegal credit practices in other instances the o c c as described the violations in the c r a p e and is taking them into account in evaluating c r a performance but has determined that lowering a rating was not appropriate based on an assessment of the applicable factors in the regulation in addition to conducting c r a examinations the o c c has a fair lending supervisory program designed to assess the level of their lending risk in every national bank as part of this process the o c c assesses compliance with their lending laws and regulation we obtain corrective action when significant weaknesses are deficiencies are found in banks policies procedures and controls related to bear lending and we ensure that enforcement action is taken when warranted including referrals to the united states department of justice and notifications to the united states department of housing and urban development our fair lending supervisory process to several features that in combination result in a risk based approach to our fair linning supervision we combine our examiners knowledge of the bank and its products and markets with analytical information about loans made by the along with our robust fair lending examination process the c r a process is an important tool in federal law that we use to address unlawful discrimination i'll be pleased to answer any questions that you may have yes or at the time based on the information we had during our two thousand and four and let me add that the issues that first national bank upon talk are quite disturbing to us but the allegations surrounding the bank emerged contemporaneously with the exam that we were doing in two thousand and four shortly thereafter the department of justice opened up an investigation and they ask us to stand down so when the department of justice their investigation and we have their findings we'll take them into account is the knowledge and experience that our bank examiners have with the banks that they supervise and that involves the banks products and services its customer base the type of communities they operate in the type of complaint they're receiving from consumers or community groups examiners process that information as they receive it and if based on any of that information they decide that they're concerned about a lending issues they could initiate a fair lending example that's the first feature the second feature of our fair lending supervisory process is really analytically based we process information from the home to data submitted by banks each year and additional information that lets us screen the population of national banks to look for bank that may have disparate issues or issues that cause us concern ask questions about fair lending if we find that will put those banks on a list to be examined in the coming year and the third feature is a random sample we select a group of banks to be examined in the coming year each year so that there are banks that if we perhaps have no other reason to look at those banks for fair lending issues are examined anyway  basis that might lead to a concern on our part of around fair lending issues i'll give you another example if a national bank were to choose to enter a new market that would involve lending to customer base or an african american customer base and we had reasons to be concerned about the products they were offering that might cause an exam or to initiate a fair lending exam again if we saw information in the home the data filed by national banks every year  that caused us to be concerned and we analyze that information every year that could cause us to initiate a fair lending exam or variety of different things that could occur that would cause us to initiate a fair lending exam  examination once the department of justice concludes its investigation or review the findings of that investigation take them into consideration and our next and if there are other indications in that investigation of when you look at the wreckage prime loans are living in neighborhoods across america and when you look at the lack townhouse their homes as they should be able to do there are millions of americans who are losing their homes and who are out of their homes and some of them on the not only do we look at access to credit which was relevant thirty years ago and it's just as relevant today we look at cost of credit because in many of the low income and moderate income neighborhoods  under served persons to come into the banking sector and through our examination process we think one violation is one too many and we always advise the bank to take corrective action to the extent that we find patterns and practices of either denial of credit or high cost credit action relatively quickly and we take that information and we factor it into the rating for the compliance exam for that as situation and also the c r a rating this year alone the f b i has made thirteen referrals to the department of justice for fair lending and we've also downgraded two institutions in two thousand and seven with respect to their c r a rating this is something that is very important to the as important to our chairman and we want to ensure that our examiners take corrective action where years we've held a thousand meeting between different community groups around the country trying to understand what the needs are so that we can make better assessments and we can help banks understand what communities need a crisis in america with people getting having their lives ruined by predatory lenders and by prime lenders who are not fulfilling their obligations under the community reinvestment act because the regulators don't make them do it  who regulates insurance companies mortgage lending companies security firms and other non depository financial institutions very important panel thank you have gone to great lengths with the first panel compensate them for their record things they had to do because of the settlement in detroit opening branches and doing reinvestment that they would have done on their own and second written policy statement in the thirty years that i've been doing for lending work i've never seen or an institution managed to make a play out of every single person who applied for a loan well that's actually what they did it wasn't a small entire nation it was a written policy for their entire mortgage operation and what happened was white applicants because they were charged too much for long it also turns out that the african american applicants had a because because the brokers couldn't charge them as much for a loan they didn't make as many black loans as they did the regulators look at the fair lending exam the fair lending exam specifically excludes anything about the affiliates in fact they're prohibited from even talking to them as part of the exam process so you've got another in congruity there about about  nachman in the late one nine hundred seventy the community reinvestment act has leveraged more than four point five trillion dollars of loans and investments to families and individuals in communities that have been most challenging accessing credit and lots of organizations including harvard university and including the treasury department and the federal reserve have concluded that those loans were done in a safe and sound manner those investments have helped to million households do not have a relationship with a major bank or savings institution at the same time millions more only have tenure with time and over the past decade and a half high cost of lending has grown exponentially disproportionately and moderate income in minority communities since one thousand nine hundred three for example payday lending has grown from a modest three hundred more than twenty five thousand today and we all know the story of subprime lending and particularly predatory in conclusion let me just say that consumers outside of the financial mainstream often operate in a casual informal economy a large and growing informal economy not in the best interest of america financially homeowners with an unreasonable or otherwise deceptive and costly mortgage product is not in the interest of american families with negative savings rate are not in the interest of america and communities on able to tap the credit markets for responsible what it is not doing and that is inspiring them to reach out and affirmatively want to help to improve market function effectively in this country at the end of the day we know that when america is inspired we put a person on the moon because we we needed to do that and we were committed to it and we did it there is nothing stopping us from succeeding in our goals on c r as i was listening to the testimony i found myself writing and rewriting my own oral testimony until finally i thrown it out and i have really two points that i would like to make and the first point is that the one of the problems with the performance performance evaluations not reflecting bank performance is that the agencies have too much discretion in evaluating banks and generally tend to exercise it in a way that overstates or over rates bank performance  two c r a performance evaluations look alike the agencies have discretion about the criteria they will use to evaluate bank lending to benchmarks they will use to measure that whether the banks  satisfied the criteria and how to evaluate whether the banks are satisfied the criteria or not so for example a performance evaluation might state it's going to look at the percentage of loans that the bank made to low and moderate income neighborhoods it will compare that for example to the percent of such loans by all lenders in the community and then it will sort of say the bank is close the bank didn't quite make it the bank didn't quite reach or maybe the bank did do a little better than the benchmark but there's no sort of definitive statement of whether the bank has satisfied the criteria or not and as a result the agencies tend to ignore bank performance does not meet the criteria that the that the performance evaluations have a stablished so they have they have this discretion  decide not only what criteria to look at and what the benchmarks will be but then when the bank doesn't meet the benchmark they have the discretion to say well that's ok we're not going to hold that against a bank in that it will get passing grades on the performance evaluations anyway so can the subcommittee to consider is whether there should be a standard set of criteria against which to use to look at bank lending a standard set of benchmarks and then requiring the agency to make definitive conclusions about what happens when the bank does not meet those benchmarks but the second point i'd like to make is that there's been a lot of discussion about the fact that the agencies may not be taking into account in the c r a evaluations the results of the fair housing and equal credit evaluations that go on separately from the c r a evaluation and i want to make another related point which is the agencies do reinvestment statute says the banks have an obligation to meet the credit needs of their entire communities including low and moderate income neighborhoods the agencies apparently seized on that to say therefore we don't look at race when we do these reports i tend to disagree with that as i believe there's sufficient legislative history that would support showing that congress was also worried about racial redlining not just in income redlining and therefore the agencies should take race into compare the percentage of african americans who receive sub prime loans as a percentage of whites prime loans because they don't look at the evaluation report can show a lot of lending in low and moderate income neighborhoods that might not show that that lending might be because they're making a lot of sub prime loans and that those subprime loans may be distributed based on race so my two points would be simply create some daal and i am the director for economic justice for rural opportunities in rochester new york thanks for the opportunity our organization is a member of the national community reinvestment coalition and we support the comments and individuals and organizations that do grassroots community development work in my limited time today i'll just touch on the way that discrimination in the landing has become more subtle and more damaging and the failure of the regulators with their use of the fair lending exam and the c r a of them to keep up with the changes in land i first became aware of the community reinvestment act in one thousand nine hundred five while working for a local community development corporation in memphis tennessee at that time discrimination and access to credit was wrought in blatant for instance we found the lenders whose mortgage underwriting guidelines explicitly stated that they would not land in areas of insipient decline their gu specified minimum alone amounts that excluded most of the houses in the african american neighborhoods in memphis of the one do as you state that again their guidelines specified minimum alone amounts that would exclude by their size they were thirty five thousand and fifty thousand dollars minimum and in fact the houses in the african american neighborhoods were selling for less than that at that time so they would not lend to those areas because they didn't meet their minimum loan guidelines there was bad home mortgage disclosure data for instance in the case of one company they showed the loan loans and and inner city memphis average in a million dollars apiece this is eight years after the passage of the c r a and ten years after the passage of the home mortgage disclosure act and the regulators on their own had not come to the conclusion that there were any problems with that so it took community organizations like us really pounding on them and using the bully pulpit into a public relations for a year before the regulators began asking questions and i think you're seeing an aspect of the same phenomena now  it depends on the leadership at the top and how and how their attitude towards the regulation of consumer regulation towards consumer regulation happened in eighty six our organization attempted dialogue with the banks but we didn't really have dialogue and tell the regulators got in there and failed well they didn't fail them on their c r a exam but in two cases we had them deny mergers and a new bank at bank branch application and that created the impetus for real change to happen but today the discrimination for the most part doesn't involve access to credit which was the issue then but rather the fact that minority neighborhoods are really targeted with inferior loan products high interest rates on favorable terms they're targeted regardless of the credit scores of the individual borrowers within those neighborhoods and when a group of people are targeted for bad financial products it creates a cascading effect a self fulfilling prophecy if you well as their sole risky loan products which over time puts stress on their financial situations and have the practical effect of driving down their individual credit scores and making them riskier borrowers and the banks have really facilitated this shift by doing a poor job of marketing in those neighborhoods removing their branches from neighborhoods they provide the lines of credit used by the brokers and the mortgage lenders some of them service those subprime loans the the investment bank side of the bank often securitizing those loans even while they're proudly saying that the retail division doesn't do subprime lending so when a banks fair lending examination is done there's no public indication that this entire range of bank involvement in the subprime market that targeted at minority borrowers it is looked at and in spite of the efforts of community activists it's rare that a bank service and investment test in the c r a exam itself looks at all of these issues in a comprehensive way the single this is then the single most egregious area of discrimination in lending over the past decade this targeting of inferior loan products to minority neighborhoods and it's really been the marketing that's been a tremendous problem in the last in the two and a half years that i have been working for rural opportunities which as you said as work in seven states and puerto rico is one of the largest rural operators of a first time homebuyer program there have been no visits to me by a c r a exam to my organization to ask us what our opinion is of the banks that they're about to do this on and i think it just reflects the fact that they have become much more lackadaisical about this because there are there is this attitude that works its way through and the banks quickly lower their standards to the minimum needed to get a passing grade thank you very much thank you  of governing the military and the and most of the state department devastating on a personal level because you know we sometimes get lost in the minutia and broad quantitative assessments that can be very city of detroit they make lots of money they get outstanding ratings so evidently you can do business in detroit in a profitable way so what would the business old cans or anyone else or mid america bank in chicago or people drafting the legislation that it would be redundant to put that in the everybody understood that that was there but there's no federal protection by income so i said we better put that in the legislation because even though race is clearly already covered well that's that's why that and what that does is it disallows community organizations and civil rights attorneys and others who might have an interest to actually explore what exactly was done to comment as to whether there were things that were clear omissions or where improvements in those examinations could take place which is a which if true is a problem because one of the reasons that the agreements between banks and community groups work is that they are publicly made and they are agreed upon and have monitoring that for example maybe african americans were not getting the loans that they were rightfully due so i was looking at a number of issues and so what she did was bring the churches together and they said basically if you want to do business with us and they had about i am i guess i can remember probably fifteen or twenty georges thousands of people you got a calm right now this is where i'm going with this i'm trying to figure out how does the first of all most people who are being victimized don't even know they're being victimized and i'm trying to figure out a two track solution one track is how do people come together and do things similar to what i say the church did that is to try to come up with a remedy where they force these mines to pay attention because i can tell you i live in the inner inner in an inner city of baltimore and there are no banks i mean to get to a bank i have to go and lease them out and leave about two miles to get to a bank and that's not unusual and i'm trying to figure out you  know i i really want to believe in government and i do to a degree but them it takes so long to get stuff done and i'm trying to figure out if i'm talking to my community people and they want to organize and figure out ways to make the whole purpose of what it's supposed to do what they do and then on the other hand what do we do in trying to tighten it up on this anybody the provision which is really designed to intimidate community groups to say if you participate in making any comments and then you make an agreement with the bank we're going to hold all these sanctions against you but we're not going to make the bank do anything or enforce anything we don't even recognize agreement as federal reserve expanded that in their regulations and they said the definition of the agreement is if you go and talk to a bank and say we want these four types alone and then later on without ever talking to the bank has a press conference this is an example actually using the regulation and they identify those four types of loans even though they're not going to do in the way you want it the regulators in the banks can declare that an agreement and they can impose all these sanctions against you even though you not only didn't sign it but you probably don't even like it i mean  reserve play in all of this if any i mean well they're the key they right to regulate and they can and they they have a lot of say but let me tell you why i'm asking this when we also serve on a jail join economic committee and when we were dealing with sub prime was still dealing with the subprime market and we wrote two but one key and asked him to lay out some  guidelines with regard to avoiding making it we were trying to make sure that people were protected as best the reserve could do what we got to the and i'm just wondering you know i'm trying to think of all the different kinds of methods that we can go at this thing because you know what i'm afraid of is that i can almost fast forward in twenty years a whole different set of people be here will be some of us will be in rocking chairs and it will be people who have who have been denied what the lot said they should have  got and then it all will have hit another generation and we'll be going through the same stuff and i'm just trying to figure out how do we hear you how do we put the brakes on this and so but you know just and then i'll turn it back of the machine and i'm just trying to figure out how do we move from square one and so that we can actually have some impact i'm sorry i just want fences so that we actually have some impact because i mean we can wrestle and wrestle and wrestle and the only thing we've done is you know messed up the wrestling mat a little bit and that's it and the beat goes on and i think people depend on the beat going on they depend on people not paying attention while they get out while folks are getting which in my last question is you know when i was a little bo i remember specifically we would go downtown to embalm one there was one store in all two stores in all of downtown baltimore that would sell clothes to black folks and i was just a little kid about five years old and i'll never forget standing in the long lines and i asked my mom i said mom i understand this all those stories out there and there's like three hundred black people standing in line school clothes from one school i said what don't those other stores want to make some money you know i just look at it and i mean and i'm trying to figure out do you all see this is just if you look at most distressed neighborhoods you probably see a combination of things happening one is financial vulnerability that predisposes people to being taken advantage of and then pounding that is active discrimination in the markets and one of the things that's just interesting is to see how regulation is often upside down where the people who are most financially vulnerable receive the least protection from financial services industry from the regulatory agencies and so for example if you look at those subprime lenders the predatory lenders and they were the least regulated entities and so why does that happen it shouldn't happen and the reality of it is that for all the weaknesses of c r a there were a lot of things that could have been done directly to better regulate the subprime market and it wasn't and so that is probably the greatest source of damage to african american well at least for the entire century  entities are nevertheless serving those communities payday lenders to own title lenders sub prime lenders better national regulation specifically in our testimony we say to some extent we bring but i don't mean it to be so at all i don't think that there is a good appreciation for the value of consumers who live in places like baltimore and philadelphia and cleveland and other distressed communities across the country i don't know that there is a real understanding about the money that those neighborhoods and how dysfunctional ways it doesn't in fact accrue to the national economic the way that it could and as minority households fact empowering them economically and then maybe congress might have to do some exceptional thing to empower and or create financial institutions that those markets that have hit been historically discriminated against for which there is enormous market and really experiment some financial engineering and bring those consumers into the twenty first century of financial services i'll just conclude by saying my real belief in located in minneapolis nobody would build a store in the inner city and then people demanded they build a store and they finally got k mart to open a store and it was the largest selling kmart stores in their entire network look at that and realize that they've been lot of the community groups we very actively work to keep involved in the process but among many of our peer groups and particularly smaller community development groups if they don't see that their efforts are having an effect with the regulators they naturally drop off and their participation  in people who were banks who were referred to the justice department there was a feeling that taking action at the local level had real a fact that you are doing something good for your counter it's not a good thing to do but it's just a natural thing for people to so if you had access to fair lending review of banks conducted by regulatory agencies would that change ways to make them make it to empower communities in the process and you know that would be won you know you could right now if there's a negative community reinvestment rating that a bank disagrees with they have a right to appeal that with and within the process we have community groups don't get to see positive rating and have a right to appeal them downward so that the deck is stacked in a lot of ways in favor of the lending institutions and against the community groups i think you have to get a look at all of the ways that that happens have outlined improvements that you would recommend in the community reinvestment act and in light of the  comments or analysis or recommendations for for legislative initiatives or reforms or any area for further inquiry  needs review because that system is currently broken you heard some of the statistics from from jim about landing in terms of business lending the same thing is happening i look at the rural counties of upstate new york and about seventy five percent of the loans going into those rural counties now are credit card loans from the urban center credit card lenders with no assessment areas and those and those counties  affordable lending programs but in recent years the number of challenges seems to have diminished dramatically and i think there are two reasons for that one is that rather than the regulators actually during the ninet provisions reporting requirements but unilateral commitments and the agencies accepted them so you know they weren't negotiated they don't have monitoring they don't just sort of say this is what