Democrats lay into OCC chief for pushing ahead with CRA rule

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WASHINGTON — A Senate Banking Committee hearing Tuesday highlighted a clash between regulators and Democrats over a revamp of the Community Reinvestment Act, as well as senators’ concerns with the Federal Reserve’s rollout of emergency lending programs.

Senate Banking Committee members were not in the same room with regulatory agency heads Tuesday for a hearing conducted via teleconference, but that did not prevent lawmakers from sounding off on key policy issues from Community Reinvestment Act reform to the Federal Reserve's emergency lending facilities.

Democrats appeared to home in on comments by Comptroller of the Currency Joseph Otting that his agency is plowing ahead with writing a controversial CRA rule, despite criticism that regulators should pause the effort in light of the coronavirus pandemic.

The Office of the Comptroller of the Currency "is marching ahead with its plan to dismantle a civil rights-era law that requires banks to actually serve the communities where they do business, including low- and moderate-income communities,” said Sen. Sherrod Brown of Ohio, the committee’s top Democrat, who added that he wanted Otting to testify separately on CRA. “This pandemic has hit black, brown, and low-income communities harder than anyone else.”

The OCC "is marching ahead with its plan to dismantle a civil rights-era law that requires banks to actually serve the communities where they do business, including low- and moderate-income communities,” said Sen. Sherrod Brown, D-Ohio.

Otting disagreed with Democrats on the panel, saying that the coronavirus pandemic amplifies the need to move quickly with the CRA revamp.

“Actually, we think we should accelerate it, because it would drive more dollars into low and moderate income communities across America,” Otting said. “And a lot of the comments that we got will allow us to do that and build a program that will allow us to serve in low and moderate income areas.”

The hearing — in which both senators and witnesses appeared on video via remote locations — featured testimony from Otting, Fed Vice Chair of Supervision Randal Quarles, Federal Deposit Insurance Corp. Chair Jelena McWilliams and National Credit Union Administration Chairman Rodney Hood. It was the regulators' first appearance since Congress authorized sweeping relief measures for businesses hit by the coronavirus pandemic.

The OCC and FDIC proposed in December a broad overhaul of the CRA regime, including changes to determining banks' CRA assessment boundaries and measuring whether an institution's community development and lending activities sufficiently comply with the law. The Fed has yet to sign on to the OCC and FDIC plan.

Brown’s comments urging the OCC to slow down were echoed by Sens. Jack Reed, D-R.I., Bob Menendez, D-N.J., Mark Warner, D-Va., Brian Schatz, D-Hawaii, and Chris Van Hollen, D-Md.

“I believe the OCC and FDIC are embarked on a process that is not going to be helpful to the economy and the communities that are affected,” Reed said.

Schatz added that the agencies should postpone any rulemaking on CRA, given the current state of the economy under the weight of pandemic.

“This is the wrong idea at the wrong time,” Schatz said. "We need to be focused on relief. Banks, housing advocates, no one I’ve talked to thinks this is a good idea. And no one I’ve talked to thinks this is a good idea to move on it right now, so I do urge you to postpone this rulemaking.”

The hearing also highlighted a sense of urgency among lawmakers for the Fed to prop up its emergency lending facilities. Republicans and Democrats urged the Fed to move as quickly as possible to make its Main Street Lending Program and Municipal Liquidity Facility operational. The two programs are among roughly a dozen unveiled by the Fed to help the economy ride out the coronavirus outbreak, but several have not been officially launched.

“I’m very interested and frankly concerned with how quickly we can get the Main Street facility and the municipal facilities active and operating,” said the committee's chairman, Mike Crapo, R-Idaho.

Warner added that Congress wanted the Fed to move quickly in setting up the lending facilities. Funding for the Main Street Lending Program was authorized by the Coronavirus Aid, Relief and Economic Security Act.

“We set up a facility, here, where our intent was to try to make sure that we had for these middle markets a facility that would be taken up,” Warner said. “If you take so much time in setting up this Main Street facility, I think you are not meeting Congress’s intent which was to particularly recognize these are unprecedented times and that the lack of forward-leaning approach for these middle-market firms was not the congressional intent. When you’ve got Pat Toomey and Jack Reed and Mark Warner all agreeing, I would say that’s a pretty clear congressional intent.”

While Quarles did not give a specific time frame for when the facility would be set up, he said, “I don’t think we are looking at months.”

“It is the highest priority at the Fed right now is to get the Main Street and municipal facilities operational, because those are innovations, that is taking time,” Quarles said.

Members of both parties also raised concerns about banks prioritizing their wealthiest clients in providing loans through the Paycheck Protection Program. The PPP, authorized by the CARES Act and managed by the Small Business Administration, was designed to get aid to companies struggling to pay their employees with much of the economy shut down. But numerous high-profile companies ended up returning their loans.

“Small businesses are being hit the hardest by the pandemic’s economic fallout, yet many small businesses, particularly minority-owned businesses, are not getting access to the Paycheck Protection Program, as we in Congress intended, largely because banks have chosen to give these loans to their preferred clients,” said Menendez.

The bank regulators were not involved in determining who received PPP loans, but Sen. Martha McSally, R-Ariz., pressed Quarles on how the Fed is making sure that banks lending through its facilities aren’t showing favoritism.

“We want to make sure that when we shine a flashlight on the internal processes of the financial institutions that there was not favoritism toward their favorite clients,” McSally said.

Quarles said the Fed has left it up to banks to determine which companies are creditworthy.

“With respect to the lending facilities, where we are using the banking sector as the distribution mechanism, we are relying on the banks to do the underwriting,” Quarles said. “But we then supervise the banks to make sure that that underwriting is done both safely and fairly.”

The hearing also highlighted a disagreement among lawmakers about whether the regulators should require companies to suspend stock buybacks and dividends. Brown and other Democrats on the committee said regulators should suspend buybacks and dividends for banks during the pandemic.

“U.S. companies are continuing to lay off thousands of workers while continuing to [pay] millions in dividends to Wall Street investors,” Brown said. “It turns out loans have been going out to the largest banks' biggest corporate customers while at the same time the executives at the big banks who make these loans continue to reward themselves with dividends. They should be using their capital to lend to struggling small businesses and families that need help during this crisis.”

But Sen. Pat Toomey, R-Pa., who also has been appointed to a panel to oversee the Fed’s implementation of the CARES Act, questioned the need to suspend stock buybacks and dividends.

“Are you aware of bank dividend payments that are preventing banks from making PPP loans?” Toomey asked Quarles.

Quarles said he has not heard of a situation where dividend payments have kept a bank from making PPP loans.

This article originally appeared in American Banker.
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CRA Coronavirus OCC FDIC Federal Reserve Senate Banking Committee Joseph Otting Randal Quarles Paycheck Protection Program