WASHINGTON — The reverberations from Comptroller of the Currency Joseph Otting's comments about discrimination in banking reached the Senate Thursday, with Democrats suggesting the remarks put a dent in Otting's ability to reform Community Reinvestment Act procedures.
A day earlier, Otting told the House Financial Services Committee that he has "never personally observed" discrimination in banking "but many of my friends from the inner city across America will tell me that it is evident today."
The comments prompted confusion and criticism that dominated his appearance before the Senate Banking Committee Thursday. Democrats on the panel zeroed in on whether Otting will uphold the fair-lending requirements in the CRA — a 1970s law that Otting is seeking support from other regulators to expand and modernize.
“Why should the public trust you to overhaul the Community Reinvestment Act, a product of the civil rights movement, meant to address generations of segregation and exclusion if you ... just don’t even seem certain that discrimination exists,” said Sen. Sherrod Brown, D-Ohio, the committee's ranking member. “These are unbelievable statements for any adult in America, especially one that took an oath in the office like you did.”
Otting appeared to try to walk back his assertions somewhat. He said he had “personally never experienced” discrimination in banking, rather than using the word "observed." When responding to questions from Sen. Robert Menendez, D-N.J., Otting said he did believe discrimination existed, and indicated he believed in the concept of "disparate impact," a legal theory about unintentional discrimination.
He noted that two of his three top agenda items address making credit more available to underserved areas: modernizing the CRA and a bulletin the Office of the Comptroller of the Currency issued in late May encouraging banks to begin offering what Otting calls “small-ticket lending.”
“Redefining CRA and small-ticket lending ... go right to the core of what you’re describing the people in America that need the most help,” Otting said to Brown.
However, when asked whether Otting would seek the full support of civil rights groups on CRA changes before moving forward, he was equivocal. "They will be at the table having discussions like all parties involved,” he said.
Otting has previously said that he wants to change how banks are measured for CRA credit so it is clear what qualifies as a credit, as well as expanding the assessment areas and types of loans that banks can receive CRA credit.
Sen. Elizabeth Warren, D-Mass., raised concerns that this effort, and Otting’s remarks on discrimination, indicate the OCC will be too easy on banks when assessing their CRA compliance and not sufficiently crack down on unfair practices.
“The man who said yesterday in a hearing that he had personally never observed discrimination is not the right man to rewrite the Community Reinvestment Act,” Warren said. “The CRA needs to be a lot tougher than it is today. The standards need to be higher. The enforcement needs to be more rigorous.”
Warren specifically mentioned two instances in which JPMorgan Chase recently settled a lawsuit for overcharging minority borrowers and “a report” that TD Bank was denying roughly half its Latino and African-American applicants a mortgage — yet both banks have received a “satisfactory” or “outstanding” CRA rating from the OCC for years.
To JPMorgan’s case, Otting said that as “an overall organization, they received a ‘satisfactory’ rating.” As for TD Bank, Otting said he was “not familiar” with the report but “from a fair- lending perspective, the facts that you’re admitting would indicate that they have fair-lending issues.”
Warren warned Otting that if he was to “weaken the CRA now” he would “push even more struggling families across this country out of the middle class.”
Otting replied that “it won’t be me who will do the CRA changes” but “the communities to which the CRA is generally deployed.”
“I have been a big supporter of how we can drive further and deeper into the communities across America,” he added.
At a housing conference later in the day, Otting said he was meeting with officials from the Federal Deposit Insurance Corp. Friday in an attempt to issue a joint notice soliciting comment on how to change the CRA.
Otting has said since March that he was hoping the FDIC and Federal Reserve Board would join the OCC in the notice, to no avail.
“It’s been a back and forth process,” he said at a National Association of Affordable Housing Lenders conference. “I would hope in [the] next week or so we will make a decision whether we will release it as a sole agency or a joint agency. I hope it’s a joint agency . . . but I am prepared to go singular if I have to.”
In the meantime, Otting said the OCC would release a bulletin Friday with “revisions” to the examination process for CRA. He added that he hoped the regulators can propose amendments to the CRA in 2019.
One audience member, in asking a question about CRA, noted Otting’s “presentation” during the Senate hearing that morning.
“I wouldn’t call that a presentation,” he said. "It was a “wrestling match.”