California Reinvestment Coalition Recommendations on Updating the Community Reinvestment Act

Community reinvestment act 2

Fact Sheet: Community Reinvestment Act Recommendations

To truly meet community needs, CRC members believe the CRA should be improved and strengthened. In a recent survey, 100% of members said that the level of CRA activity in their community needed improvement and that there was considerable room for banks to do more.

CRC recommends that CRA be reformed so that:

1. CRA implementation encourages, not discourages, reinvestment in rural areas. California is home to numerous rural reinvestment deserts, where a lack of lending and investment prevents communities from thriving economically. And yet, many of these areas already have bank branches and are included in bank CRA assessment areas. Regulators subject bank CRA activity in these areas to a lower level of scrutiny, as banks are able to denote these areas as subject to only “limited scope” review. For example, Bakersfield, California, has numerous bank branches, and those banks have CRA obligations in the city. However, these same banks are examined for their CRA activity far more closely in other, more urban areas of the state. This creates fierce competition, for example, for housing tax credit deals in urban areas, while rural projects struggle to find financing. Instead, regulators should ensure that the banks with the largest deposits in a given MSA are subject to a full scope review in that MSA.

2. Regulators should encourage banks to develop transparent, multi-year CRA Plans that reflect significant public input and that include measurable goals, such as tying reinvestment activity to a percentage of bank deposits. Banks are supposed to help meet community credit needs. And in many bank merger applications, banks must demonstrate that the merger will provide a community benefit. The public input process is critical to this assessment.

However, community input has been diluted, and is not sufficiently sought and considered under current CRA implementation, as an example, very few mergers will even have public hearings. Mergers most often lead to diminished resources for communities as 1 + 1 rarely equals 2 in terms of reinvestment. That is why a comprehensive review of mergers is so important, complete with strong community input and mitigation of any harm the merger may cause in the form of decreased reinvestment or reduced access to banking services or branches.

Regulators should encourage CRA plans, particularly in the context of mergers that must show a clear public benefit to the community. Strong and meaningful CRA plans reflect community input about community credit needs, motivate banks by setting strong goals for lending, investment and services, and allow communities to work in partnership with banks to ensure that they are treated equitably and fairly by financial institutions. CRA plans are a best practice that have resulted in significant gains for communities in the past few years. Strong CRA plans can help demonstrate that a merger will have a public benefit.

3. Banks should be downgraded for causing, enabling, or financing harm in communities, taking into account discrimination, and equity stripping conduct and transactions that lead to displacement. The CRA calls for an assessment of how well or poorly a bank is meeting community credit needs. This analysis must include an assessment of fair housing and related factors. Regulators should conduct a comprehensive review of a bank’s community impact. Wells Fargo is but the most recent example to demonstrate that simply investing in the community is insufficient- banks must also not cause harm or break the law.

For a regulator to give a bank a passing CRA grade while the bank engages in discriminatory lending would be to endorse discrimination. Further, a high CRA rating for a discriminatory bank could result in consumers being directed to a bank with an inflated CRA rating, only for the bank to potentially overcharge the consumer or deny that person a loan. In this way, regulators would abuse the public’s trust in its ratings.

Bank regulators should consider expensive overdraft programs and excessive reliance on fee revenue generated at the expense of the most economically vulnerable consumers as a basis for downgrading a bank in a CRA service test evaluation. Similarly, banks should be downgraded for financing high cost, predatory lenders, and for contributing to gentrification and displacement. Banks should also suffer CRA rating downgrades as a result of any involvement in the REO to Rental craze, which results in first time homebuyers being outbid by cash investors, tenants being displaced by Wall Street landlords, and neighborhoods losing long term residents as well as racial and income diversity.

4. Encourages banks to open and maintain branches in LMI and rural areas. Bank branches remain a critical part of how banks serve communities, and inequitable distribution of branches must be considered as part of the CRA service test. Critically, regulators cannot allow the industry’s preference for technology to result in fewer branches and shrinking CRA assessment areas, footprints, and obligations in LMI communities. Additionally, many LMI neighborhoods and communities of color not only lack access to bank branches, but also to a wide range of banking products and services, including ATMs.  Regulators should analyze whether banks are meeting the banking needs of all communities in their assessment areas.

Regulators should also consider how banks can better reduce the number of unbanked or underbanked consumers within their assessment areas. Moreover, banks should quantify the extent to which LMI bank customers are able to keep their accounts open and in good standing over time, or if their customers are pushed out of the bank by overdraft fees or other barriers. Low cost bank accounts should be offered and accessible to LMI consumers, including through bank acceptance of municipal identification cards and other accessible forms of ID.

5. Assessment areas should include areas where banks have branches, or where a significant number of their customers and depositors live. Regulation has lagged behind market innovation. Requiring reinvestment only around retail branches makes much less sense today, when internet, credit card, and fintech banks operate nationally but reinvest only in Salt Lake City or another headquarters location.

Assessment areas should be expanded to include areas where a substantial portion of a bank’s depositors and borrowers reside. At the same time, banks should not be allowed to receive additional CRA credit for lending or investing outside of the bank’s CRA assessment area, beyond the accommodation made to banks by regulators during the last CRA Questions and Answers review. This will only lead to a dilution of investment in LMI neighborhoods that are most in need of reinvestment. The primary purpose of the CRA is to serve communities where the bank is doing business, not to encourage reinvestment where it is easiest to do. Banks should not be able to circumvent obligations to serve the communities in their assessment areas. The focus of bank CRA should remain on LMI individuals and communities.

6. CRA examinations should consider and reflect new small business lending data that the CFPB will be overseeing. Small businesses are the lifeblood of our economy, prime job creators, and bulwarks of the community. Yet small business owners benefit from fewer protections than homeowners. HMDA data has been collected for years, and used to inform CRA examinations, without problem or incident. Small business owners should also benefit from a comprehensive and unified lending data collection system.

CRC members strongly support Congress’ charge in Dodd-Frank that §1071 small business lending data be collected in order to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses. Such data collection and dissemination will surely make affordable credit more accessible to all small businesses, and will inform CRA examinations.

A recent CRC survey of our CDFI, community lender and technical assistance provider member organizations revealed that small business clients still face discrimination; are pushed by banks towards higher priced credit cards; are frequently targeted for nonbank credit products (like Merchant Cash Advances), and are in need of greater access to affordable, safe, and transparent credit.

7. Banks serve all segments of the community, including the immigrant community. Banks can and should serve the immigrant community by directly providing loans and investments to immigrants, and by supporting community lenders and other organizations that serve the immigrant community. Immigrant community members have significant unmet credit needs, whether it is a safe place to save money, a loan to buy a house, purchase a car, start a businesses, or pursue a citizenship application.

Banks should ensure that employees represent the diversity of their service areas, and make translation, interpretation and related language access services available to all potential clients. Banks should make loans and investments accessible to all community members, and invest and support community lenders and other organizations that serve the immigrant community.

8. The bank examination process can be improved so that years do not go by after an examination before the pubic rating is released. The regulators should hire additional examiners and provide enhanced training to ensure that there is consistency in the examination process across agencies and examiners. CRC believes that a primary reason behind the delay in the public release of CRA ratings is the propensity of banks to challenge and appeal initial CRA ratings by regulators. This process should be reformed to limit the circumstances in which a bank can challenge a rating, and the public should be given an opportunity to comment on the appeal when a bank invokes this otherwise opaque process. It is of critical importance that regulators set high standards of review.

To make CRA meaningful, regulators have to end the long history of CRA grade inflation so that poor CRA performance will be reflected in CRA ratings. Streamlining the process while lowering the examination bar will only lead to less investment, more harm to communities, and potentially, to greater risk in the US financial system. We saw this happen in the years leading up the financial crisis, when regulatory agencies competed against each other to attract banks to their charters, fueling a regulatory race to the bottom, and leading ultimately to the failure of several savings and loans and the end of the Office of Thrift Supervision.

CRC Speaks about Small Biz Owners and Financing Challenges at CFPB CAB Hearing

Paula

Paula Tejada, owner of Chile Lindo, speaks to CFPB Director Cordray and Assistant Director Grady Hedgespeth about being a small biz owner in the Mission District of San Francisco. Learn about the CFPB’s tour here.

Today, Paulina Gonzalez, the executive director of the California Reinvestment Coalition, will be speaking at the Consumer Financial Protection Bureau’s Consumer Advisory Board meeting about the challenges that Small Business owners face in obtaining safe, transparent loans to start and grow their businesses.  CRC is strongly supportive of the CFPB’s effort to implement the 1071 data collection called for under the Dodd Frank financial reform bill.

Gonzalez’ presentation highlights how loans to smaller small banks have decreased; how small business owners are being pushed to credit cards (instead of small business loans); and how some predatory lenders are filling in the gaps.

CRC has been monitoring access to loans for small business owners in California for a number of years, and the results have been especially disappointing:

2007-2009: According to CRC’s analysis and report (The Little Engine that Could), SBA lending to California’s minority-owned businesses dropped by 81 percent for African American-owned businesses and 84 percent for Latino-owned businesses. See report: Small Business Access to Credit

2007-2013: According to CRC’s analysis of SBA data, small business lending, especially to African Americans and Latinos dropped dramatically from 2007 to 2013.

Report Finding Include:

Bank Loans Guaranteed by the U.S. Small Business Administration Fall Dramatically:

  • There was a 60% drop in the number of small business loans made from FFY 2007 to FFY 2013.
  • In FFY 2013, only 2% (96 loans) of SBA 7a loans were made to businesses owned by African-Americans, 11% to Latinos (634 loans), and 14% to women (846 loans).
  • Credit needs of the smallest small businesses are being ignored: the average SBA 7a loan tripled in size from $165,723 in 2007 to $498,971 in 2013.

Conventional Small Business loans decline for 4 of the 5 largest banks

  • For conventional small business loans, four of the five major banks decreased the amount of loans they were making in 2012 by about 2/3 as compared to 2007 in five key counties (Alameda, Fresno, Los Angeles, Sacramento and San Diego).
  • US Bank increased its overall small business lending by more than 17% in these counties, while JPMorgan Chase, Wells Fargo, Bank of America, and Citibank all made far fewer loans in 2012.

Practitioners Report Difficulties in Getting Loans, Esp. for Smallest Businesses 

  • CRC polled our member organizations who work directly with small businesses. Seventy-three percent of respondents stated that banks are doing less lending to small businesses (revenue of less than $1 million annually) in 2013 than 2012.
  • Ninety-two percent of them stated that banks are not doing significant lending at the $150,000 or less level.

California Reinvestment Coalition Goes to Washington

Last week, members of the California Reinvestment Coalition traveled to Washington, DC, for the annual National Community Reinvestment Coalition conference.  The theme this year was “Creating a Just Economy.”

Keynote speakers during the conference included Federal Reserve Chair Janet Yellen, CFPB Director Richard Cordray, Representative Maxine Waters who is Ranking Member of the House Financial Services Committee, Comptroller Thomas Curry, Senator Sherrod Brown who is Ranking Member of the Senate Banking Committee, Mark Morial, CEO of the National Urban League, and John Taylor, president and CEO of NCRC.

There were a number of sessions focused on reinvestment, affordable housing, small business lending, home ownership, gentrification, economic development, CDFIs, community health benefit agreements, fintech, rural development, fair housing, the racial wealth gap, the Community Reinvestment Act, redlining, and more, including a session entitled “Defending the CFPB” that Paulina Gonzalez, executive director of CRC, moderated.

In addition to attending the conference, CRC members also met with members of the California Congressional delegation and with bank regulators and their staff as well.  During the meetings, CRC members shared what they are seeing from their work in communities, specifically around issues related to small business lending, affordable housing and economic development.

This slideshow requires JavaScript.

The president’s so-called “skinny budget” proposal was one of several topics covered at the meetings, and more background about the additional issues is included below.

Program/Department

Budget Proposal Impact on California

HUD Budget 

Eliminates CDBG, reductions for key programs serving renters Loss of $357 million in CDBG funds for CA cities;

$130 million in HOME funds for new affordable housing; Thousands of tenants to lose rental assistance vouchers;

More costs for Medicaid as seniors move to nursing homes w/o Meals on Wheels;

Increased homelessness;

CDFI Fund

Eliminated

Fewer loans, less support for Small Biz Owners. There are 86 CDFIs in CA that made 39,000+ loans in FY 2016.

Legal Services Corporation

Eliminated

11 CA orgs. receive funding through LSC.

Small Business Administration

Prime program defunded; Microloan program frozen Less financing available for CA small businesses.

NeighborWorks

Eliminated

Will harm efforts at building assets, including for 1st time homebuyers, also negative impacts for affordable housing.
AmeriCorps Eliminated

Work on tax returns, literacy, emergency response, health, and economic development.

 

Community Reinvestment Act

This year, CRA celebrates its 40th anniversary. Because of the CRA, financial institutions are helping to meet important community credit needs and building consumer and community wealth, through small business lending, mortgage lending, affordable housing finance, community development activity and bank branch and account access.

  • California Reinvestment Coalition members and other community groups have recently negotiated win-win community commitments with a number of banks, including City National, Bank of Hope, Cathay Bank and Mechanics Bank.
  • But bank regulators need to be more rigorous and timely in their CRA and Fair Lending examinations of banks. Wells Fargo had not had a CRA rating made public in 9 years, and several banks, such as BancorpSouth and Evans Bank that received Satisfactory CRA ratings were later sued for redlining.
  • Regulators should encourage banks to develop Community Benefit Plan agreements with local community groups, and incorporate these agreements into any bank merger approval and subsequent CRA exams.
  • Regulators should also provide CRA downgrades to institutions that engage in discriminatory, unfair, or deceptive practices, or that finance the direct or indirect displacement of low and moderate income people and communities of color, or that finance lenders who make predatory loans in these communities. Banks must diversify management and staff, and develop robust supplier diversity programs.


Rural Communities

Rural communities in California face unique and significant challenges. Banks are well placed to help local communities develop and grow through home mortgage and small business lending, affordable housing investments and low cost accounts.

  • But nonprofit groups and even some banks report that banks only lend and invest in geographic areas that are subject to “full scope” regulatory review (via CRA exams),  that tend to focus on larger, urban areas, especially for the largest banks.
  • Bank regulators should expand the number of full scope areas for banks that are among the biggest depositories and lenders in smaller, rural communities. Branch closings, especially in rural areas, are also effectively limiting access to banking for consumers.

Protect CFPB

The Dodd Frank Act and the creation of the Consumer Financial Protection Bureau are the most effective and publicly popular responses to the financial crisis.

  • The CFPB has secured over $12 billion in consumer relief, more than all of the other, relevant federal agencies combined.
  • The CFPB developed common sense rules that brought order and transparency to mortgages (Qualified Mortgage and QRM rules, home loan modifications (servicing rules, including successors in interest protections), and the collection of home loan data (HMDA rule).
  • Additionally, CFPB enforcement actions have protected consumers and communities from unlawful lending discrimination and unfair and deceptive practices.
  • Importantly, over 1 million consumers (including over 118,000 Californians) have already taken advantage of the CFPB’s user-friendly consumer complaint database to file complaints -some telling their stories – to seek relief but also to inform other consumers and CFPB enforcement officers about problematic practices and actors.
  • The CFPB’s Director, structure and authority must be vigorously protected.
  • Important CFPB rules on payday lending, prepaid cards, mandatory arbitration, debt collection and small business loan data must be finalized and protected from repeal.
  • We also support the CFPB’s work on issues that have important impacts on consumers, ranging from student loans to credit reporting agencies to financing for cars.

Small Business Lending

  • Small business lending has increased since Dodd Frank Act, not decreased as some Dodd Frank critics have suggested. But small business loans are still less available in LMI neighborhoods and neighborhoods of color
  • And many small business owners looking for credit from banks are relegated to higher cost and variable rate credit cards, not term loans.
  • 95% of the small business loans in CA from JPMorgan Chase Bank are credit card loans. While credit cards serve a purpose, they can come with higher costs, variable rates and are not well suited for the longer term capital needs that many businesses have.
  • Dodd Frank Section 1071 data would bring much needed transparency into who is receiving small business loans- and who is not. In the same way that HMDA data created greater transparency in the home lending market, 1071 small business data will shed light on small business lending trends, highlight disparities, and likely lead to increased lending.
  • Fintech, online, and marketplace lenders can present opportunity, but some are clearly also creating harm. CDFIs and community lenders are spending precious capital and staff time refinancing small business owners out of predatory fintech loans and merchant cash advances.
  • An Opportunity Fund analysis of 150 “alternative loans” found an average APR of 94%, and among Hispanic borrowers, the average monthly payment was more than 400% of take-home pay.
  • Advocates are concerned about a weakening of consumer protection under any OCC national fintech charter which will lead to preemption of state laws, and are concerned that the OCC has not shown itself to be a strong bank regulator (see, Wells Fargo).
  • We join Congressman Cleaver in raising concerns that fintech lenders are violating fair lending laws by not making good credit available to neighborhoods of color, that fintech algorithms may be biased, and that predatory fintech loans are destabilizing small business owned by women and people of color. The CFPB and other agencies must vigorously enforce fair lending laws against predatory and discriminatory fintech lenders. Bank partnerships with fintech lenders must be thoroughly scrutinized to ensure fair lending and consumer protection laws are followed
  • In addition to bank and fintech loans, small businesses are vulnerable to high cost products like Merchant Cash Advance and installment loans that can financially sink business owners instead of helping them.

Homeownership

Home loans are hard to come by in neighborhoods of color. Banks are increasingly focused on making jumbo loans which disproportionately benefit white borrowers, while making fewer loans to Latino and African American borrowers, and abandoning FHA loans in favor of their own, unproven products, with less than impressive results.

  • Any future GSE reform must maintain a duty to serve communities and retain affordable housing goals. Currently, Fannie and Freddie need to be held accountable to meeting ambitious affordable housing goals, and should offer more flexible products to qualified homeowners.
  • We are concerned about a return to redlining, and hope to see DOJ, CFPB and HUD continue their important work in enforcing fair housing and fair lending laws.
  • HUD is currently investigating CRC’s first HUD redlining complaint (more information and graphs below), filed against OneWest Bank for having few branches and making few home loans in neighborhoods of color in six Southern California counties.
  • Given our aging population, increased oversight is needed in the reverse mortgage market to ensure that seniors are not taken advantage of by loan originators and servicers.
  • CRC is deeply concerned that seniors are continuing to lose their homes unnecessarily due to servicer bureaucracy, a lack of strong oversight of this industry by HUD, and a very limited infrastructure to help seniors and their families avoid needless foreclosures.  The elimination of funding for Legal Aid organizations will exacerbate this problem.

Affordable Rental Housing

California continues to suffer from an affordable housing crisis. The California Housing Partnership Corporation estimates that California needs 1.5 million affordable homes to accommodate the state’s lowest income residents.

  • Any HUD budgets cuts to key programs such as HOME, CDBG, Rental Assistance and Low Income Housing Tax Credits, could be devastating.
  • California nonprofit housing developers report that many investors, including banks subject to the Community Reinvestment Act, are pulling back from existing commitments in tax credit deals and attempting to renegotiate terms in light of pending tax reform. The result is fewer units produced and more subsidy coughed up at the 11th hour by desperate nonprofits who then must forego developer fees, and local governments which must contribute additional, unplanned subsidies.
  • Banks should receive CRA rating downgrades for such behavior as well as for seeking community development lending credit for loans that foreseeably lead to displacement of low and moderate income residents the CRA was meant to benefit.
  • CRC is deeply concerned about Fannie Mae’s recent commitment to guarantee up to $1 billion in debt backed by single family rental homes owned by private equity giant Blackstone.
  • Fannie Mae and Freddie Mac must continue to invest in the National Housing Trust Fund and Capital Magnet Fund.
  • Importantly, HUD must continue to implement Affirmatively Furthering Fair Housing obligations and assist local jurisdictions in meeting critical housing needs, fighting displacement and creating access to areas of opportunity for all.

Immigrant Access

The current political environment, with its changing policies and harsh rhetoric is threatening to drive immigrant communities out of the country, or out of sight. A recent CRC survey of confirms that many of our organizational members are seeing clients go underground, fail to show up for jobs, and forego access to needed services because they are concerned about ICE.

  • Bank regulators and banks should work together to clarify and simplify the privacy data rights of immigrants so they will not fear that banks will share their private data with the government.
  • Banks should also be encouraged to lend directly to qualified immigrant homeowners and small business owners who may have ITIN numbers, as well as invest in CDFIs and community lenders that make such loans.
  • For banks serving large immigrant populations, they should consider what information may be helpful to share with their customers about power of attorney and other bank access issues should a household member face deportation.

Payday lending

Payday lending continues to be a scourge on working families, charging 400% APR for short term loans that trap unsuspecting consumers in cycles of debt.

  • The CFPB has designed well considered and reasonable rules to protect consumers against abuses.
  • Federal intervention is needed as payday lenders and lobbyists have a stranglehold in Sacramento.
  • Banks should be incentivized to continue to develop small dollar alternatives to such products and to assist CDFIs and other community lenders that seek to fill this niche, and should also be penalized in their CRA exams for any financing to high-cost, predatory lenders.

Overdraft

According to the CFPB, the majority of overdrafts are on transactions of $24 or less and are repaid within 3 days or less. The CFPB calculated that with a median overdraft fee of $34, this is equivalent to a loan with a 17,000 APR.

  • It is telling that payday lenders defend their triple digit APR loans by saying consumers are merely making informed decisions to take out payday loans because they are less expensive than overdraft fees.
  • Banks continue to overly rely on overdraft fees as a source of fee revenue, to the detriment of their clients. CFPB rules on abusive overdraft policies are important, and all regulators should independently examine the impact of overdraft on bank customers, and work with their banks to end this product.

 

More on CRC’s Redlining Complaint Against CIT Group

Redlining Complaint Against OneWest Bank filed by California Reinvestment Coalition

Mortgage lending in 2015 (CRC)

The complaint alleges that OneWest Bank’s lending to borrowers in communities of color is low in absolute terms, low compared to its peer banks, and is lower than one would expect, given the size of the Asian, African American and Latino populations in Southern California.

Branch locations OWB

As part of the complaint, an analysis of the bank’s assessment areas found that OneWest has only 1 branch in an Asian majority census tract, no branches in African American majority census tracts, and 11 branches in Hispanic majority census tracts.

Branches in Asian, African American, and Hispanic majority trats (OWB)

While OneWest’s foreclosure record is not part of the redlining complaint, analysis by CRC and Urban Strategies Council found that OneWest was nine times as likely to foreclose in communities of color as compared to extending mortgage loans in communities of color.

OWB foreclosures vs originations

Is Personal Insurance Federation of California Lobbying Against COIN Transparency?

COIN image 1

Earlier today, 18 prominent California nonprofits called on the Personal Insurance Federation of California to support transparency in a key insurance reinvestment program- the California Organized Investment Network.

Similar to the Community Reinvestment Act for banks, COIN is an avenue for insurance companies (who collect over $250 billion in premiums from California consumers every year) to invest in California communities- especially low income communities.

COIN was created in 1996 as an alternative to legislation that would have mandated a CRA type requirement on insurance companies.  However, the program is set to expire in January 2017.

AB 2728, (Atkins) would reauthorize COIN, however, the current version of the bill doesn’t include the “data call” which is the mechanism requiring insurers to report on their investments in California communities (or lack thereof).

In response, 18 organizations sent a letter to Speaker Emeritus Atkins, urging her to include the data call in AB 2728.

You can read more about COIN and the data call here: Nonprofit Leaders Call on Insurance Lobbying Group to Support Transparency in COIN Reinvestment Program

You can also read an OpEd about COIN and the importance of the data call here: Insurance Industry Happy to Receive, But Not to Give

 

 

 

The CFPB’s Impact in California

Have you heard? Yesterday was the 5th anniversary of the Consumer Financial Protection Bureau.  In that short time, the agency has built a reputation for dramatically increasing transparency into the financial services market, leveling the playing field between consumers and financial corporations, and putting bad actors on notice that they will face consequences.

bday cake

Senator Elizabeth Warren is widely credited with the idea of an agency that would stand up for financial consumers, and the CFPB was included in the Dodd Frank financial reform that was passed in response to the mortgage meltdown.

While advocates had repeatedly warned federal and state regulators and elected officials about the predatory mortgages that were being made, these warnings fell on deaf ears.

IMG_4294

Predatory loan advertising

In the summer of 2013, CRC and our allies urged the US Senate to confirm Richard Cordray as director of the CFPB and we were happy to see that he confirmed on July 16, 2013.

CFPB confirm!

CRC and our allies delivering over 25,000 petitions from Californians, urging the US Senate to confirm Richard Cordray.

Since then, Cordray and his CFPB colleagues have been busy!

In an April snapshot about California and complaints submitted by Californians, the CFPB reported:

1) As of April 1, 2016, Californians had submitted 118,900 of the total 859,900 complaints the CFPB had received at that point, or about 14%.

2) Complaints from Los Angeles and San Francisco accounted for nearly 50% of these complaints.  (CRC won’t claim credit for all of the San Francisco complaints, but we receive a fair amount of phone calls from harmed consumers and we frequently suggest making a complaint to the CFPB if it is accepting complaints for that particular product.  Not only does this hopefully lead to redress for the affected consumer, but it also helps the CFPB to see if there are concerning trends- for example if a lot of consumers are complaining about a particular company or product).

3) Speaking of “lots of complaints about a particular product,” mortgages were #1 most complained about product in the April snapshot, accounting for 32% of complaints.  In fact, complaints from California were more likely to be about mortgages as compared to the number of complaints made about mortgages at the national level (about 26%).

4) Debt collection was also frequently complained about, representing 24% of all California complaints, as compared to 26% nationally.

5) Most complained about companies: The CFPB received the most complaints from California consumers about Bank of America, Wells Fargo and Experian.

We’re including five examples of how the CFPB has stood up for consumers below:

1) Stopping Illegal Harassment of Payday Loan Borrowers: The CFPB has stopped companies from engaging in illegal and predatory behavior- like Ace Cash Express illegally harassing their customers into rolling over their payday loans. In announcing the settlement, Director Cordray explained: “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”   Take a look at this graphic from the CFPB’s settlement with Ace Cash Express.  It’s from their new employee training manual and provides a clear diagram on how Ace tried to keep its borrowers caught in the payday loan debt trap:

ACE Cash Express

2) Targeting Enablers Too: The CFPB doesn’t just target bad actors, it also targets companies that enable bad actors- like this California based lead generator (D and D Marketing, doing business as T3Leads (T3)) that sold consumer loan applications as “leads” to small-dollar lenders. The CFPB explained that “T3 failed to vet or monitor its lead generators and lead purchasers, exposing consumers to the risk of having their information purchased by actors who would use it for illegal purposes. T3 allowed its lead generators to attract consumers with misleading statements and took unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of the loan products for which they apply. T3’s conduct was unfair and abusive….”

To understand why online lead generators can be so bad for customers, take a look at this NPR Story: I applied for an online payday loan: here’s what happened next.

3) Loan Modification Scam Artists: In some ways, California was ground zero for the mortgage meltdown, especially since many of the most predatory lenders (like Countrywide) were headquartered in Southern California.  Since the mortgage meltdown, more bottom-feeding vultures have emerged, preying on desperate homeowners with promises of costly loan modifications that never materialize.  In July 2014, the CFPB, FTC, and state regulators announced a sweep against these scam artists.  The Bureau filed three lawsuits against these companies and individuals who had collected more than $25 million in illegal fees for services that were never delivered.  California was also “well-represented,” with a number of these scam artists located in our state. The CDPB’s complaint alleged that one of these firms,  Clausen, Cobb, and CCMC “managed, staffed, and supported the deceptive loan modification operations of Stephen Siringoringo’s southern California law firm. The State Bar of California initially referred the misconduct to the CFPB.”

4) Predatory Mortgage Loan Servicing: The CFPB hasn’t only gone after scam artists- it’s also worked to stop companies who are cutting corners and hurting their customers in the process.  One such company is Ocwen, a mortgage loan servicer.  In 2013, the CFPB announced a $2 billion settlement against Ocwen for “systemic misconduct at every stage of the mortgage servicing process.”  The settlement also covered homeowners with loans from Litton (a servicer formerly owned by Goldman Sachs who had also received low marks for the way it treated its customers) and Homeward Residential Holdings LLC (formerly American Home Mortgage Servicing Inc.).

5) Protecting Mortgage Customers: During the “Wild West” days of mortgage lending leading which later caused the mortgage meltdown, lenders routinely rewarded their staff members for putting customers into more expensive mortgages.  Surprisingly, this practice was allegedly still in place at RPM Mortgage, according to a 2015, $19 million settlement with the CFPB.

If you’d like to learn more about the CFPB, check out these resources:

Consumers Count: Five years standing up for you

CRC Hosts CFPB Mission District Tour on Small Business Displacement

Cover Picture

Liana Molina discusses displacement of local small businesses at the corner of 16th and Valencia in the Mission District, San Francisco

Yesterday, CRC hosted a visit and tour by the Consumer Financial Protection Bureau (CFPB) in the Mission District in San Francisco.  CFPB Director Richard Cordray and Assistant Director Grady Hedgespeth met with local small business owners and leaders from CRC member organizations including MEDA, Opportunity Fund, and Renaissance Entrepreneurship Center who support small businesses with capital and technical assistance.

Displacement in the Mission

In the past few years, growth in the tech sector has created enormous pressure not just on housing rents in the Bay Area, but on commercial rents as well.

The displacement of neighborhood serving small businesses in the Mission is especially troubling, given the critical role they play in supporting, serving and employing longtime residents of the Mission.  Small business owners have also complained about difficulty they face in obtaining bank loans, and research by CRC confirms that small business lending by the five largest banks has dropped dramatically since the recession.

Under the Dodd-Frank financial reform, the CFPB is charged with collecting data about small business lending.  In February this year, the CFPB announced that writing these rules is considered a near term priority goal. Similar to the Home Mortgage Disclosure Act, these new rules are expected to increase transparency (and accountability) about who is getting small business loans- and who isn’t.

Small business owners share their experiences and challenges

Director Cordray and Assistant Director Hedgespeth met with several of these small business owners during the CFPB’s visit.  The first stop on the tour was Venga Empanadas, where co-owner Pablo Romano shared his experience in obtaining financing to open his restaurant.  Denied financing by a bank, Mr. Romano connected with Opportunity Fund, a Community Development Financial Institution (CDFI) who provided him with a $45,000 loan, enabling him to sustain and grow his business which now has eight employees.

D'Maize

Luisa Estrada, owner of D’Maize Restaurant and Catering speaks with Director Cordray.

Next, Zenaida Merlin and Luis Estrada, owners of D’Maize Restaurant and Catering, shared how a small business loan of $80,000 from Mission Economic Development Agency’s (MEDA) new CDFI Adelante loan fund meant that D’Maize was recently able to expand their business to a full-service restaurant.  They now employ 22 people from the local community.

Elsa Valdez, the owner of El Salvador Restaurant, explained how she benefitted from working with MEDA, who helped her to get a loan from KIVA to help pay for improvements to her restaurant, which has been family owned for over 20 years.  Ms. Valdez wants to continue improvements to the restaurant and growing her business.

Paula

Paula Tejada, owner of Chile Lindo Delicatessen and Coffee Shop

Paula Tejada, known as “The Girl from Empanada” is the owner of Chile Lindo Delicatessen and Coffee Shop, a business she first purchased in 1995.  Working with Renaissance Entrepreneur Center, she received technical assistance on running her business, including their 14 week business planning class focused on marketing, management, operations and finance.

Lunch at San Jalisco

The tour concluded with lunch at San Jalisco, owned by Dolores “Josie” Padilla-Reyes.  She took over the restaurant from her parents in the 1970s, but after rent was increased threefold, she had to close the café and reopen the eatery in its current location.  Concerned about being displaced again, she worked with the Mission Economic Development Agency (MEDA) to secure a loan to purchase her building, preventing further displacement.

Len Rogers, the owner of the Electric Bicycle Superstore, also joined the lunch.  He launched his small business in 2008 and it has grown steadily since then.  Len was denied by multiple banks for credit, making him a perfect target for expensive merchant cash advance companies. After struggling with unsustainable payments required by multiple predatory finance companies, he connected with Opportunity Fund, who refinanced him into an affordable, responsible small business loan.  Len was also a client of Renaissance Entrepreneurship Center, who helped him get a KIVA loan and provided consulting services through their Bayview Office.

cake2

The lunch concluded with a “Happy Birthday” cake presented to the CFPB staff, since yesterday was the Bureau’s fifth birthday. In that short time, the agency has secured over $11 billion in relief for over 27 million consumers and handled nearly 1 million complaints.

This slideshow requires JavaScript.

 

California Reinvestment Coalition comments on CITNA Bank Community Reinvestment

Editor’s note: Earlier this month, CRC submitted the following letter as part of CITNA Bank’s Community Reinvestment Act exam.  For more information on CRC’s concerns with OneWest’s and CIT Bank’s reinvestment histories, visit www.badbankmerger.com.

November 16, 2015

Assistant Deputy Comptroller Robert Phelps
Office of the Comptroller of the Currency
Chicago Midsize Office
1 South Wacker Drive Suite 2000
Chicago, IL 60606

Cindy Tran
CRA Officer
CITBNA, N.A.
888 East Walnut Street
Pasadena, CA 91101

Re:       CRC comments regarding CITBNA CRA and Fair Lending Examination

Dear Mr. Phelps and Ms. Tran,

The California Reinvestment Coalition submits these comments on CIT Bank’s (CITBNA) CRA performance in California. We request that these comments be considered as part of the OCC’s current CRA and fair lending examination of CITBNA. We further request that these comments be placed in CITBNA’s Public CRA File.

The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of nonprofit organizations and public agencies across the state of California. We work with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color through access to financial institutions. CRC promotes increased access to credit for affordable housing and economic development for these communities.

On the heels of a contentious bank merger process that revealed multiple CRA and fair lending concerns raised by a large number of organizations and individuals, we urge the OCC to:

Consider the Extensive Record from the Merger Process

We opposed the Bank’s recent merger in what was one of the most protested bank mergers in recent history. Over 21,000 individuals and over 100 organizations registered concerns. The OCC and the Federal Reserve held a rare public hearing at which a large number of organizations and consumers testified to certain CRA weaknesses and consumer protection failures of the Bank, while also raising a number of fair housing and fair lending concerns.

There were a number of compelling stories of abuse recounted by OneWest and Financial Freedom customers and their families, and a number of compelling stories offered by community development practitioners in the Bank’s assessment area, documenting and lamenting the Bank’s poor CRA performance. We understand that all of relevant information, testimony, comment letters and other evidence presented during the merger process will be considered as part of this exam.

CRC hereby resubmits our eighth comment letter on the merger, attached, which calls for a fair lending investigation into evidence of disparities in the Bank’s foreclosure, lending, branch, REO property maintenance, and reverse mortgage servicing practices. Prior letters raised numerous concerns about the Bank’s poor reinvestment record, its weak reinvestment commitments, and its problematic compliance with consumer protection laws and regulations. We appreciate that the OCC will consider all of these comments, and those of all commenters, during this examination process.

In fact, the OCC conditional approval order suggested that a number of issues raised during the merger were better addressed during the CRA and fair lending examinations of the Bank. In discussing concerns about OneWest Bank’s foreclosure and REO property maintenance practices, the OCC notes it will “continue to assess potential discrimination as part of its supervisory process.”[1] Pursuant to 12 CFR 25.28(c), the results of the OCC’s evaluation of a bank’s CRA performance may be adversely affected by evidence of discriminatory or other illegal credit practices. In that regard, we note the most recently published CRA Evaluation of Bank of America which resulted in a lower CRA Rating for Bank of America in light of fair lending and credit practices concerns and settlements.[2]

Scrutinize and Investigate Questionable Letters of “Support”

While we certainly agree that the OCC should consider all public comments submitted during the merger process, including those of bank supporters and positive comments about the Bank’s performance, we urge the OCC to scrutinize those emails resulting from the Bank’s solicitation of support letters for the merger via its website, which resulted in several form letters being submitted. The OCC on the 2nd page of its merger approval order notes, “Approximately 1,700 of the letters resulted from an email campaign initiated by CITG and OWB seeking support for the merger.”[3]

Yet, as CRC has noted previously, we have come to understand that a number of these alleged “supporters” may not have supported the merger at all, and we are very much concerned about the prospect that the public comment process was manipulated and that certain “letters of support” were fraudulent.

Early on, CRC did notice certain irregularities in the email addresses expressing support for the Bank. Then CRC received a disturbing email on September 21, 2015. An individual, apparently under the misunderstanding that CRC supported this merger, expressed dismay that a letter of support for the OneWest CIT Bank merger was sent to the regulators in his name. He decried the “bogus email” support letter, and noted it “is not mine and I did not authorize or send this email, and I did not authorize for you to use my name and address to be used for any support of One West and CIT Merger, I have no affiliation or whatsoever to this companies and would like you to stop using my name, address or email address…”

Most troubling, the individual indicates that somebody created a yahoo email address using his full name, without his knowledge. It appears that this same email was also sent to the OCC and the Federal Reserve Board. It is unclear what steps if any the OCC and the Federal Reserve plan to take in response to this email.

This email is shocking and suggests that one or more people may have manipulated the public comment process and committed a fraud on the federal regulatory agencies which rely on public input to inform their deliberations.  In follow up “spot checks” of about 150 email addresses attributed to the petition organized by OneWest’s CEO, at least 25 of the email addresses appear to be non-existent.

In an attachment of 593 petitions in support of OneWest’s call to not hold a public hearing, posted on the Federal Reserve’s website, 100% of the petition signers had Yahoo email accounts- an oddity that adds to our concerns (Yahoo has, approximately, a 3% market share for email accounts).  We further understand that when an email was sent to these individual email addresses, 30%, or 180 of the 593 emails, bounced back, and for the handful of people who replied to the email, some may have indicated that they actually had not supported the merger as their “petitions” purportedly suggested.

Moreover, if the “time stamps” on the emails are accurate, there was an extremely large number of people who cared enough about this merger to sign onto their computers in the middle of the night- with a large number of emails being sent to the Federal Reserve and OCC around 2am on the night of February 13, 2015.

It occurs to us that it is only happenstance that the individual noted above discovered that his name was used improperly and fraudulently, and that it is not to be expected that this information would have ever found its way to us or to the regulators. In other words, if other people had their names used without their authorization, and if unauthorized Yahoo email accounts were created on their behalf, this fraud may have gone undetected. There is no reasonable explanation for all of these oddities occurring relating to “support” letters sent via the Bank’s website.

We accuse no specific person or organization of wrongdoing. But at the same time we are greatly disturbed at the possibility that the OCC and the Federal Reserve community input process may have been compromised. The CRA is a law that allows for and encourages community participation and in so doing, allows for a community perspective to be considered by regulators as they determine how best to supervise, regulate and oversee financial institutions.

We urge the OCC and the Federal Reserve to investigate this matter further, and we would hope that CITBNA would likewise be interested in helping regulators get to the bottom of this. How many letters of support were submitted to the regulators without the knowledge of the purported author? Who is responsible? And what are the regulators going to do about it in order to send the message that manipulating a public process is a serious offense, and to ensure this does not happen again?

Do the Federal Reserve and OCC public comment email systems (and OWB website) have safeguards to “catch” such oddities?  A similar issue occurred in the recent “net neutrality” debate, and the system used to process Congress’ email was able to catch fraudulent emails.

Consider New CRA Performance Data for CITBNA Which Shows Continuing Problems

New data made public and analyzed after the conditional merger approval order further demonstrate that CITBNA (CIT and OWB) has not been meeting community credit needs.

Philanthropy. As one example, according to the OCC’s conditional approval order, the level of OWB CRA qualifying contributions in its assessment areas since its last Performance Evaluation appears to have gone done for each of the last 4 years:

  • $1,675,500 in 2012;
  • $1,127,900 in 2013;
  • $1,054,000 in 2014; and
  • $302,000 as of May 2015.[4]

CITBNA apparently commits to increase the size of annual contributions to $5 million per year, which is positive. Yet, given the Bank’s presence and size in California and data received from 17 California banks, we estimate that 12 or 13 other banks devote a higher percentage of their deposits for CRA purposes than will CITBNA under its new CRA commitment. Again, CITBNA lags its peers.

CRC urges all banks to devote at least .025% of California deposits towards philanthropy in California, and that 50% of all contributions should support critical housing and economic development activities. OWB’s past performance and CITBNA’s most recent commitments do not suggest it will meet these benchmarks.

Affordable Housing. CITBNA has identified affordable housing as a priority need in its assessment area. Yet the Bank notes that “mortgage lending will not be the primary focus of CITBNA,” that Low Income Housing Tax Credits “will not be appropriate investments for CITBNA,” and that “multifamily lending historically has not been a key part of its loan origination strategy.”[5] Which leads one to wonder how CITBNA plans to address the critical community need it has identified. The Bank noted that it originated $89 million in CRA-qualifying multifamily loans in LMI census tracts since its inception, but it does not specify whether these loans would qualify as Community Development loans for CRA purposes, and whether these loans financed the development or preservation of deed restricted affordable housing (see below for a further illustration of how multifamily lending does not allows help, and can actually harm, low income communities).[6] We trust this information will be forthcoming in the bank’s CRA exam results.

Community Development. We urge the OCC to continue to scrutinize activities for which the Bank seeks community development credit. We note again that one of the Bank’s Responses to an Additional Information Request during the merger process revealed that OneWest overstated its community development loan activity by a whopping $75 million in an October 30, 2014 letter and had to revise and reduce its projections based on feedback from its regulator. The record should be clear as to what kinds of lending OneWest improperly sought to classify as community development lending, and more information should be provided on what kinds of loans OneWest still counts as “community development lending.”

Relatedly, CRC recently became aware that certain other banks (not necessarily OWB or CITBNA) were seeking CRA community development credit for loans made to investors to purchase small, Rent Controlled buildings in LMI tracts, without the regulator (or perhaps the lenders) knowing that the investor purchasers plans were to evict all of the tenants (mostly seniors, low income, long term, and often, of color) and to convert the low cost rental housing into expensive homeownership Tenancies in Common. Regulators must scrutinize purported community development lending and investments to ensure that these activities actually benefit communities.

Additionally, the Bank in its Draft CIT Bank, NA Community Benefits Plan sets an investment goal that is opaque, in that it targets investments to 8% of Tier 1 Deployed Capital. CRC urges all institutions to devote at least .25% of California deposits for community development investments each year. Additionally, CITBNA should not rely on Mortgage Backed Securities to meet its community development investment targets, as MBS are generally not impactful or value added for community development activities.

Home Lending. In 2014, OneWest appears to have originated only 102 first lien, home purchase or refinance loans in California. Of these 102 loans:

  • Only 1 was originated to an African American borrower
  • Only 6 were originated to Asian borrowers
  • Only 7 were originated to Latino borrowers
  • Only 14 loans were originated to LMI borrowers, compared to 77 to upper income borrowers
  • Only 38 loans were originated in neighborhoods of color, which is not impressive for a bank with an assessment area focused around Los Angeles
  • Only 6 loans were originated in LMI neighborhoods.

These home lending numbers are very low in terms of overall home lending originated to California homeowners and homebuyers, and also well below the proportional lending by the industry as a whole in California. For all HMDA reporters in 2014 in California, lending to:

  • African American borrowers comprised 2.8% of all loans, compared to 1% for OWB
  • Asian borrowers comprised 13.5%, compared to 6% for OWB
  • Latino borrowers comprised 16.8%, compared to 7% for OWB
  • Neighborhoods of color comprised 47%, compared to 38% for OWB
  • LMI neighborhoods comprised 16%, compared to 6% for OWB.

The Bank only approximated the industry benchmark for lending to LMI borrowers, at 14% of all loans. Yet the industry as a whole doubled CITBNA’s proportional lending to African American, Asian American, and Latino borrowers, as well as to Low and Moderate Income neighborhoods, raising both fair lending and CRA concerns.

Small Business Lending. For small business lending, OneWest appears to have originated only 70 CRA reportable loans in 2014 in California, down from 88 loans in 2013:

  • Only 1 of these loans was in an amount less than $100,000
  • Only 10 of these loans were in amounts of $100,000 to $250,000
  • Fully 59 of these loans were in amounts over $250,000
  • Only 26 loans, or 37% of “small business” loans, were made to smaller businesses with less than $1 million in revenue.

For CIT small business lending in 2014, the Bank originated 448 small business loans in California, offering loans in lower loan sizes (this is positive), but not to smaller businesses (this is not positive):

  • 291 of these loans were in amounts less than $100,000
  • 126 loans were in amounts between $100,000 and $250,000
  • 31 loans were in amounts over $250,000
  • Yet zero of these “small business” loans were to small businesses with under $1 million in gross revenue.

Of 518 CRA reportable small business loans in 2014 from OWB and CIT, only 26 loans, or a paltry 5%, were to smaller businesses, those with less than $1 million in revenue. CRC urges all institutions to strive for fully 50% of all small business lending to be for businesses with under $1 million in revenue.

Branches and deposits. According to publicly available branch and deposit data analyzed via the CRA Wiz program for 2014:

  • Of 74 CITBNA California branches, only 8, or 10.8% of branches were in LMI neighborhoods. This is even less than the low percentages discussed during the merger. Perhaps this reflects a lag in data reporting, and the actual proportion of branches in LMI neighborhoods is slightly higher. Regardless, the industry in California has roughly twice the proportion of branches in LMI communities than does CITBNA.
  • Of 74 CITBNA California branches, only 31, or 42% of branches are in neighborhoods of color, even though 57% of deposits derive from neighborhoods of color.

Taken together, the data do not reflect the performance of a Bank that is helping to meet community credit needs: almost no home lending to LMI borrowers and neighborhoods, miniscule small business lending to smaller businesses, no multifamily loan products, plans to reduce investments in Low Income Housing Tax Credits which help finance affordable housing development, decreasing philanthropy through May of 2015, low branch presence in LMI communities (even compared to peers), but continuing foreclosures and fair lending concerns.

Consider the Large Number of Consumer Complaints That Have Been Filed Against CITBNA

One important measure of how well a Bank is meeting community credit needs can be found in consumer complaint data. The CFPB Consumer Complaint Database represents a primary, accessible, uniform way in which consumers can express their concerns about bank performance.

A review of the CFPB database reveals that nearly 1,400 complaints have been filed by consumers with the CFPB against CITBNA (CIT and OWB) since December 2011. Most of these complaints (90%, or 1,270 complaints) are related to CITBNA’s “Mortgage” products; of which 209 are related to “reverse mortgages.”  It appears that over 50 reverse mortgage complaints have been filed with the CFPB against OWB and CITBNA in 2015, since the CFPB’s initial data reporting of complaints through 2014.

CRC has filed a lawsuit challenging HUD’s denial of our Freedom of Information Act (FOIA) fee waiver request in which we are seeking additional information about the number of complaints filed with HUD against OneWest relating to its reverse mortgage servicing performance, and we will be happy to share this data if we prevail in obtaining this information.

During the merger process, the FRB, via an Additional Information Request, sought data from the Bank about complaints it had received directly from consumers. The Bank reported receiving directly an astonishing 812 complaints, even though the Bank chose to report on complaints received only AFTER it sold most of its servicing rights. The OCC should determine the number of complaints received directly by the Bank during the time frame covered by this exam, and make that information part of the record and its deliberations as to whether the Bank has been meeting community credit needs.

The large number of complaints filed with the CFPB, as well as the number of complaints filed with the OCC and CITBNA directly, should be reflected in the Bank’s CRA Performance Evaluation. As we have urged with PEs of other banks, the OCC should confirm in CITBNA’s Performance Evaluation the number, nature and disposition of OCC complaints.

Further, the OCC, through this examination process and its other supervisory powers, must ensure that CITBNA and its affiliates are complying with fair housing, fair lending, and consumer protection laws, including the California Homeowner Bill of Rights and HUD HECM regulations such as Mortgagee Letter 2015-15 regarding Non Borrowing Spouses.

Consider the Harm Imposed on Communities by CITBNA

Past foreclosures. During the merger process, CRC and many other commenters pointed to the harm imposed by OWB on California communities as a result of 36,000 foreclosures, including 2,000 on reverse mortgage seniors, widows and their families.

Future foreclosures. And yet we know that CITBNA will be foreclosing on numerous additional families. A Freedom of Information Act request to the FDIC by CRC yielded the astonishing confirmation that the FDIC has paid over $1 billion to OWB under the loss share agreement to reimburse OWB for the costs of foreclosure, consistent with the agreement. But we also learned that the FDIC estimates another $1.4 billion in additional loss share payments will yet be made to CITBNA, presumably to reimburse the Bank for the costs of more than 36,000 additional foreclosures in California and untold numbers nationally.

Failure to repay $2.3 Billion in TARP. Additionally, we note once again the harm caused to U.S. Taxpayers by CIT Group in taking $2.3 billion in TARP funds, before declaring bankruptcy and wiping out its obligation to repay this money.

Reducing federal tax liability. Adding insult to injury, comments by CIT Group executives to investors suggest that the Bank intends to use its Net Operating Losses from the bankruptcy to offset expected profits from the recent merger in order to significantly reduce its federal tax obligations in ensuing years.

Reverse mortgage concerns and Non Borrowing Spouses. And of course, we reiterate concerns about potential servicing violations suffered by reverse mortgage borrowers, Non Borrowing Spouses (widows and widowers), and their families, as testified to and commented on as part of the merger process. We urge the OCC (and HUD) to closely monitor the Bank’s implementation of, and compliance with, HUD Mortgagee Letter 2015-15.

Evading HBOR accountability. We again call on the OCC to clarify that CITBNA should not invoke preemption as a way to evade accountability for alleged violations of California’s Homeowner Bill of Rights which is meant to protect residents of the Bank’s CRA assessment area from unlawful and unnecessary foreclosures. Avoiding responsibility and accountability in this way harms LMI communities and borrowers and leads to lost assets.

Confirm That the Bank Needs to Develop a Stronger CRA Plan

The Bank submitted a DRAFT CRA Plan in advance of the February 26 merger hearing. Indications from the Bank’s Community Needs Survey and the Community Day event held on October 6, 2015, suggest the Bank is NOT increasing its overall commitment of $5 billion in CRA activity over 4 years.

Under the conditional approval order, the Bank was supposed to have submitted its revised CRA Plan to the OCC on October 19, 2015. This plan has not been made public, though at the Community Day event the Bank indicated it would share with the public the revised CRA Plan, as well as that day’s power point presentation, if advised to do so by its newly formed Community Advisory Board. Presumably, either the Bank did not seek input from the CAB, the Bank did not heed the counsel of the CAB, or the CAB did not urge the Bank to be transparent with its CRA Plan.

If it is true that the Bank’s revised Plan is substantially the same as its draft Plan in terms of overall commitment, the Bank’s CRA Plan will be roughly ¼ the size of the CRA commitment of a much smaller (and younger) Banc of California, and roughly ½ the size of the CRA commitment of CITBNA’s peer, City National Bank, which despite having fewer deposits in California, committed to $11 billion in CRA activity over 5 years.

In any event, CITBNA’s performance in 2014 and going forward would leave it amongst the worst performing CRA banks in California, based on data received and analyzed by CRC. CRC and its members utilize a set of benchmarks to determine how well a bank is meeting community credit needs. Banks can demonstrate their performance in two ways: by 1) entering into a Community Benefits and Reinvestment Plan that specifies in a clear and transparent manner the bank’s CRA goals over a multi-year period; and 2) providing clear data on the bank’s CRA performance.

Of seventeen (17) California banks which 2014 data, information and reinvestment commitments we reviewed and analyzed, CITBNA would rank BELOW 12 of these institutions in terms of annual percentage of deposits committed to CRA purposes, using estimates from CITBNA’s draft CRA commitment. Of the 5 banks which currently appear to devote less of their proportional deposits for community reinvestment on an annual basis, 3 have not yet provided all of their data and could very well leapfrog CITBNA, moving CITBNA further down the list of reinvestment banks in California.

And this analysis considers 2014 actual performance by the other banks compared to future commitments by CITBNA. So, the few banks who did less in 2014 than CITBNA proposes to do in 2016, may yet exceed CITBNA’s actual CRA performance in 2016 and beyond. CITBNA did not provide data to CRC this year (for 2014 performance) or last year (for 2013 performance).

Conclusion

CITBNA’s overall performance in California Needs to Improve, and that is the CRA rating the Bank deserves. Given the size and reach of CITBNA, and the harm it has caused to communities via thousands of foreclosures and weak reinvestment, CITBNA has not met community credit needs. CITBNA now has an opportunity to turn the page, enhance its CRA Plan and be a constructive force for positive neighborhood revitalization and wealth accumulation for Southern California’s LMI communities and communities of color. But it should not be rewarded for poorly serving and failing to adequately commit to these communities. The Banks’ CRA Rating should reflect poor CRA performance, as well as any fair lending or fair housing violations established.

Thank you for the opportunity to comment. If you have any questions, you can reach me at (415) 864-3980.

Very Truly Yours,

Kevin Stein

Associate Director

Encl:    CRC’s 8th Comment Letter in Opposition to CIT/OWB merger

Cc:       Thomas J. Curry, Comptroller, OCC

Janet Yellen, Chair, Federal Reserve Board of Governors

Richard Cordray, Director, CFPB

Patrice Ficklin, CFPB

Barry Wides, Deputy Comptroller, OCC

Beth Castro, OCC Community Affairs

[1] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, p. 36, footnote 1, p. 37, footnote 73.

[2] Office of the Comptroller of the Currency, PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Bank of America, N.A., Charter Number:  13044, 100 North Tryon Street, Charlotte, NC 28202m December 31, 2011, available at: http://www.occ.gov/static/cra/craeval/oct14/13044.pdf (see page 14, Fair Lending or Other Illegal Credit Practices Review).

[3] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, p. 2.

[4] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, pp. 12, 13.

[5] Stephen A. Lybarger, OCC Conditional Approval, Letter to Joseph M. Otting Re: Application to Merge CIT Bank, Salt Lake City, UT with and into OneWest Bank, N.A., Pasadena, CA and Request for Waiver of Residency Requirement; OCC Control Numbers: 2014-WE-Combination-139872 and 2015-WE-DirectorWaiver-141909, July 21, 2015, pp. 20, 17, 21.

[6] Id. at 22.