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.

Testimony on Need for CIT Group and OneWest Bank to Develop Stronger CRA Plan

The testimony of Stephon Taylor, Director of Programs with California Resources and Training (CARAT), about the proposed OneWest and CIT Group merger, is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page help.  It outlines why 21,000 people are opposing this merger along with 100 California and national organizations. Pictures of the rally against the merger are available here.

February 26, 2015

Thank you for the opportunity to speak today.  I will keep my comments brief.

I am Stephon Taylor, Director of Programs with California Resources and Training (CARAT), a 19 year old economic development non-profit in California.  CARAT’s primary focus over the last 19 years has been research and development, and program design and implementation as it relates to Technical Assistance (TA) services for small businesses in underserved communities in California. CARAT provides technology solutions training to over 3,000 small businesses. The majority of the small businesses that we serve have less than $1 million in annual revenues and fewer than 10 employees.

California has a vast underserved population of small businesses needing access to capital as well as management and technical assistance (TA) support services to assist them in starting and sustaining their business operations.  They need affordable capital and appropriate financing vehicles.

The economic downturn in the country hit California as well and many of the existing businesses are still in need of restructuring and stabilization assistance. Additionally many people out of work turned to self employment as an option and need (TA) assistance to grow and expand their businesses.

My concerns around the proposed merger OneWest/CIT merger are as follows:

  1. Lack of banking access in LMI communities. Only two of the banks’ 73 branches are in low income census tracts, and one of those branches is slated to close post-merger. Our work with our small business constituency has shown that physical branch locations are a necessity. Mobile banking, while a great supplemental tool, is not a substitution for physical branches.
  2. The banks’ track record of performance related to community development. In the past, both OneWest and CIT have made minimal contributions to support technical assistance and economic development. Without a definitive and robust CRA plan to address those areas, I don’t see how the merger meets the “conveniences and needs” of the affected communities.
  3. The banks’ track record of performance related to small business lending. The majority of OneWest’s small business lending has been to businesses with over $1M in revenue, and they have not committed to serving smaller businesses. Their publicly stated goals to increase their lending to businesses with revenue under $1M have also fallen short of the mark.

In conclusion, my concern is that OneWest/CIT needs to bring products and services into California that fit the market needs of our small business owners, which aren’t adequately served by their current product mix.  My second concern is that there is a miniscule commitment, if any, to supporting, in a philanthropic way, economic development and business TA services that are needed.

California is always in need of more great corporate citizens. CARAT would welcome the opportunity to work with OneWest/CIT to meet the needs of the underserved small businesses within the state.

However, there is an immediate need for OneWest/CIT to develop a more robust, comprehensive and public CRA plan that details the commitments they will make to their California constituency.

I would urge that a philanthropic and community benefit commitment is made by OneWest/CIT to California that truly supports the needs of California Small Businesses.

Why Are Advocates Opposing the OneWest and CIT Group Merger?

Editor’s note: When the Federal Reserve and Office of the Comptroller of the Currency announced they were holding a public hearing on the proposed merger of OneWest Bank and CIT Group, the regulators also extended the comment period on this merger.  CRC’s fifth letter, outlining why CRC continues to oppose this merger, is included below.  For earlier letters, visit our Merger Resource page.  To see pictures from a rally held during the hearing, click here.

February 24, 2015

Re: CRC’s 5th comment letter: Continuing opposition to CIT Group application to acquire IMB and OneWest Bank and to merge OneWest and CIT Bank

 Dear Chairs Yellen and Gruenberg, Directors Watt and Cordray, Comptroller Curry, and Secretary Castro,

The California Reinvestment Coalition writes this fifth comment letter expressing our continuing opposition to the proposed acquisition of IMB and OneWest Bank (OWB) by CIT Group. OneWest has not met, and will not meet, community credit needs, and the Applicants have not established that this merger will provide a public benefit.

This letter is written to provide additional information for the public record, to inform the deliberations of the FRB and OCC, and to raise continuing concerns about the negative impacts of OneWest Bank on California communities.

The California Reinvestment Coalition (CRC), based in San Francisco, is a non-profit membership organization of community based non-profit 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 equitable and low cost financial services. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.

Continuing unanswered questions: HUD FOIA Request

As noted previously, there are still many unanswered questions regarding this merger and these institutions. CRC still awaits a substantive response to our FOIA request to HUD to gather information about HUD’s oversight and policies relating to reverse mortgages, and the servicing practices of Financial Freedom in particular.

Specifically, we have sought basic information about the number, nature and resolution of complaints filed by consumers with HUD against Financial Freedom. We have also sought data on the number of foreclosures processed by Financial Freedom since OneWest took over ownership, including the number of such foreclosures processed against non-borrower surviving spouses, as well as the number of loans being serviced by Financial Freedom where a younger spouse was not listed on the loan and is therefore at risk of foreclosure.

If the FDIC, OCC, or Federal Reserve consumer complaint departments would like to share data on complaints they’ve received (as consumers aren’t always aware which regulator to turn to), then we would welcome that transparency.  We note that in the cases of Michelle Ayers and her sister Mary Dambacher, from North Fort Meyers, Florida- (surviving family members who encountered a host of servicing issues with Financial Freedom), they report being sent on a wild goose chase- not just by Financial Freedom, but also by the regulatory agencies where they sought help.  They started at HUD, where they were referred to a housing counseling agency, which couldn’t help because the loan was a reverse mortgage, then referred to the Florida Office of Financial Regulation which referred them to the OCC, which then directed them to the CFPB.

This FOIA request seeks information that must be considered by the banking regulators in order to determine whether OneWest bank is meeting the credit needs, and the convenience and needs, of its communities. How can the Federal Reserve and the OCC determine that OneWest is meeting the needs of its communities if it does not know how many foreclosures were processed by OneWest and its affiliates? This information should be part of the public record.

And yet, our FOIA request has been stalled as HUD has chosen to deny our request for a fee waiver on the grounds that CRC has a “commercial interest” in the information. This is difficult for our nonprofit organization to understand and accept. This denial and the delay in releasing the FOIA requested data merely add to the sense that with regard to this merger, there is something to hide, and the regulators, rather than increasing transparency for communities, are making details of this merger more opaque.

Bank supporters and opponents

 CRC wishes to supplement the public record to reflect that OneWest’s CEO has sought support from his Wall Street contacts and business partners in order to tout his message regarding his own management performance and desire not to have public hearings.

A few weeks ago, Bloomberg reported that OneWest CEO Joseph Otting had emailed community groups and Wall Street contacts, urging recipients to support the bank’s application by sending a letter to Fed Chair Janet Yellen.[1]

The draft letter of support found on the OneWest website and presumably drafted under the direction of CEO Joseph Otting reads as follows:

Dear Chair Yellen, President Dudley and Comptroller Curry,

I am writing to offer my support for the pending OneWest and CIT merger. OneWest serves as a strong source of capital and banking services to the Southern California community. This merger will retain and create new jobs in California. I believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large and due to this, I do not believe there is a need for a public hearing.

The draft email indicates that proposed commenters “believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large…”

As Bloomberg reports this email went out to Wall Street contacts, CRC wonders how knowledgeable about community needs these commenters will be, and how much weight the regulators will give these comments.

Further, CRC understands that several of the “supporters” are actual business partners and employees of OneWest. How objectively can these “supporters” speak to the bank’s service to the community, and how much weight will the bank regulators give to these comments?

Similarly, certain community groups are supporting the bank in its application, and have indicated they are developing partnerships with the bank.

In the application by Banc of California to purchase Banco Popular branches, the OCC requested and Banc of California provided a public list of grants to non-profit organizations over the prior two (2) years by month, organization and amount. The regulators should request the same of OneWest Bank – that it identify, by month, the level of support to all organizations receiving grants or investments or contracts, and for what purpose, for the last 2 years. Applicant submitted somewhat similar information in a letter dated October 2014, but the information appears to be incomplete, is broken out only by year and not month, and it is unclear how far into 2014 the data go. OneWest should be required to complete this exercise through February 2015, providing, by month through February 2015, a list of all groups with which it has a funding, investing or contractual relationship since the time it began to promote this proposed merger.

And for the record, CRC notes that approximately 100 organizations from California and from around the country are opposing this merger, as well as over 21,000 individuals and counting, making this, most likely, the most opposed bank merger in history.

CRC thanks the regulators for agreeing to hold one public hearing on this merger, which we believe reflects a recognition of the extent of the opposition to this merger and the many serious issues at play.

Financial Freedom: New complaint data and continuing concerns

CRC review of CFPB consumer complaint data reveals that approximately 150 complaints were filed against OneWest noting concerns with the sub product “reverse mortgage”. This represents roughly 12% of the number of reverse mortgage complaints that CFPB analyzed in its recent study on reverse mortgages.[2] Again, these CFPB complaints are likely completely independent of any complaints field against Financial Freedom with HUD, a more logical place for consumers to complain given HUD’s oversight of HECMs. We look forward to understanding how many complaints against Financial Freedom have been filed with HUD, though given the story cited earlier in this letter, we also suspect that the number of complaints actually filed is lower than the number of people who would like to complain if they had the time, capacity, and knowledge of where to complain, and if they were directed to the correct regulator.

(Further, a recent visit to the CFPB consumer complaint database now reveals a total of 1,226 complaints filed against OneWest, significantly more than we had noted in earlier comment letters.)

OneWest’s Financial Freedom reverse mortgage servicer affiliate continues to be the subject of reports suggesting potential abuses and community harm. On January 8, 2015, Fox 4 in North Fort Meyers, Florida,  reported on the case of Mary Damacher, who chained her sister Michelle Ayers to a pipe in the home that was first purchased by their grandparents, then passed down to her mother, until Financial Freedom foreclosed on them. The sisters attempted to purchase the home, but were reportedly rebuffed in their efforts by Financial Freedom.

“I’ve been preapproved for a mortgage and had all the paperwork taken care of to repurchase the home, and basically Financial Freedom and One West Bank has refused me the right to purchase my home,” Mary said.[3]

This case, and the others cited in prior letters, raise serious questions and concerns about how well Financial Freedom is complying with existing obligations to serve reverse mortgage borrowers, surviving spouses AND, as here, heirs who have certain rights to purchase the home.

Specifically:

  • What is HUD doing to oversee Financial Freedom foreclosures with regard to borrowers, surviving spouses, and heirs?
  • Will OneWest submit any losses from this foreclosure for reimbursement under the loss share agreement? How does the FDIC determine whether loss share reimbursement submissions by OneWest reflect losses suffered only after OneWest did all it could to mitigate them, and certainly only after OneWest followed existing laws and regulations? Is the FDIC aware of any situations or cases where OneWest Bank submitted a claim for costs related to a foreclosure, but then due to legal action or legal settlements, OneWest Bank later returned the reimbursement to the FDIC, or should have reimbursed the FDIC? As an example, consider the story of the San Luis Obispo couple, where OneWest eventually offered to settle for what was reported as a “seven figure sum.”  Had OneWest already requested reimbursement for any losses on this mortgage from the FDIC?  Is the FDIC fully confident it never paid out shared loss reimbursements for faulty foreclosures like this one?
  • How does the OCC, as OneWest’s primary regulator, oversee compliance issues with regard to Financial Freedom, and how do improper foreclosures via OneWest or Financial Freedom, impacting borrowers, surviving spouses, heirs and other family members impact (if at all) the OCC’s determination as to whether OneWest is servicing its communities under the Community Reinvestment Act?
  • How will the OCC and the Fed investigate and consider improper foreclosures by OneWest and Financial Freedom in determining whether this merger, absent any substantial conditions imposed, will provide a public benefit, as required?

An audit of Financial Freedom foreclosures and other non-home retention loss mitigation outcomes is necessary. In the meantime, Financial Freedom should not be allowed to process further foreclosures without going through a “notice and objection” process whereby an independent third party can confirm that proposed foreclosures are proper. A similar structure was created by the Massachusetts Attorney General in enforcing servicing obligations by Fremont Investment and Loan.[4]

Merger Decision Should Await Next FDIC Loss Share Compliance Review:

In a letter to CRC dated February 5, 2015, the FDIC reiterates that it believes it has no authority in the approval process relating to this merger, that estimates of future payments under the Loss Share Agreement are projections and subject to change, and that OneWest “is not out of compliance” with the loss share agreement.[5]

Importantly, the letter also indicates the next compliance review is scheduled to commence in May of 2015, in approximately three months.

We urge the FDIC to conduct an extensive audit of OneWest’s performance under the loss share agreement, and to make the results of this audit public, including providing a description of the extent to which the FDIC is able to verify that all OneWest foreclosures for which OneWest seeks reimbursement under the loss share agreement could not have been avoided through the provision of a loan modification or otherwise and were the result of OneWest and affiliates fully complying with all relevant loss mitigation and foreclosure prevention laws and rules, including importantly, provisions within the California Homeowners Bill of Rights that address dual-tracking, Single Point of Contact, and other servicer practices that push people into foreclosure.

CRC continues to believe that the FDIC audit and compliance review process does not provide sufficient due diligence to ensure that all OWB foreclosures were proper and unavoidable. This is most likely also true for the foreclosure oversight currently provided by the Federal Reserve and OCC for its regulated servicers and trustees.

Further, we strongly urge the Federal Reserve and the OCC to await the results of the FDIC audit before deciding on this Application. With all of the concern that has been raised about OneWest’s foreclosure practices, including testimony that will be presented at the public hearing on February 26, awaiting the FDIC audit (and response from HUD to our FOIA request) is the only prudent course.

        Systemic Risk and lobbying

CRC has maintained that the potential failure of CIT and OneWest poses a systemic risk to the financial system under current standards.

In 2008, another entity expressed concerned about CIT failing, saying, “CIT, … its demise poses a systemic danger because that would jeopardize 760 of its manufacturing customers and cause serious harm to more than 300,000 retailers, according to Bloomberg.”[6]

The entity that held that view in 2008 was none other than CIT Group itself as it sought a rescue from the federal government. This request was turned down and $2.3 billion in TARP funds was not enough to save CIT from declaring bankruptcy and wiping out its obligation to repay TARP. Is CIT truly LESS interconnected now than it was in 2008 when its interconnectedness led to bankruptcy?  If CIT were allowed to merge with OneWest, the resulting institution would be even larger, as would the risks created for communities, and possibly taxpayers as well.

Perhaps that was then and this is now, and CIT is no longer worried about systemic risk.

But according to Center for Responsive Politics, CIT Group spent $4,920,000 over the last two years on lobbying, or more than $6,400 a day. And one of the issues CIT lobbied on most heavily was – systemic risk.[7]

We urge the regulators to tread carefully in deciding whether to approve a new SIFI comprised of two institutions that failed in the recent past, and which rely on significant public subsidy.

Circumvention of CRA: NOT reinvesting where depositors reside

CRC has long argued that depository financial institutions must reinvest where their depositors live and are sending in deposits. The CRA has been circumvented and communities have suffered from a lack of investment by institutions like Capital One, ING, Countrywide Bank, Charles Schwab Bank, H&R Block Bank, etc.

CIT Bank similarly collects deposits from throughout the country, but reinvests primarily in its Salt Lake City assessment area. It would be interesting to know what percentage of CIT Bank’s billions in deposits actually originate from Salt Lake City, and how many communities are sending in more deposits to CIT Bank than are coming from the Bank’s lone assessment area.

The proposed CITBNA’s CRA Plan went from bad to worse when it determined that ALL of its deposits, including internet deposits originating from throughout the country, would be assigned to the Los Angeles MSA.

While this might seem like a good thing for Los Angeles, such circumvention of the CRA has only hurt Los Angeles and our state in the past and will likely do so in the future.

CITBNA must reinvest in its top deposit markets, even if outside of California, and the regulators should make this so. This issue is all the more pressing in that OneWest maintains a poor branch presence in LMI communities (its 15% of branches in LMI neighborhoods is HALF the industry average in California), and promises to move towards mobile banking as a way of serving LMI communities. We do not believe this will be a successful approach, and if all mobile banking deposits are assigned to one assessment area, we do not believe this will be consistent with the CRA. A recent report by the FDIC notes that, “…there is little evidence that the emergence of new electronic channels for delivering banking services has substantially diminished the need for traditional branch offices where banking relationships are built.”[8]

One Los Angeles based leader who runs a community based organization that would stand to benefit from the Bank’s proposal to reinvest mainly in Los Angeles had the following to say about the Bank’s plan to reinvest deposits from other communities into Los Angeles:

“While we’d love the $$$ for southern California, I’m reminded of how Dorothy Richardson and her neighbors in Pittsburgh first staged a series of “sit-ins” at local banks because of the redlining in their neighborhood.  Every neighborhood matters.  Every family matters.  Out of the strength of her convictions, Dorothy succeeded and the Neighborhood Reinvestment Corporation and NeighborWorks Network were formed.  We must stand for what is right on behalf of all of our neighbors to ensure justice for everyone.  Seems fitting during Black History Month.”

Additionally, the Applicant’s proposed CRA Plan notes that it will designate only one CRA assessment area for full scope review. We note that City National Bank and East West Bank, two banks that have been identified as peers of OneWest, have three and two full scope review assessment areas, respectively. A bank as big as the proposed CITBNA should have more than one full scope review assessment area.

       Conclusion

The regulators must properly weigh the comments of supporters and opponents, scrutinize the foreclosure practices of OneWest Bank and Financial Freedom, fully analyze the extent to which this merger threatens financial stability, and require the bank to negotiate and develop a CRA Plan commensurate with its size and national deposit base, before rubber stamping this proposed merger. We believe this transaction represents a threat to financial stability with huge costs and subsidies, and no public benefit.

Thank you for your consideration of these views. Please feel free to contact me at (415) 864-3980 if you wish to discuss this matter further.

Very Truly Yours,

Kevin Stein

Paulina Gonzalez

cc:           Jan Owen, Commissioner, California Department of Business Oversight

Ivan J. Hurwitz, Vice President, FRB NY, comments.applications@ny.frb.org

David Finnegan, Office of the Comptroller of the Currency, WE.Licensing@occ.treas.gov

All COMMENTERS

[1] Matthew Monks and Elizabeth Dexheimer, “OneWest Seeks Wall Street’s Help Lobbying Yellen on CIT,” Bloomberg, January 8, 2015.

[2] The CFPB study reviewed approximately 1200 reverse mortgage complaints that were filed on its website from December 2011 through December 2104. See, Office of Older Americans, “Snapshot of reverse mortgage complaints: December 2011 – December 2014,” Consumer Financial Protection Bureau, February 2014.

[3] Lisa Greenberg, “NFM sisters chained to home to protest reverse mortgage,” Fox4, January 8, 2015, at http://www.jrn.com/fox4now/news/NFM-sisters-chained-to-home-to-protest-reverse-mortgage-287977331.html

[4] Press release, “Attorney General Martha Coakley Reaches $10 Million Settlement with Subprime Lender Fremont Investment and Loan,” June 9, 2009.

[5] FDIC Letter to CRC Re: Application by CIT Group (CIT) to purchase IMB, the parent company of OneWest Bank, National Association (OWB), and to merger CIT Bank into OWB,” February 5, 2015.

[6] Alain Sherter, “CIT Group: Too Small to Save – Or Not,” MONEYWATCH, July 15, 2009.

[7] Open Secretes, “CIT Group,” Center for Responsive Politics, at: http://www.opensecrets.org/orgs/summary.php?id=D000024786

[8] Press release, “Branch Banking Remains Prevalent Despite Growth of Online and Mobile Banking,“ FDIC, February 19, 2015.

LA City Council Member Gil Cedillo Speaks Against Proposed OneWest Bank Merger

Last Thursday, the Federal Reserve and Office of the Comptroller of the Currency held a public hearing about the proposed merger of OneWest Bank with CIT Group.  During a lunch-time rally, LA City leaders, including Council Member Gil Cedillo, spoke about the need for the banks to create a much stronger Community Reinvestment plan, that reflects the bank’s nearly $70 billion in assets.

The current plan offered by OneWest Bank and CIT Group is a fraction of what both its peer banks and even smaller banks have committed to. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

Below is the video of Council Member Cedillo speaking about the merger.

Testimony Against OneWest and CIT Group Merger by Isela Gracian at ELACC

The testimony of Isela Gracian, Vice President of Operations for East LA Community Corporation (ELACC) about the proposed OneWest and CIT Group merger is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

TESTIMONY OF ISELA GRACIAN, VP OF OPERATIONS AT EAST LA COMMUNITY CORPORATION

Good morning and thank you for hosting this hearing. My name is Isela Gracian and I am the Vice President of Operations for East LA Community Corporation (ELACC). ELACC is an economic and social justice organization serving the Eastside of Los Angeles for 20 years. We serve over 5,000 working class Latino families annually through our different programs and services. ELACC provides quality affordable housing to over 2,000 individuals in our affordable housing developments. Through our work we have leveraged over $124 million in investment for affordable housing and community assets to the Eastside of Los Angeles.

For decades the neighborhoods and residents we serve have lacked the needed investment to keep up with housing needs. In February of last year, the California Housing Partnership Corporation released a study highlighting how the housing market is failing to meet the need of low-income families in California.

In the Los Angeles County alone we have a deficit of nearly 400,000 homes for extremely low income renters; these are the most vulnerable residents in our neighborhoods. The families able to secure an affordable housing rental unit go from being rent burden with spending an average of 70% of their monthly income for rent to paying 30% of their income for rent. Affordable housing provides stability to families while enhancing the assets of neighborhoods.

While we believe that the large banks have failed to do their fair share of investment for affordable housing development, at least some have made efforts to improve access to capital and be partners is closing the affordable housing gap for low-income families. In these efforts one player has been absent, that player is OneWest. In their portfolio of products, OneWest does not have a multifamily loan product and CIT already has plans to phase out their Low Income Housing Tax Credit (LIHTC).

OneWest and CIT were saved by US taxpayer subsidies and they have failed to return the investment to the communities they are required to serve.

With so many families on the brink of homelessness because they are severely rent burdened we need every large bank reinvesting in the community.

Therefore, I urge the Federal Reserve to require that CIT and OneWest develop a comprehensive and public CRA plan with commitments proportionate to the size of the new bank and that it is informed by broad community input.

Thank you.

Kevin Stein Testimony at OneWest and CIT Group Proposer Merger Hearing in Los Angeles

The testimony of Kevin Stein, associate director of the California Reinvestment Coalition, about the proposed OneWest and CIT Group merger is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

Kevin Stein Testimony

Thank you to the Federal Reserve and the OCC for holding this hearing and for the opportunity to testify.  My name is Kevin Stein, I work at the California Reinvestment Coalition  (CRC). I have been at CRC for 15 years, and I have seen many mergers, but this is the most problematic and outrageous merger I have seen

The last time we were here for a merger was in 2008 when Bank of America purchased Countrywide. We opposed that merger and argued that Bank of America would be left processing numerous foreclosures and harming families without any meaningful commitment to the community.

The regulators approved that merger with no significant conditions. Nothing changed. Bank of America kept foreclosing on Countrywide loans, and inadequate reinvestment failed to mitigate harms.  Six years from now, people will look back on this hearing and this merger to see if the regulators got it right this time.

Here, there is much private gain, much public subsidy, but no public benefit.

Based on the limited data provided by OneWest, our analysis finds they are towards the bottom of the pack, and below their peers, in meeting community credit needs and reinvesting in neighborhoods.

The Bank’s CRA performance has been poor, and its promises not much better.

As one example, according to the Bank’s own CRA strategic plan, which the bank sought to keep confidential, affordable housing is identified as a critical need.

But what has the Bank done to address this need? It has devoted little of its already small pool of contributions for affordable housing, its home lending record is weak and disparate, it does not offer a multi-family loan product, and it may participate only in a limited way in the Low Income Housing Tax Credits program

With such strong nonprofit capacity in its assessment area, the bank’s performance is shameful, and represents a wasted opportunity to address critical housing needs.  The Bank appears not to have met all of the goals it set for itself in its secret, Strategic Plan. Without a clear, public and strong CRA Plan, how can communities hold the bank accountable, and why would we expect things to be any different this time?

Foreclosures are also deeply concerning.  It would be bad enough if OneWest Bank (OWB) merely did a poor job meeting community credit needs.

But in fact, OWB helped create community credit needs through mass foreclosures that inflicted great harm on families and communities. We estimate that OWB has processed over 35,000 foreclosures in California alone. In addition, the Bank has foreclosed on 2,000 reverse mortgage borrowing seniors, their widows and heirs in our state, and continues to do so, as you will hear more about later today.

In fact, the main way in which OneWest engages with LMI communities is through foreclosure.

OWB has been a “terrible” servicer. In our surveys of housing counselors over the years, OWB was frequently cited as among the worst:

  • In 2010, OWB was the deemed the worst at offering loan mods
  • In 2011, OWB got the most votes for being a “terrible” servicer
  • In 2012, OWB got the 2nd most votes for worst servicer
  • In addition, there are over 1,000 CFPB consumer complaints against OWB, including 150 complaints about its reverse mortgage servicing, about 12% of all reverse mortgage complaints

In his testimony, Joseph Otting talks as if OneWest foreclosures are a passive endeavor, that OneWest fell into a number of loans that are subject to rules he wishes were different. But this exactly what OneWest signed up for. They bought a foreclosure machine, negotiating a sweetheart loss share agreement with the FDIC. And they have profited handsomely from this foreclosure machine

We are urging the regulators that:

  • OneWest’s foreclosure practices need to be reviewed and improved.
  • OneWest should not be allowed to foreclose on borrowers without 3rd party review,
  • OneWest should stop arguing it need not comply with our state’s Homeowner Bill of Rights
  • OneWest and Financial Freedom should cease all foreclosures on surviving spouses until the law on this issue is settled
  • No decision on this merger should be reached until an audit is done on OneWest’s servicing practices. In fact, we know that the FDIC is conducting a loss share audit of OneWest in May. There should be no decision on this merger until after the results of that audit have been made public.
  • Further, the Fed and the OCC should not approve this merger without substantial conditions imposed requiring the bank to first develop a clear, strong Plan to meet the affordable housing and economic development needs of its communities, with clear benchmarks established, and significant resources devoted to achieve that purpose

The Bank has shown its unwillingness to do this on its own. Without this, the merger provides immense private gain, outrageous amounts of public subsidy, greater systemic risk, but no public benefit, and the merger should be denied.

Thank you

Asian Inc Testimony at OneWest and CIT Group Merger Hearing in Los Angeles

The testimony of Michael Chan, president of Asian Inc, about the proposed OneWest and CIT Group merger is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

Federal Reserve Hearing for CIT Group Acquisition of OneWest

Thursday, February 26,2015

Federal Reserve Bank, 950 South Grand Avenue,

Los Angeles, California 90015

Thank you for giving me this opportunity to provide my statement.  My name is Michael Chan and I am the President of ASIAN, Inc., a nonprofit tax exempt corporation that seeks to empower our disadvantaged Asian American Pacific Islander and other racial minority communities by removing obstacles to their socio-economic advancement in California.

Over our last 43 years, we have developed over 1,000 affordable housing units.  We assisted over 15,000 Low to Moderate (LMI) persons with Limited English Proficiencies secure homebuyer education, foreclosure counseling, and financial literacy training in Northern California.  We also operate 3 Minority Business Development Agency Business Centers in San Francisco, San Jose and Fresno, where we have assisted hundreds of minority businesses secure hundreds of millions of dollars in contracts and capital.  We have compiled a significant track record that illustrates our deep understanding of the broad community reinvestment issues that are being discussed here today.

Based on our humble experiences, ASIAN, Inc. is compelled to currently oppose the CIT Bank merger due to what we see are significant flaws and limitations in the CIT Bank CRA Benefits Plan which in our opinion can and should be remedied by CIT Bank.

We understand this this is a unique merger of a retail bank, OneWest Bank, based in Southern California, and an internet bank, CIT Bank, which can accept deposits from anywhere.  This poses some unique CRA challenges, particularly regarding the basic fundamental CRA tenet that deposits collected from a community need to be reasonably reinvested back into that community.

With significant deposits being made over the Internet to CIT Bank in conjunction with deposits received at OneWest Bank branches in Southern California, it is good to know that CIT Bank will recognize Internet deposits in Southern California for reasonable reinvestment in Southern California.  This is a good start.

This also says that CIT can track where Internet deposits are coming from not only in Southern California but anywhere else in and outside of California.  Given that there is a consensus within the community development leadership that where deposits are taken is where those deposits need to be reasonably reinvested.

The proof is on CIT Bank to show that their CRA Benefits Plan can address the reinvestment of deposits received outside of Southern California back into reinvestments that impact disadvantaged LMI communities from where these deposits came from.  The reinvestment needs are just as severe in Fresno, Stockton, Sacramento, Oakland, San Francisco, East Palo Alto, San Jose and other California localities as they are in Southern California.

Otherwise endorsement of the CIT CRA Benefits Plan as-is with its presumed flaws would send the wrongful message that de facto redlining via the Internet cannot be prevented.

This would be a tragic precedent for CRA rankings for internet banks.  Their CRA Plan needs to be revised to address this systemic imbalance between the location of deposits and where community reinvestments are made.  This is where the CRA regulations are maybe a step behind internet banking and need to protect the intent and integrity of the CRA Act.

We all want to avoid redlining as an unintended consequence. This is why it is so very important to require CIT Bank to develop a more transparent, realistic and comprehensive CRA Benefits Plan that will benefit all of California’s disadvantaged, culturally diverse, and Limited English proficient LMI communities that have deposits with CIT Bank.