CALIFORNIA REINVESTMENT COALITION

Size: px

Start display at page:

Download "CALIFORNIA REINVESTMENT COALITION"

Alaina Williams
6 years ago
Views:

CALIFORNIA REINVESTMENT COALITION June 21, 2013 Barry Wides, Deputy Comptroller Office of the Comptroller of the Currency Administrator of National Banks Washington, DC 20219 Barry.Wides@occ.treas.

1 CALIFORNIA REINVESTMENT COALITION June 21, 2013 Barry Wides, Deputy Comptroller Office of the Comptroller of the Currency Administrator of National Banks Washington, DC Re: CRC comment letter on US Bank CRA Exam Dear Deputy Comptroller Wides: Please consider this comment from the California Reinvestment Coalition as your examiners review US Bank for its compliance with the Community Reinvestment Act. The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of over three hundred (300) 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. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities. CRC has urged monitored bank compliance with Community Reinvestment Act (CRA) obligations for over two decades. At the outset, we ask that you note approvingly that US Bank has entered into a strong CRA agreement with CRC on behalf of California communities. We believe bank regulators, through the CRA Performance Evaluation among other supervisory efforts, should view favorably the existence of CRA commitments entered into with community groups. CRC believes this level of commitment demonstrates US Bank s clear intent to meet the credit needs of its California communities. Since the signing of the agreement in 2000, US Bank has fairly consistently met its commitments under the agreement, with the exception of recent years in which the foreclosure and mortgage crises have prevented US Bank from meeting its overall reinvestment and mortgage lending commitments to California. CRC looks forward to US Bank retaining its high standards of meeting its CRA goals in our state. We have serious concerns, however about two particular issues: US Bank s payday-like Checking Account Advance product and, as trustee to mortgage backed securities, its failure to ensure that servicers are complying with applicable tenant protection laws and foreclosure prevention rules. 474 Valencia Street, Suite 230 San Francisco, CA tel fax

2 Concerns with US Bank s Checking Account Advance. This product must be shelved. As currently offered, US Bank s Checking Account Advance lacks any underwriting of the borrower s ability to pay the loan back on the terms provided. Instead, the bank requires in-full- and-fast payment terms that are the same as storefront payday loans, save for a slightly lower fee. Storefront loans payday loans are notorious for causing borrowers to spiral into cycles of repeat use driving them into debilitating debt. The Consumer Financial Protection Bureau has found that nearly 70% of borrowers of advances with terms like US Bank s also become repeat users, taking out an average of 11 to 38 advances in a 12 month period. US Bank currently makes no assessment of the customer s ability to repay the amount advanced. Looking to the amount of the directly deposited income coming in the near term, without looking at whether those funds are already obligated for necessary expenses, is not underwriting and risks the borrower defaulting on their obligations. At most, the bank s ability to reach into the account before processing other debits to the account only prioritizes that the advance or whatever portion of it there is sufficient income for - will be repaid before other obligations. And worse, it sets up the customer for a subsequent advance in order to meet their non-advance obligations. Instead, the bank imposes credit limit of half of the customer s monthly direct deposits, up to $500, such that a person receiving $1200 a month could be advanced $500. This policy is not based on the customer s ability to pay because there is no inquiry into how much of that money is already obligated towards other debts. Rather, it merely ensures that the direct deposit will be enough to recoup the bank s principal and fee charged before the bank processes other debits to the account. This first in line approach also maximizes the potential for repeat borrowing, causing the customer to take another advance, for the very reason that the customer cannot now pay other obligations without one. US Bank should instead offer small dollar loans that use underwriting standards and have payment terms that reflect the borrower s ability to pay. We urge US Bank to make considerable changes to make this product, including: 1) Removing all terms that currently set borrowers up for a cycle of advances and fees that drain their wealth. This means assessing the borrower s ability to repay before issuing the loan to ensure that the customer can actually afford the payments within his expected income and expenses including existing, predictable, recurring and necessary obligations such as food, housing, transportation, child care and healthcare. If a customer will not be able to meet all of their basic needs without needing to borrow repeatedly, the loan terms, including advance limits and repayment periods, should be adjusted accordingly. 2) Providing manageable payment terms. Currently, the product requires single in-full payments and the bank will deduct the full amount owed, or as close to it as possible, even if that means the customer has no funds left for other needs. Instead, repayment terms should align with existing standards for loans and lines of credit. Customers should expect to pay regular amounts to cover a portion of principal, fees or interest charge over a predictable period of time, such as every other week or every month. This would allow the customer to budget and pay all debt obligations safely, including the bank s advance. California Reinvestment Coalition, page 2

3 3) Ensuring accurate comparison shopping. Customers should be able to compare advances against other credit options side by side on the bank website, in branches and wherever advances are offered. Standard disclosure rules should apply such as stating the Annual Percentage Rate. We believe that US Bank s deposit advances, as currently structured, are nothing like the small dollar loans that customers actually need. We support the OCC and the FDIC recommendation that banks should offer reasonably priced small-dollar loans at reasonable terms to their customers, which if structured properly, can provide a safe and affordable means for borrowers to transition away from reliance on high-cost debt products that do not appropriately serve their needs. Concerns with US Bank as Trustee CRC has raised concerns for years. CRC has long raised concerns with US Bank in its role as trustee on mortgage backed securities. Nowhere was the fact of the Bank s impact on communities demonstrated more clearly than at a CRC US Bank meeting a few years ago, when a CRC member apologized for being late to the meeting. She explained that she had just responded to a call from a family that had been unlawfully evicted from their home. When she arrived at the home early that morning, she saw mattresses laid out on the sidewalk where the children were forced to sleep that night. She recounted that the property had been taken by US Bank, NA as trustee in a foreclosure proceeding, and that the tenant family had been illegally evicted without regard to local tenant protections. CRC believes that US Bank enables unlawful tenant evictions and unnecessary foreclosures by not exercising adequate due diligence to ensure that servicers are complying with applicable tenant protection laws and foreclosure prevention rules. The result of this negligence is harm to families, neighborhoods, and to investors in mortgage-backed securities trusts which suffer losses due to litigation and other costs associated with noncompliance and the failure to accurately apply net present value formulas designed to protect investor (and homeowner) interests. The OCC states that trustees have the responsibility to work with servicers to ensure the performance of their responsibilities. The securitization agreements may require a trustee to appoint a successor servicer or to take over servicing in the event the original servicer fails to perform its duties or defaults Nevertheless, to the extent a servicer undertakes foreclosure actions in the trustee s name as the secured party, a bank trustee should be aware of potential reputation and litigation risks. (OCC , Guidance on Potential Issues With Foreclosed Residential Properties) In early 2008, CRC discussed these issues when US Bank applied to acquire Mellon 1 st Business Bank. At that time, the Bank agreed to discuss trustee issues with CRC, including potential best practices that are mutually acceptable and actionable, including other ways the Bank can help communities deal with the impact of foreclosures. US Bank also agreed to send out a letter to servicers, modeled after one developed by Deutsche Bank, that reminded servicers to comply with applicable laws and mitigate foreclosure impacts. Aside from sending out this letter, CRC sees no evidence that US Bank has developed any trustee best practices, despite CRC efforts to engage the Bank on this issue for years. In December 2010, we raised the issue once more in a meeting with US Bancorp CEO Richard Davis. At the time, US Bank was poised to acquire the trust business of Bank of America, perhaps making US bank California Reinvestment Coalition, page 3

4 the largest trustee in the country. We have seen no change in approach by US Bank to the way in which foreclosures and evictions are carried out under its name. The City of Los Angeles sues US Bank as Trustee. Unsurprisingly, less than one year ago, US Bank was one of two banks sued by the City of Los Angeles for failing to maintain REO properties and for illegally evicting tenants in large numbers. These are the very concerns CRC has raised for years. The City alleged US bank mishandled 1,500 foreclosures, and cited 150 properties as falling into disrepair, in essence declaring US Bank one of the City s biggest slumlords. In its complaint, Los Angeles said that at least since July 2008, U.S. Bank has "disregarded virtually every one of its legal duties and responsibilities as owner, resulting in the creation and maintenance of an alarming number of vacant nuisance properties and substandard occupied housing units." 1 NHFA et al allege discrimination in REO property maintenance and marketing. Additionally, and consistent with the above concerns, we urge the OCC to consider the HUD Complaint filed against US Bancorp by the National Fair Housing Alliance and some of its affiliates. The complaint alleges that US Bancorp and its national bank subsidiaries, including US Bank, failed to properly maintain and market REO properties in neighborhoods of color in comparison to its performance in white neighborhoods. Specifically, in each of the seven metropolitan areas where Complainants evaluated a number of REO properties owned by Respondents, REO properties in White communities were far more likely to have a small number of maintenance deficiencies or problems as compared to REO properties in communities of color, while REO properties in communities of color were far more likely to have large numbers of such deficiencies or problems than those in White communities. In addition, in each of the metropolitan areas, Complainants observed significant racial disparities in many of the objective factors evaluated. Accordingly, in each of the metropolitan areas, Complainants observed a systemic and particularized practice of engaging in differential treatment in maintaining and/or marketing REO properties on the basis of race, color and/or national origin. In Oakland, Concord, and Richmond, California, Complainants evaluated 17 REO properties owned by Respondents. Four of these REO properties were located in African- American communities, 7 were located in a neighborhood with a majority of non-white residents, and 6 were located in predominantly White neighborhoods. 100% of REO properties in White communities had minimal (5 or fewer) maintenance or marketing deficiencies, while only 18% of REO properties in communities of color had fewer than 5 deficiencies. 45% of REO properties in communities of color had more than 5 maintenance or marketing deficiencies, while 0% of REO properties in White communities had more than 5 deficiencies. Looking at the national sample, REO properties in communities of color were far more likely to have certain types of deficiencies or problems than REO properties in White communities. Complainants 1 Jonathan Stempel and Alex Dobuzinskis, Los Angeles sues US Bancorp, call bank a slumlord, Reuters, July 17,2012. California Reinvestment Coalition, page 4

5 found significant racial disparities in the majority of the objective factors they measured, including the following: 64% of REO properties in communities of color had substantial amounts of trash, while only 17% of REO properties in White communities had the same problem. Therefore, REO properties in communities of color are over 8 times more likely to have trash on the premises than REO properties in White communities. 27% of REO properties in communities of color had mail accumulated, while only 17% of REO properties in White communities had the same problem. 45% of REO properties in communities of color had overgrown or dead shrubbery, while only 33% of REO properties in White communities had the same problem. 36% of REO properties in communities of color had unsecured or broken doors, while only 0% of REO properties in White communities had the same problem. 27% of REO properties in communities of color had been marketed as a distressed property, while only 17% of REO properties in White communities had the same problem. 64% of REO properties in communities of color had a missing for sale sign, while only 17% of REO properties in White communities had the same problem. 55% of REO properties in communities of color had peeling or chipped paint, while only 17% of REO properties in White communities had the same problem. 27% of REO properties in communities of color had invasive plants covering more than 10% but less than 50% of the lawn, while 0% of REO properties in White communities had the same problem. The complaint asserts that as a result of Respondents discriminatory conduct, municipalities, individuals and homeowners in the communities served by Complainants have been: (a) subjected to deteriorating and dilapidated living conditions in their neighborhoods, (b) denied opportunities for neighborhood stabilization and economic recovery, and (c) harmed in their home investments because of Respondents efforts to unnecessarily depress the property value of REOs. As a result of Respondents discriminatory conduct, communities served by NFHA and its member organizations have been denied the fair housing opportunities, educational and employment opportunities and the economic growth that accompanies well maintained properties. 2 US Bank, NA must do more to protect families and communities, not destabilize them. We urge US Bank to develop trustee best practices, which should ensure, in part: that servicers are properly considering all delinquent borrowers for all relevant loss mitigation programs and offering loan modifications were the net present value test is met; that all third party vendors are complying with federal, state and local tenant protection laws; and that it and all servicers and third party venders effectively and meaningfully respond to complaints from homeowners, tenants, neighbors, and local governments. Perhaps such best practices can be informed by the recent settlement between NFHA and Wells Fargo relating to similar allegations of discrimination in property maintenance and marketing 2 STATEMENT IN SUPPORT OF COMPLAINT OF THE NATIONAL FAIR HOUSING ALLIANCE; HOPE FAIR HOUSING CENTER; HOUSING OPPORTUNITIES PROJECT FOR EXCELLENCE, INC.; MIAMI VALLEY FAIR HOUSING CENTER; AND METRO FAIR HOUSING SERVICES, INC. California Reinvestment Coalition, page 5

6 practices, as well as by the Federal Reserve s document entitled, Questions and Answers Related to the Management of Other Real Estate Owned (OREO) Assets (June 27, 2012). Review of other US Bank CRA Activity Bank Account Services In light of the high rate in unbanked and under-banked Californians, CRC is asking regulators and banks to reorient how they measure their CRA service activity. Rather than merely measuring the distribution of branches among income groups, and comparing to other banks activities, we ask that banks measure the bank s success at reducing the number of unbanked and under-banked households in the communities they serve. This can be measured by counting the number of accounts opened in branches serving low and moderate income areas and how long they are kept open (attrition rates). Given that overdraft fees are among the primary reasons that households become unbanked, it is also important to measure the rate that these customers opt-in to overdraft services and how much they pay in fees on an annual basis. Of course, we continue to appreciate US Bank s participation in programs such as Individual Development Accounts and their support for organizations that provide financial management education and asset development assistance. These remain important tools to help low income families save money and development assets. Economic Development We have been informed by US Bank that they report both bank-issued and bank underwritten credit cards among small business loans and have asked for the percentage of the bank s lending falls into the two former categories. Although there is a role for credit card lending for small businesses, we are very concerned that small businesses are lacking financing for working capital. We are glad to see that the bank s referrals to small business technical assistance and credit providers is working well. We would like to see these programs grow across the state, including in Northern California and in more traditionally underserved parts of the state such as non-metropolitan areas. We would also like to see US Bank participating in guarantee programs that would allow the bank to extend more credit. In addition, we would like to see the bank improve its performance in lending to minority owned businesses. And although the bank s lending is improving with regard to African American and Latino owned businesses, those communities are still not receiving the share of the bank s loans in proportion to their share of businesses. Regarding the bank s supplier diversity programs, we are very glad to see the bank report total spend rather than an incomparable portion. Using the total spend makes clearer the need to increase spending on minority suppliers. It also remains true that the bank must apply resources to engage with minority suppliers to ensure equity of opportunity for all businesses, including on procurement for the larger dollar services. California Reinvestment Coalition, page 6

7 Community Development Investments We are very disappointed to see that the amount of the bank s investments have fallen from prior levels in The bank has explained that tax credit applications were pushed to 2013 and that this pushed investments behind. However, we are concerned that this should have so high an impact on the overall amount of investments in a yea. Single Family Lending We are glad to learn that US Bank has a portfolio mortgage product, the American Dream. However, it is imperative that the bank increase the product s visibility. The product will not be broadly successful if offered only by CRA lending officers of which you concede you have too few. The bank should train all lenders how to provide this product, as well as non-portfolio loans that may compete with FHA products to homebuyers who qualify. This is the best way to make the product successful. We are also very concerned that mortgage lending to African Americans is very low. While the bank will do well to hire more lenders of color to improve outreach to minority communities, the bank should also encourage existing lenders to do a better job reaching potential customers. This is a crucial moment in time for the bank to act on these issues. Areas like Oakland are seeing vast numbers of homes being bought by investors seeking to rent them and then sell when the prices rise again. Many of the minority families that lost their homes early in the foreclosure crisis in 2007 and 2008 are now qualified for first-time home buyer programs and they, as well as families that have never owned a home, are seeking to and able to afford to purchase again if they had access to affordable credit. The bank s lack of support here will keep these families on the sidelines and contribute to the widening gap of wealth in our communities. Multifamily Housing We have expressed to the bank our disappointment about their failure to weigh in on the recent Interagency CRA Q & A on community development lending and investment. CRC used this opportunity to raise an issue of mutual concern that banks must receive full credit for activity in non-metropolitan areas and not merely in those metropolitan areas that are typically the only ones to receive full scope evaluation. Our ongoing dialogue with US Bank, we believe that their comments to the agencies would have brought needed support on this issue. We have encouraged the bank to continue with their efforts to do multifamily lending outside of the immediate Bay and Los Angeles areas. Community Investments and Contributions We appreciate that the bank has committed to growing its contributions as the bank grows. However, we are encouraging them to raise the level of the bank s commitment to a higher percentage of deposits. This is appropriate given that the bank has not met several of its goals in other areas due to tightening of credit and the recession generally and the bank s response in the areas of lending and investment specifically. By supporting non-profit community development organizations, US Bank s California Reinvestment Coalition, page 7

8 contributions will help mitigate the loss of advancement hoped for in these other areas while maximizing where the bank has shown leadership. Conclusion We greatly appreciate US Bank clear intent to meet the credit needs of its California communities. We look forward to our continued partnership to make the bank s services, loans and investments accessible and affordable to all of California. Sincerely, Andrea Luquetta Policy Advocate California Reinvestment Coalition, page 8

CIT Group Accused of Redlining and Violating Fair Housing Act

November 17, 2016 Contact: Kevin Stein (415) 864-3980 Caroline Peattie: (415) 457-5025 (Ext. 106) CIT Group Accused of Redlining and Violating Fair Housing Act CALIFORNIA REINVESTMENT COALITION AND FAIR