This morning, the House Committee on Financial Services held a hearing entitled “Community and Consumer Advocates’ Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals.” Testifying before the committee were:

  • Joseph Flatley, President and Chief Executive Officer, Massachusetts Housing Investment Corporation on behalf of the National Association of Affordable Housing Lenders (NAAHL)
  • Oliver I. Ireland, Partner, Morrison & Foerster LLP
  • Edwin Mierzwinski, Consumer Program Director, Public Interest Research Groups
  • Janet Murguía, President and Chief Executive Officer, National Council of La Raza
  • Travis B. Plunkett, Legislative Director, Consumer Federation of America (CFA)
  • John Taylor, President and Chief Executive Officer, National Community Reinvestment Coalition (NCRC)
  • Nancy Zirkin, Executive Vice President, Leadership Conference on Civil Rights (LCCR)

Mr. Flatley praised Chairman Frank’s proposal to preserve the role of bank regulators in enforcing the Community Reinvestment Act (CRA), but supported a revision to the CRA that would encourage banks to participate in community development projects. Flatley also suggested that any new consumer protection agency, part of the Obama Administration’s plan for regulatory reform, “should have the authority needed to put an end to the problem of the ‘dual mortgage market.’” However, he also cautioned that “any changes to the law should be carefully considered, practical to implement, and incentivize banks to engage in high-impact community development activities that fall outside of their normal course of business.”

Mr. Ireland noted the central role that residential mortgages played in the current financial crisis. “In order for financial intermediaries to originate or arrange home mortgages that have a high likelihood of being repaid, the terms of … mortgage loans to consumers have to be fair and reasonable. … This is necessary in order to minimize the personal tragedies caused by foreclosures, to maintain access to home mortgage credit for those who are willing and able to repay, and ultimately to avoid the downward spiral in home values brought on by foreclosures and ever tightening credit.” Ireland also argued against the creation of a new agency to oversee consumer protection in the financial services industry, noting that “consumer issues, prudential supervision issues and ultimate monetary policy and overall economic stability all share the ultimate goal of a healthy economy.” A new consumer regulatory agency “is more likely to foster conflict than harmonization,” he argued.

Mr. Mierzwinksi generally supported the Obama Administration’s plan. However, he also argued that the proposed regulation for credit-rating agencies, mortgage foreclosure prevention and “solving the home affordability crisis” is “insufficient.” Mierzwinski suggested that the proposed Consumer Financial Protection Agency (CFPA) rely on “a three legged stool: enforcement by the agency, by states, and by consumers themselves.” He also proposed the addition of a private right of action to enforce the rules created by a CFPA.

Ms. Murguía discussed a “two-tier financial system in which communities of color … routinely pay more for financial services and credit” that exists under the current regulatory structure. She noted that Latinos in particular “have been historically marginalized from mainstream financial products” and “are routinely steered toward inferior financial products … often resulting in default or burdensome debt.” Murguía argued that community banks and Community Development Financial Institutions offer “safe and fair” credit to minority communities, but complained that they are “beat in the marketplace” by larger banks and “predators with large marketing budgets.” Murguía embraced a CFPA as a critical component to an overall solution, suggesting that a single agency should both promote access to credit and protect borrowers. She also encouraged Congress to emphasize the importance of “simple, straightforward banking and credit products,” and to make enforcement a priority in any regulatory system for the financial industry.

Mr. Plunkett echoed Mr. Mierzwinski in his criticism of the Administration’s plan on regulation of credit-rating agencies, calling the proposal “weak considering the central roles these agencies played in causing the current crisis.” Plunkett also called for “a broad agenda of corporate governance reforms” to ensure “effective board oversight and accountability” at public companies and financial institutions. He praised the Administration’s plan in its capacity to “plug regulatory gaps,” particularly the proposed regulation of the OTC derivatives market. Mr. Plunkett also supported the creation of a central risk regulator, arguing that “designating a central authority responsible for systemic risk regulation offers the best hope of quickly identifying and addressing new risks that emerge that would otherwise be beyond the reach of existing regulations.”

Mr. Taylor agreed that the creation of the CFPA is necessary, and argued that the agency must have the ability to enforce the Community Reinvestment Act. Taylor called current enforcement of the CRA “fragmented” and “inconsistent.” He also called on Congress to modernize the CRA to enhance data disclosure, expand the Act to cover non-bank financial institutions, and to allow race as a factor on CRA exams. “The CRA regulation requires examiners to measure lending, investing, and services to low- and moderate-income communities and borrowers, but not to minorities and minority communities.” He argued that such modernization would increase product choice in minority neighborhoods and that “racial disparities in lending would be reduced.”

Ms. Zirkin called the creation of the CFPA “an important step forward in protecting” civil rights. She argued that “systemic racial and ethnic discrimination was … a significant underlying cause” of the current financial crisis, and insisted that “civil rights must be part of the agency’s stated mission.” Zirkin also agreed with Mr. Mierzwinski that individual consumers must have a private right of action under CFPA rules.