Mr. Chairman, thank you for conducting this hearing today. I am hopeful that this hearing will help clear up some misconceptions and help promote a greater understanding of the cause of this financial crisis as we work to reform the financial services regulatory structure.
The uninformed have blamed much of the current financial crisis on the Community Reinvestment Act (CRA). That is simply not true. The CRA has helped empower individuals and low-income communities by promoting access to mainstream financial services and investment.
Instead of finding excuses to stop federal efforts to expand access to mainstream financial services, we must do more. Low and moderate-income working families are much better off utilizing mainstream financial service providers rather than unregulated or fringe financial service providers. Working families would have been better off obtaining mortgages from their local financial institutions instead of obtaining mortgages through independent peddlers, such as Countrywide. The majority of subprime mortgage lending was done by independent mortgage companies that are not subject to CRA requirements and lacked effective consumer protections.
I have greatly appreciated the extraordinary leadership and judgement shown by the Chairman of the Federal Deposit Insurance Corporation, Sheila Bair, during her tenure. I also have highly valued Chairman Bair's efforts to promote financial literacy and address issues so important to working families. Under Chairman Bair's leadership, the FDIC is encouraging the development of affordable small dollar loans using CRA incentives.
Working families are exploited by predatory payday lenders who often charge triple digit interest rates. As access to legitimate credit tightens, more working families will be susceptible to unscrupulous lenders. We must encourage consumers to utilize their credit unions and banks for affordable small loans. Banks and credit unions have the ability to improve lives of working families by helping them save, invest, and borrow at affordable rates.
Repealing or weakening the CRA would be a mistake. Low- and moderate-income families must have greater access to regulated mainstream financial institutions, not less.
Critics of the CRA seem to forget that it does not apply to investment banks. Investment banks bought, securitized, and sold subprime mortgages. The CRA does not apply to credit rating agencies. The CRA does not apply to the sale of derivatives or credit default swaps. These products have contributed significantly to the financial situation we are now in.
The causes of this crisis are complex and cannot simply be blamed on the CRA. Instead of repealing the CRA, we must overhaul and strengthen the regulation of financial services to better protect consumers, promote market stability, and empower the regulators to be more forward looking. Instead of just reacting to a crisis, regulators must quickly adapt to the financial service innovations.
I thank the witnesses for appearing today. I look forward to their testimony. Thank you Mr. Chairman.
More information on the hearing is available on the Banking Committee's website: LINK
