Banking

More D.C. fireworks: Lawmakers, CEOs clash on minority outreach, overdrafts

WASHINGTON — On the second day of congressional testimony by the CEOs of the six largest banks, lawmakers pulled few punches in criticizing the industry. But the hearing Thursday before the House Financial Services Committee also featured the executives asserting their views on domestic policies.

Following their virtual hearing a day earlier before the Senate Banking Committee, the executives — Jane Fraser of Citigroup, Brian Moynihan of Bank of America, Charlie Scharf of Wells Fargo, Jamie Dimon of JPMorgan Chase, David Solomon of Goldman Sachs and James Gorman of Morgan Stanley — faced questions on issues such as overdraft fees, pandemic relief for small businesses, global tax policy, banks’ diversity practices and more.

“I hope that we can do a better job in reaching out to those businesses that are starving to get access to capital,” said Rep. Nydia Velazquez, D-N.Y., at the virtual hearing.

But the witnesses also spoke up in expressing their views on policies such as the corporate tax rate.

“We’ve done public policy not particularly well when it comes to infrastructure, immigration, healthcare, taxation, regulation — we’ve stifled the formation of small business,” said Dimon. “American leadership really matters and if we don’t get our act together we won’t be a leader in 20 years.”

Here are four takeaways from the House hearing.

Overdraft fee practices are still under the microscope

After Dimon was put on the spot on Wednesday by Sen. Elizabeth Warren, D-Mass., over the JPMorgan Chase’s collection of overdraft fees during the coronavirus pandemic, House Democrats similarly criticized banks’ overdraft practices.

“I am concerned that the institutions led by our witnesses raked in billions in overdraft fees during the pandemic, at a time when individuals and families across the country are struggling through no fault of their own,” said Rep. Maxine Waters, D-Calif., the chairwoman of the committee.

“We just put out another very extensive update on our billion-dollar action for racial equity plan that covers all different dimensions of the bank’s activities, both inside the bank and outside, many of which are verified by third parties,” said Citigroup CEO Jane Fraser.

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Rep. Carolyn Maloney, D-N.Y., who authored the Credit Card Act of 2009, said the largest banks collected $8.8 billion in overdraft fees last year.

“Bank overdraft fees are outrageously priced, predatory and beyond the scale of what a reasonable charge should be for the service,” she said. “Overdraft fees hit those who can afford them the least the hardest.”

Maloney singled out Wells Fargo specifically for charging a $35 overdraft fee on debit card transactions while noting that both Citigroup and BofA had halted the practice for debit cards.

“Do you think a $35 fee for a $6 debit charge is reasonable?” Maloney asked Scharf.

“We are constantly looking at ways to be more consumer friendly, “ Scharf said, noting that Wells introduced an account last year that charges no overdraft fees at all. “We have options that are readily available for customers who do not want to overdraft.”

Maloney said she plans to reintroduce the Overdraft Protection Act to crack down on unfair overdraft fees and establish transparent practices for overdraft programs.

In his opening remarks, Dimon said that JPMorgan Chase had waived $400 million in overdraft fees due to COVID hardships.

Democrats don’t think banks have done enough for minority communities

The CEOs highlighted their investments in Community Development Financial Institutions and Minority Depository Institutions, as well as their efforts to diversify their workforce. But Democrats on the committee said that the banks have more to do to narrow the racial wealth gap.

“We are the largest lender in [the Paycheck Protection Program,” said Dimon. “We lent as much as we can everywhere we can, according to government guidelines. Ninety percent of the loans in the first round went to companies that have less than 20 employees. And we reached out everywhere to [low-and-moderate income] communities and stuff like that. … I think we did a fairly good job at it.”

Dimon was responding to concerns from Velazquez, who said that JPMorgan Chase’s lending to LMI communities declined in the second round of the PPP program compared to the first.

Rep. Greg Meeks, D-N.Y., also put Dimon and Fraser on the spot for their opposition to shareholder proposals to conduct racial equity audits to examine how their policies and businesses impact communities of color.

Dimon said that he didn’t think independent audits would actually address inequality.

“We’re devoted to the principle of trying to do a better job for the Black and Latinx communities,” Dimon said. “We’ve announced an extraordinary amount of programs you’re welcome to come and look at. … This kind of thing is not going to make it much better over time. It just adds another whole layer of unnecessary cost.”

Fraser added that Citi believes it has been “very transparent.”

“We just put out another very extensive update on our billion-dollar action for racial equity plan that covers all different dimensions of the bank’s activities, both inside the bank and outside, many of which are verified by third parties,” Fraser said.

But Meeks urged the bankers to support racial equity audits.

“If you’re having someone come in independently to validate what’s going on, then it is something that is trustworthy,” Meeks said. “That’s why independent audits for various institutions are always important.”

Republicans are worried about China’s impact on the financial system

Several Republicans on the committee sounded the alarm about the impact of China on the global financial system, as well as the banks’ business practices in the country.

“We see a lack of transparency associated with China’s lending across the globe,” said Rep. Patrick McHenry, R-N.C., the committee’s top Republican. “China has resisted international standards. … We see this globally.

He asked the CEOs whether they “believe that China’s lack of transparency, and its official financial sector vulnerabilities, pose a potential risk to global financial stability?”

Solomon said that China’s transparency issues and vulnerabilities should be “watched and observed safely.”

“Transparency in markets is always extremely important, and more transparency is better,” Solomon said. “I think that we understand that we operate in very globally interconnected markets to the degree that some of the issues you highlight do become issues that have an impact.”

Rep. Andy Barr, R-Ky., who has urged banks not to cut back on lending to the fossil fuels industry, noted that China is the biggest contributor to pollution globally and asked banks to ensure that their lending standards in China are consistent with their standards in the U.S.

“When China is by far the leading emitter of global of … greenhouse gases, there needs to be a uniform policy,” Barr said. “If [global systemically important banks] are to promote American competitiveness, let’s hold China to the same standards we hold American companies.”

Moynihan, Dimon, Solomon, and Fraser all said that their environmental standards are the same across the globe.

Big-bank CEOs don’t want a corporate tax increase

Several Republican lawmakers questioned the bank CEOs about whether they were concerned about President Biden’s proposal to raise corporate taxes as high as 28% on businesses and what effect such an increase would have on the economic recovery.

“It would be detrimental to a lot of companies and it would push a lot of capital overseas,” said Dimon. “The details here are all that matter. If you want to have a healthy, growing, competitive America, you need a global competitive tax rate because at the margin, capital will be retained and invested overseas.”

Rep. Frank Lucas, D-Okla., said he was concerned about rising prices and the threat of inflation and also asked about the effect of a minimum global corporate tax rate on corporations.

“Some argue that global minimum corporate tax rates would be disadvantageous to U.S. companies,” Lucas said.

Fraser said that it would be difficult to implement a global tax standard.

“It’s very hard to get other countries to sign on to an equivalent program, that would be extremely difficult,” Fraser said. “And it could put the U.S. in a position to be less competitive around the world.”

Dimon agreed.

“There’s no question in my mind that at the margin it will drive capital and eventually brains and R&D and investment overseas and that would be a mistake for America,” Dimon said.



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