The House Financial Services Committee recently held hybrid hearings with the
This hearing is the continuation of a series of hearings with the Chief Executive Officers of the largest U.S. banks to review trends and developments in the industry in recent years.
Representing the largest U.S. commercial banks, the CEOs of Bank of America (BofA), Citigroup (Citi), JPMorgan Chase (JPM), PNC, Truist, U.S. Bancorp (U.S. Bank), and Wells Fargo have been asked to testify on various issues, including consumer protection and compliance issues, enforcement actions and recidivism; diversity, inclusion, and racial equity; mergers and acquisitions; emerging technologies; and issues relating to the public interest, including worker rights and abortion access, among other topics.
America’s largest commercial banks play a critical role in the everyday lives of consumers and the overall health of our economy. As Congress looks to tackle major issues such as pervasive racial inequalities in financial services, systemic risks to our financial system, including climate change, as well as the ongoing COVID- 19 pandemic, and Russia’s invasion of Ukraine, this hearing will bring greater transparency and accountability for the actions of these major industry players.
Recent Growth, Branches, and Enforcement Actions
BofA, Citi, JPM, PNC, Truist, U.S. Bank, and Wells Fargo are the seven largest commercial banks in the United States. These banks have maintained adequate capital and leverage ratios, provided PPP loans, and engaged in stock buybacks in 2021. With the exception of Wells Fargo, which is subject to an asset cap restriction imposed by the Fed, these banks have generally increased in size since 2019 and collectively hold more than $11 trillion in assets. Recent mergers have played a role in the growth and number of mega banks. For example, PNC was approved to acquire BBVA in May 2021 and is now the sixth largest U.S. depository, while prior to the acquisition, PNC was the 12th largest. Truist was the result of a merger between two regional banks, BB&T and SunTrust, that was approved in 2019, and the bank is now the seventh largest commercial bank. U.S. Bank, the fifth largest commercial bank, applied to acquire MUFG Union Bank in October 2021, and the application is still pending. Meanwhile, the other banks have each merged with, or acquired, other businesses since 2020.
Banking deserts, where communities lack adequate access to a nearby bank branch, may make it more difficult to reduce the number of Americans who are unbanked and underbanked. Since 2010, the four largest banks have closed 4,727 (25%) of their branches. A recent study showed the pace of branch closures doubled during the pandemic and one-third of bank branches closed from 2017 to 2021 were in low- to moderate-income (LMI) communities and communities of color.
The largest banks continue to face enforcement actions for unlawful behavior, often to the detriment of consumers. In recent years, the Committee has reviewed a long list of enforcement actions taken against megabanks over the previous decade—most notably the multiple open consent orders on Wells Fargo stemming from their compliance failures and egregious consumer abuse—while the banks made record profits over the same period. Since their testimony last year, certain banks have faced additional enforcement actions and regulatory sanctions. For example, BofA was fined $225 million for wrongfully freezing accounts and preventing the disbursement of state unemployment benefits at the height of the pandemic.
Wells Fargo was assessed a $250 million penalty from the OCC for deficiencies in its home lending loss mitigation program, as well as violating a 2018 consent order. U.S. Bank also faced a $37.5 million fine earlier this year for illegally opening fake accounts.Banking deserts, where communities lack adequate access to a nearby bank branch, may make it more difficult to reduce the number of Americans who are unbanked and underbanked. Since 2010, the four largest banks have closed 4,727 (25%) of their branches. A recent study showed the pace of branch closures doubled during the pandemic and one-third of bank branches closed from 2017 to 2021 were in low- to moderate-income (LMI) communities and communities of color.
The largest banks continue to face enforcement actions for unlawful behavior, often to the detriment of consumers. In recent years, the Committee has reviewed a long list of enforcement actions taken against megabanks over the previous decade—most notably the multiple open consent orders on Wells Fargo stemming from their compliance failures and egregious consumer abuse—while the banks made record profits over the same period. Since their testimony last year, certain banks have faced additional enforcement actions and regulatory sanctions. For example, BofA was fined $225 million for wrongfully freezing accounts and preventing the disbursement of state unemployment benefits at the height of the pandemic. Wells Fargo was assessed a $250 million penalty from the OCC for deficiencies in its home lending loss mitigation program, as well as violating a 2018 consent order. U.S. Bank also faced a $37.5 million fine earlier this year for illegally opening fake accounts.
Consumer Protection
Mortgage Lending. Rising interest rates in response to inflation are cooling demand for mortgage originations for most banks. For example, as of April, Wells Fargo home loans fell one third from the previous year, Citi’s mortgage originations were down 30% from the first quarter of 2021, and JPM’s home lending net revenue was down 20%. Meanwhile, foreclosure filings have been up across the market, with the number of foreclosure starts up 219% since the beginning of the year.Moreover, research suggests that mortgage credit is less available for lower-cost homes. For example, smaller mortgage originations between $10,000 and $70,000 have dropped roughly 50% from 2011 to 2021; mortgages between $70,000 and $150,000 have fallen 21% in the same timeframe. Big banks have also reduced their small dollar mortgage volume, with the four largest banks seeing mortgage originations of under $100,000 declining from 9-16% of their origination volume in 2016-2017 to 4-7% in 2020-2021.
Wells Fargo is facing allegations of racial discrimination in refinancing after reporting that the bank denied more than half of Black refinancing applicants in 2020. One lawsuit alleges that this was a higher rate than other banks and that Wells Fargo’s lending algorithms and branch locations predominantly in White neighborhoods contribute to the disparity. BofA announced last month that it would begin offering a Special Purpose Credit Program that provides zero down payment and zero closing cost mortgages in Black and Latinx communities. The pilot program would include neighborhoods in Charlotte, Dallas, Detroit, Los Angeles, and Miami and would also not require a minimum credit score. This is similar to a program launched by JPM last year that offers up to $5,000 in grants for down payment and closing costs in 6,700 neighborhoods of color across the U.S.
Equifax’s Inaccurate Credit Scores. In August, the Wall Street Journal reported that for a three- week period between mid-March and early April, Equifax sent inaccurate credit scores “on people applying for auto loans, mortgages and credit cards to banks and nonbank lenders big and small.” Chairwoman Waters sent several letters, including to the banks testifying at this hearing, requesting more information. According to Equifax’s response, they made a coding error on March 17th that resulted in inaccurate credit scores being shared with financial institutions. After receiving two reports that there were errors, Equifax investigated and implemented a temporary fix on April 6th and made a permanent fix on April 8th, but they did not notify CFPB until early May. They also wrote, early feedback from our customers’ analyses suggest that the number of consumers who received a more negative credit decision or price than they otherwise would have without the error will be less than 300,000.” According to the banks’ responses to Chairwoman Waters, as of August 24, 2022, they had collectively identified more than 4,500 harmed consumers – with some being denied credit and others charged more than they should have been based on the use of Equifax’s credit scores – and some banks have begun remediating them, while all of the banks except for one were continuing to investigate to identify any more consumers that may have been harmed.
Overdraft. A number of banks have started to take steps to reduce overdraft fees for consumers following concerns raised about the excessive fee amounts being charged. For example, in 2021, JPM announced that it eliminated the non sufficient funds fee (NSF), increased the minimum threshold for an account being overdrawn to at least $50 before imposing overdraft fees, and that in 2022, the bank would provide an extra day for consumers before overdraft fees would be imposed. In January 2022, Wells Fargo announced that it would eliminate NSF fees and transfer fees for customers enrolled in overdraft protection, institute a 24-hour grace period before customers incur overdraft fees, and offer qualifying customers short-term credit of up to $500. In February 2022, Citi announced that it would eliminate overdraft fees and NSF fees by this summer. In July 2022, Truist launched a new account with no overdraft fees. In January 2022, U.S. Bank also announced it had eliminated NSF fees and would allow for an account to be overdrawn by up to $50 before assessing an overdraft fee, as well as allowing one day for consumers to bring their balance to $50 overdrawn before assessing an overdraft fee.
Diversity, Inclusion, and Racial Equity
In February 2020, Committee staff released a report, finding that the largest banks generally lacked diversity in their senior ranks, corporate boards and provided limited data on their investment with diverse- owned firms. Since then, information on workforce diversity at the largest banks has varied. For example, in 2021, BofA reported that 50% of its board and more than half of management comprised of women or people of color; while Truist’s most recent report showed that in 2021, 43% of its Board was “racially, ethnically, or gender diverse” Wells Fargo reported that in 2020, 45% of its U.S workforce is “ethnically/racially diverse.” In the first half of 2021, several banks asked their shareholders to reject proposals calling for racial equity audits. Since then, some banks have agreed to audits with varying degrees of scope. For example, Citi announced that their third-party audit would assess the bank’s $1billion commitment to help address the racial wealth gap. JPM announced it would hire a third-party to conduct an audit of its $30 billion commitment to helping close the racial wealth gap among Black and Latinx communities, and Wells Fargo announced it would commission a third-party audit that would “focus on elements of the bank’s efforts to serve diverse communities and promote a diverse workforce.” Several of the largest banks committed to investing millions in minority depository institutions (MDIs) and community development financial institutions (CDFIs) to support communities of color in recent years. By the end of 2021, JPM had invested $305 million in loan commitments to CDFIs. BofA reported that it had committed $43 million to MDIs and CDFIs supporting minority-owned businesses.
Promoting the Public Interest
There are a variety of additional issues the banks engage on that relate to the public interest. For example, since last year, four of the seven banks announced minimum wage increases. BofA said it would increase its minimum wage to $22 per hour as of July 2022 and reach $25 per hour by 2025.50 JPM announced in June 2022 it would raise minimum pay to $20-$25 per hour, based on employee location. PNC raised its minimum wage to $18 per hour as of November 2021. Truist plans to increase minimum wage to $22 per hour in October 2022. For the seven banks, the CEO to median employee compensation ratio generally increased between 2017 to 2021, with JPM having the highest ratio in 2021, increasing from 395:1 in 2020 to 917:1 in 2021. In addition, following the Supreme Court decision to overturn Roe v. Wade, BofA, Citi, JPM, and Wells Fargo informed employees
they would pay for employee travel for abortion treatment if the treatment was no longer available in their vicinity. Furthermore, following deadly mass shootings in our country, several banks testifying have weighed in with policy changes and positions about their role in financing the sales of guns and ammunition.
Emerging Technologies and the Future of Banking
Financial technology continues to transform the financial system, particularly with the growth of digital banking, the rise of digital assets including cryptocurrencies, and the increasing use of artificial intelligence (AI) including machine learning (ML), to aid customer relations, fraud detection, and underwriting. In 2017, Citi, JPM, and Wells Fargo have made investments in distributed ledger and With the growth of various fintech companies, some large commercial banks have acknowledged the competitive threat of their growth, while others have formed partnerships with fintechs to facilitate online digital banking and lending services. The OCC recently spoke out about the potential systemic risk posed by “widespread and increasingly complex relationships between banks and fintechs.”
Appendix A: Legislation The Committee has previously advanced a number of bills to address issues related to this hearing, including H.R. 2543, the Financial Services Racial Equity, Inclusion, and Economic Justice Act.
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