Tom Williams/CQ Roll Call via AP Images
Comptroller of the Currency Joseph Otting, seen here last May, headed the agency until last week.
You might think that the last thing worth understanding in the middle of running battles in the streets and a public-health crisis in our hospitals is bank regulatory policy. You would be wrong, however, as finance looms over our national crises and our efforts to solve and recover from them.
Recent events at an agency that’s obscure to most Americans epitomize not only the corruption and venality at the heart of the Trump administration, but the hurdles to rebuilding that we can expect.
That agency is the Office of the Comptroller of the Currency (OCC), a division of the Treasury Department. It’s the lead regulator for nationally chartered banks. The Treasury Secretary, effectively the hiring manager for this position, is Steve Mnuchin, who was the CEO (briefly) and then chair of OneWest Bank. Until last week, the head of OCC was Joseph Otting, who also happened to have been Mnuchin’s replacement as CEO of OneWest Bank. And starting Monday, Otting’s provisional successor as the acting comptroller of the currency is Brian Brooks, former chief legal officer and vice chair of … OneWest Bank.
OneWest was created out of the ashes of failed subprime lender IndyMac, which Mnuchin led a consortium of billionaire financiers to buy in 2008 through a special deal with the Federal Deposit Insurance Corporation that covered losses past a certain threshold, while allowing the bank to profit from foreclosure-related charges. OneWest was notorious for using this to ruthlessly foreclose on borrowers while routinely violating foreclosure laws, and the firm doubled in value within six years. Mnuchin has lied about this ugly history repeatedly while in office.
So just at that level, these OneWest honchos are really not the people you want in top regulatory positions during a potential new foreclosure wave. But what Otting and now Brooks have spent their time on at OCC makes things even worse.
Otting came into office on a crusade, a Trump-like personal vendetta to damage a law that gave him grief. That law is the Community Reinvestment Act (CRA), established in 1977 to assess whether banks fulfill commitments to lend into lower-income communities. In truth, the CRA doesn’t work very well; from its enactment until 2015, 97 percent of all banks examined received a “Satisfactory” or “Outstanding” grade, despite widespread bank closures in low-income areas and nearly a quarter of U.S. households having little or no access to financial services. The CRA is a check-the-box exercise that banks have learned how to game; in some cases, lending to investors that fund evictions has counted as meeting the CRA requirement to invest in low-income communities.
But the one area where the CRA can function more seriously is bank mergers, because the newly merged bank must map out its community reinvestment strategy. In 2014, when OneWest announced a merger with CIT Bank, community leaders pressured OneWest over its weak community lending efforts (“They mostly foreclosed on people,” one activist told me at the time.) Otting was so apoplectic about this threat to the merger that he solicited his Wall Street pals to help with a fake grassroots support campaign, and placed a sample support letter on the OneWest website that was identical to thousands of comments the government received, which some signers say didn’t come from them.
After that foray into sock-puppetry, Otting waged a determined effort at OCC to destroy the Community Reinvestment Act, one so brazen that he couldn’t even get support from fellow Trump-appointed regulators or even bank trade groups. Nevertheless, on his final day in office last week, OCC released the revised rule, which makes it even easier for banks to get a passing CRA grade. Because the FDIC and the Federal Reserve, which also have CRA jurisdiction, didn’t join in the rule, some banks aren’t affected by the changes. But most (about 70 percent) are, and they will be able to skate on community lending requirements—precisely at the moment that many low-income communities have been damaged amid civil unrest, of which decades of disinvestment is a proximate cause.
Lawmakers savaged the CRA update, but by that time Otting was out the door, headed to a golf course he co-owns in Las Vegas. “Otting had one goal in mind when he took this job—change the rules that got him in trouble as a banking executive,” wrote Sen. Sherrod Brown (D-OH), ranking Democrat on the Senate Banking Committee, in a statement.
Otting waged a determined effort at OCC to destroy the Community Reinvestment Act, one so brazen that he couldn’t even get support from fellow Trump-appointed regulators.
Enter Brian Brooks. When OneWest was being investigated over its fraudulent reverse mortgage operations in California (which led to an $89 million fine from the federal government), Brooks filed the lawsuit that shut down the inquiry and quashed subpoenas. OneWest rewarded Brooks for his service by making him vice chair, where he became the bank’s chief legal officer, the architect of avoiding accountability for foreclosure misconduct.
As a Mnuchin ally, Brooks nearly received appointment as deputy Treasury Secretary, until it was clear that his past at OneWest could threaten his confirmation. Instead, after he spent a couple of years lawyering at the Bitcoin platform Coinbase, Brooks was quietly appointed senior deputy currency comptroller in April, where he’s done little other than talk loudly about the importance of banks assisting cryptocurrency firms like his former employer. But the appointment was clearly a setup for Brooks to take over for Otting, which happened just one month later.
Though Brooks has been heading up OCC for less than a week, here’s what he’s done already. On Monday, OCC finalized a rule that would allow so-called “rent-a-bank” schemes, enabling unlimited interest rates on consumer loans as long as they were run through a chartered bank. This evades laws in several states that have caps of 36 percent or less on consumer interest rates. “The OCC should be working to ensure banks are helping consumers during this time of crisis,” wrote House Financial Services Committee chair Maxine Waters (D-CA) in a statement, “not promoting the exploitation of the banking system by predatory lenders to get around consumer safeguards.”
The same day, Brooks penned a letter to the U.S. Conference of Mayors highlighting “risks to the nation’s banking system” from continued lockdowns, essentially using his position to intimidate cities into reopening. Brooks warned that commercial real estate would be at risk from extended vacancies, leading to rising defaults on loans.
This is a national bank regulator stepping way outside of his authority to demand that public-health guidelines be made subordinate to the desires of bank landlords.
Brooks even cautioned that local requirements to wear face masks “create the very real risk of increases in bank robberies,” because, I assume, he’s watched way too many movies. Stepping into the face mask debate and again risking public health, while using old-timey images of a bandito in a bandana yelling, “Stick ’em up!” as a pretense, is, well, remarkable.
At first glance, this appears to be just one more example of Trumpian petty corruption, with a public official waving his friends into government, where they can reward friends and settle grudges. But the twin crises of the pandemic and the civil unrest highlight the dangers of turning over government functions to such rogues. A bank regulator using his clout to eliminate public-safety guidelines speaks for itself. But fiddling with the main, if imperfect, way to assess bank reinvestment in low-income communities could harm recovery efforts. And at a time when ordinary people will need loans more then ever to survive, allowing shady firms to partner with banks to spike interest rates on those loans is unconscionable.
It’s just another, more subtle, example of how official power can oppress predominantly black and brown communities. And as trivially spiteful as it all sounds, it carries a real and devastating impact.
