Senator Mike Crapo Chairman, U.S. Senate Committee on Banking, Housing, & Urban Affairs 534 Dirksen Senate Office Building W

Senator Mike Crapo Senator Sherrod Brown Chairman, U.S. Senate Committee on Ranking Member, U.S. Senate Committee on Banking, Housing, & Urban Affairs Banking, Housing, & Urban Affairs 534 Dirksen Senate Office Building 534 Dirksen Senate Office Building Washington, D.C. 20510 Washington, D.C. 20510

September 6, 2017

Dear Chairman Crapo and Ranking Member Brown,

Only 10 years after the U.S. economy was left in shambles by the worst financial crisis since the Great Depression, conservative policymakers are pushing to roll back the consumer and financial stability safeguards put in place after the crisis. Strong financial regulation is a necessary condition for a healthy and stable economy. A highly capitalized financial sector with vigorous supervision and accountability promotes economic growth across the business cycle, helping the economy flourish in a sustainable manner. Unfortunately, the Trump administration does not see financial regulation as a mechanism to ensure healthy economic growth and avoid catastrophic financial crises that imperil the wealth and overall well-being of U.S. families. This disregard for strong financial stability and consumer protections is reflected in the Trump administration’s nominees for financial regulatory positions.

On July 27, 2017, the U.S. Senate Committee on Banking, Housing, & Urban Affairs held a confirmation hearing for Joseph Otting, President Trump’s nominee to be the Comptroller of the Currency.1 Mr. Otting has neither the professional background nor the policy views necessary to continue the important work of maintaining and improving the safety and soundness of the banking sector. The Center for American Progress recommends that Senators vote “No” when the nomination of Mr. Otting is considered by the Committee.

The Office of the Comptroller of the Currency (OCC) is the primary regulator for all national banks and federal savings associations, as well as federal branches of foreign banks. The OCC is also responsible for chartering these institutions. OCC-supervised institutions hold over 70% of U.S. banking assets.2 In addition to these responsibilities, the Comptroller of the Currency is a voting member of the Financial Stability Oversight Council (FSOC). The FSOC was established by the Dodd-Frank Act to create a systemic risk regulatory body, bringing the disparate financial regulators together to monitor and address threats to financial stability. Since the financial crisis, the OCC has engaged in many important rulemakings to implement financial reform, including

1 U.S. Senate Committee on Banking, Housing, and Urban Affairs, “Executive Session and Nomination Hearing,” July 27, 2017, available at https://www.banking.senate.gov/public/index.cfm/hearings?ID=73257755-CECA-432A- B72E-DFA530DAC8CE. 2 Office of the Comptroller of the Currency, “Supporting Responsible Innovation in the Federal Banking System: 2016 Annual Report,” available at https://www.occ.gov/annual-report/download-the-full-report/annual-report- 2016.pdf.

the development of capital standards, liquidity requirements, and the Volcker Rule. As a member of the FSOC, the Comptroller of the Currency also plays a role in subjecting certain systemically important nonbank financial companies, like insurance giant AIG, to enhanced regulation and oversight by the Federal Reserve Board.

From 2010-2015, Mr. Otting was the C.E.O. of OneWest Bank—the bank formerly known as IndyMac. Following the financial crisis, a group of investors, led by current Treasury Secretary Steve Mnuchin, purchased the failed institution from the Federal Deposit Insurance Corporation (FDIC) and changed its name to OneWest Bank.3 In 2011, the Office of Thrift Supervision (OTS), which was folded into the OCC by the Dodd-Frank Act, found that OneWest Bank had engaged in robo-signing—a practice in which the bank signed foreclosure documents en masse without spending the necessary time to ensure the documents were correct.4 The bank signed off on multiple foreclosures a minute, failing to provide their customers with the due process they deserved.5 Mr. Otting was one of the signatories of the OTS consent order outlining the discovered deficiencies.

Foreclosure is one of the most scarring economic events a family can endure, and Mr. Otting’s bank failed to live up to the trust its consumers placed in it. And just this past May, the Department of Justice reached a settlement with OneWest over alleged abuses within a federal insured reverse mortgage program that helps elderly borrowers borrow against their homes.6 This is simply not the appropriate professional track record of a nominee to be the top regulator of almost three-quarters of the assets in the banking industry and the regulator that would oversee the types of practices and business lines where OneWest fell short.

Since the financial crisis, U.S. financial institutions have paid over $150 billion in fines for mortgage backed securities abuses, shady foreclosure practices, and other fraudulent activities.7 It makes little sense to nominate someone who was in charge of a bank that engaged in these abusive practices and itself paid a portion of that $150 billion in fines. Mr. Otting is expected to supervise and regulate the big banks that committed some of the same egregious consumer abuses that he presided over at OneWest. It is no wonder working American families have lost faith in their political system.

3 DealBook, “F.D.I.C Closes Sale of IndyMac,” The New York Times, March 20, 2009, available at https://dealbook.nytimes.com/2009/03/20/fdic-closes-sale-of-indymac-to-onewest/. 4 Brad Tuttle, “ Here’s Why Treasury Nominee Steve Mnuchin Has Been Called the Foreclosure King,” Time, January 19, 2017, available at http://time.com/money/4639480/steve-mnuchin-treasury-secretary-foreclosures- onewest/. 5 Sarah Edelman, Paulina Gonzalez, and Jim Lardner, “Foreclosure fanatic: Mnuchin's past actions make him a risky selection,” The Hill, January 29, 2017, available at http://thehill.com/blogs/pundits-blog/finance/316758- foreclosure-fanatic-mnuchins-past-actions-make-him-unfit-to-serve. 6 Karen Freifeld, “Mnuchin's former bank in $89 million settlement over reverse mortgages,” Reuters, May 16, 2017, available at http://www.reuters.com/article/us-financial-freedom-settlement-idUSKCN18C2FL. 7 Kara Scannell, “US haul from credit crisis bank fines hits $150bn,” Financial Times, August 6, 2017, available at https://www.ft.com/content/71cee844-7863-11e7-a3e8-60495fe6ca71. - 2 -

At his confirmation hearing, Mr. Otting failed to provide the Committee with detailed answers regarding his policy views on important financial regulatory topics. For example, Mr. Otting did not directly answer questions posed to him on the loosening of bank capital calculations, as proposed by the Treasury Department. The Comptroller of the Currency has a strong voice and role to play in calibrating regulations and leading oversight. Vague answers on a range of financial regulatory issues were unacceptable for a nominee to such a powerful position. The policy views he did divulge, however, were concerning.

In his role as Comptroller of the Currency, Mr. Otting would have a vote on the Financial Stability Oversight Council, the new systemic risk regulatory body created by Dodd-Frank. When asked about the FSOC’s authority to designate nonbank financial companies as systemically important, Mr. Otting stated that no further designations should be made until the “flawed process” is corrected. He did not give a clear indication on the specific flaws of the designation process or how he proposes to address those flaws. Installing additional burdensome cost-benefit analyses or halting the FSOC’s designations altogether will weaken the FSOC’s ability to respond to emerging threats to financial stability, making Mr. Otting’s comments worrisome. The FSOC fills a role that was sorely lacking before the crisis and it would be unwise to ignore the lessons of the past.

Mr. Otting also made it clear that he favors efforts to “simplify” the Volcker Rule and reduce its regulatory “burden.” The OCC is one of the five regulators responsible for drafting and implementing the Volcker Rule’s ban on proprietary trading by banks and their affiliates and the restrictions on ownership and investment in private funds. It is troubling that Mr. Otting has failed to emphasize the benefits of the rule, which prevents banks from taking swing-for-the- fence bets or engaging in risky relationships with hedge funds and private equity funds. Instead, he has focused on veiled generalities about simplifying the rule, which is often coded language for loosening the rule.

Consumers, too, must have confidence in the next Comptroller, particularly given the OCC’s ability as part of the FSOC to overturn rules issued by the Consumer Financial Protection Bureau (CFPB). But recent history suggests that Mr. Otting would face an uphill battle to restore the public’s trust. While the OCC, in conjunction with the CFPB and the Los Angeles City Attorney, ultimately investigated and fined Wells Fargo last year for the millions of fraudulent accounts that it opened, it had long been silent about a persistent and growing scandal. OCC examiners knew about hundreds of employee whistleblowers flagging inappropriate sales tactics as early as January, 2010, yet failed to take action for years.8 The American people deserve to know whether the next Comptroller will seek to safeguard the financial system or instead protect banks such as Wells Fargo despite widespread and repeated customer abuses.

Recent developments additionally raise the stakes for a new Comptroller to rebuild trust when, in one recent survey, 59 percent of Americans agree that “Wall Street and the financial industry are

8 OCC Office of Enterprise Governance and the Ombudsman, “Lessons Learned Review of Supervision of Sales Practices at Wells Fargo,” April 19, 2017, available at https://www.occ.gov/publications/publications-by-type/other- publications-reports/pub-wells-fargo-supervision-lessons-learned-41917.pdf - 3 -

… still engaged in reckless practices that pose a continuing threat to the economy.” 9 In that same survey, 89 percent of Democrats and 66 percent of Republicans felt that “Wall Street financial companies [should] be held accountable with tougher rules and enforcement.” These stakes are particularly pressing given the Acting Comptroller’s recent attempt to block the CFPB’s arbitration rule on hyperbolic financial stability grounds, effectively seeking to defend predatory bank practices. The OCC’s recent efforts to establish a new type of nonbank charter for financial technology companies have also identified concerns about interactions with state consumer protection laws and the potential for a new charter to open doors to consumer harm. The persistent and prolonged predatory practices by OneWest—and Mr. Otting’s potential role in these practices—should make it clear to Senators that he is not suitable for a position requiring independent judgement and financial sector accountability to restore the public trust.

The Comptroller of the Currency occupies a powerful position within the U.S. financial system. He or she is generally not removable at will, and the agency he or she directs sets its own budget largely determined by fees assessed on banks, not on Congressional appropriations.10 As the Senate considers whether to confirm Mr. Otting for this prominent role leading an independent regulatory agency, we believe that his background and policy positions raise serious questions about his appropriateness for the position. The Center for American Progress recommends that Senators vote “No” when his nomination comes before the Committee.

If you have questions regarding this letter or would like to discuss these issues further, please contact Gregg Gelzinis at [email protected].

Sincerely,

Andy Green /s/ Joe Valenti /s/ Managing Director, Economic Policy Director, Consumer Finance Center for American Progress Center for American Progress

9 Joe Valenti, “Please Stand Up If You Support Financial Deregulation” (Washington: Center for American Progress, 2017), available at https://www.americanprogress.org/issues/economy/news/2017/05/02/431613/please- stand-support-financial-deregulation/. 10 Most heads of financial regulatory agencies are only removable by the President “for cause.” In the case of the OCC, the Comptroller is removable “by the President, upon reasons to be communicated by him to the Senate” (12 USC §2), a stricter standard than at-will removal. See Henry B. Hogue et al., “Independence of Federal Financial Regulators: Structure, Funding, and Other Issues,” Congressional Research Service, February 28, 2017, available at https://fas.org/sgp/crs/misc/R43391.pdf. - 4 -