July 26, 2017

Honorable Member Senate Banking Committee 538 Dirksen Building Washington, D.C.

Dear Honorable Senator, On behalf of more than 400,000 members and supporters of Public Citizen, we oppose the nominations of to serve as Comptroller of the Currency (Comptroller), and of Randal Quarles to serve as Vice Chair for Supervision and Governor of the Board (Fed). Neither are appropriate nominations for these critical roles of financial oversight for our nation’s economy. Otting brings no oversight experience to this position. On the contrary, his tenure at OneWest Bank, an entity associated with mass foreclosures and a Department of Justice settlement for claims of receiving improper government payments, raises questions about a commitment to rules. Quarles’ lengthy written record and career history demonstrates that he may work to blunt key safeguards intended to protect the American economy from reckless banking and instead focus on enriching the financial sector at the expense of consumers. We address these nominees in turn.

Joseph Otting The Comptroller of the Currency is an important and powerful position. The Comptroller oversees the 1,400 that carry a national charter. Unlike the commission structure of other financial regulatory agencies, the Comptroller is the sole responsible figure. While Public Citizen supports such structures because they are more efficient and more readily identify accountability for resulting policies and actions, it requires greater oversight of the individual in power. He will also serve on the FDIC and the Financial Stability Oversight Council. Joseph Otting has worked in banking but not in bank supervision. As a banker, he was associated with a number of troubling episodes.

 Otting served as President of OneWest Bank under Chief Executive Office , who is now the Treasury Secretary.1 There, this duo oversaw tens of thousands of foreclosures, including 35,000 in California alone. They were concentrated in minority communities. 2

1 Jim Puzzanghera, Former CEO of OneWest Bank is Trump’s Pick for key financial regulatory post, (June 6, 2017) http://www.latimes.com/business/la-fi-otting-comptroller-currency-20170606-story.html 2 The Troubled OneWEST and CIT Group Merger, California Reinvestment Coalition (June 9, 2015) https://badbankmerger.com/maps/ Attorneys for the California Attorney General prepared a litigation memo summarizing their arguments of “widespread misconduct.”3 According to a media summary, OneWest “rushed delinquent homeowners out of their homes by violating notice and waiting period statutes, illegally backdated key documents, and effectively gamed foreclosure auctions.”4  In the reverse mortgage business, the OneWest-controlled firm Financial Freedom engaged in practices that led to more than 16,000 foreclosures, a far greater number than would be expected based on the company’s market share. Elderly individuals who had recently suffered the death of a spouse were victimized. In one case Financial Freedom attempted to evict a 90-year-old woman from her home over a 27 cent error on an insurance payment.56 In another case, a New York State Supreme Court judge has called OneWest’s foreclosure practices “harsh, repugnant, shocking, and repulsive.” 7  Over Otting’s signature, OneWest Bank signed a consent order with the Office of Thrift Supervision for "certain deficiencies and unsafe or unsound practices in the Association’s residential mortgage servicing and in the Association’s initiation and handling of foreclosure proceedings."8 As Sen. Sherrod Brown, ranking member of the committee, observed, “The President’s choice for watchdog of America’s largest banks is someone who signed a consent order - over shady foreclosure practices - with the very agency he's been selected to run. If Mr. Otting didn’t deal fairly with the customers at his own bank, it’s difficult to see why he’s the best choice to look out for the interests of customers at more than 1,400 banks and thrifts across the country.” 9  OneWest affiliate Financial Freedom paid $89 million following allegations that it violated the False Claims Act. This involved a five year pattern from 2011 to 2016 where Financial Freedom claimed government fees that the Justice Department said “they were not entitled to receive.”10 Commented Rep. Maxine Waters, (D-Calif.), the ranking member of the House Committee, “Though OneWest Bank was recently fined $89 million for defrauding the Federal Housing Administration, the bank is still being investigated for its fraudulent behavior.

3 Memorandum, Department of Justice, State of California, (Jan. 18, 2012) https://www.documentcloud.org/documents/3250383-OneWest-Package-Memo.html 4 David Dayen, Treasury Nominee Steven Mnuchin’s Bank Accused of “Widespread Fraud” in Leaked Memo, THE INTERCEPT (Jan 3, 2017) https://theintercept.com/2017/01/03/treasury-nominee-steve-mnuchins-bank-accused-of- widespread-misconduct-in-leaked-memo/ 5 Bess Levin, Foreclosing on a 90-year old woman, VANITY FAIR (Dec 1, 2016), http://www.vanityfair.com/news/2016/12/foreclosing-on-a-90-year-old-woman-over-27-cents-steven-mnuchins- days-at-onewest 6 Chris Isodore, Trump Treasury Pick Steven Mnuchin has a ‘widow foreclosure’ problem, CNNMONEY (Dec. 15, 2016) http://money.cnn.com/2016/12/15/news/companies/mnuchin-reverse-mortgage-foreclosure/index.html 7 Kleran Crowley, Judge Blasts Bad Bank, Erases 525G Debt, NEW YORK POST (Nov 25, 2009) http://nypost.com/2009/11/25/judge-blasts-bad-bank-erases-525g-debt/ 8 Consent Order, in the Matter of OneWEst Bank, OFFICE OF THRIFT SUPERVISION (April 13, 2011) https://www.occ.gov/static/ots/misc-docs/consent-orders-97665.pdf 9 Statement, Office of Sen. Sherrod Brown (June 6, 2017) https://www.brown.senate.gov/newsroom/press/release/brown-statement-on-trumps-nominee-for-key-wall- street-watchdog 10 Financial Freedom Settles Alleged Liability for Servicing of Federally Insured Reverse Mortgage Loans, DEPARTMENT OF JUSTICE (May 16, 2017) https://www.justice.gov/opa/pr/financial-freedom-settles-alleged-liability- servicing-federally-insured-reverse-mortgage For Otting to be nominated in the midst of an ongoing investigation into OneWest raises concerns about how seriously the Trump Administration is taking this investigation.”11  In trying to secure approval for OneWest’s merger with CIT Group, Otting’s bank created an online petition urging Federal Reserve Chair Yellen to approve the transaction without a public hearing. Many of the names were Wall Street associates. The California Reinvestment Coalition noted, “In Mr. Otting’s judgment, his friends on Wall Street, thousands of miles away, were somehow better situated to provide input on a California bank merger than the community members who were actually going to be impacted by the merger.”12 In another petition, of 593 individuals purportedly supporting the merger, 100 percent had Yahoo email accounts. (Yahoo has a 3 percent market share for email.) A large number of these emails are timestamped as 2:00 AM, February 13, 2015. 13  Otting also served as chair of the California Chamber of Commerce, which labeled a state bill to protect widows and widowers from needless foreclosure as a “jobs killer” in 2015.14 We believe this is not the resume of a person qualified to oversee America’s national banks, a person who must assure that these banks play by the rules and who must put citizen interests first. If confirmed, Otting would succeed Keith Norieka, the acting Comptroller, who has worked to undermine critical safeguards such as the Consumer Financial Protection Bureau’s rule barring mandatory arbitration clauses in financial contracts and the Volcker Rule restrictions on bank gambling with deposits. While these statements and actions of Norieka cannot be definitively identified with the views of Comptroller- nominee Otting, certainly, whether Norieka’s positions reflect Otting’s should be explored in the open forum of the confirmation hearing. Randal Quarles The position of Vice Chair of Supervision at the Fed for which Quarles is nominated is critical, one of the most important in federal government regarding bank oversight. Created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act under Section 1108, the vice chair oversees the largest banks, develops appropriate regulations, and reports to Congress twice a year. America’s largest banks remain a threat to financial stability. Emergency measures during the 2008 financial crash exacerbated this problem, as faltering financial firms were merged into ever larger institutions. Quarles served in the Bush Administration’s Treasury Department as Under Secretary for Domestic Finance in the years leading to the financial crisis of 2007. This afforded him a perfect vantage point to understand the extraordinary peril in the housing market. And his speeches at the time indicate that he did perceive serious weaknesses. Instead of working to address problems, he publicly minimized them and lauded the basic health of this sector.15

11 Waters Statement on the Nomination of Joseph Otting, OFFICE OF REP. MAXINE WATERS (June 6, 2017) https://democrats-financialservices.house.gov/news/documentsingle.aspx?DocumentID=400494 12 CRC Statement on Joseph Otting, CALIFORNIA REINVESTMENT COALITION (March 22, 2017) http://www.calreinvest.org/news/california-reinvestment-coalition-releases-statement-on-joseph-ottings- possible-nomination-for-comptroller-of-the-currency 13 Letter to Comptroller of the Currency, CALIFORNIA REINVESTMENT COALITION (Nov. 16, 2015) https://badbankmerger.com/citna-bank-cra-exam/ 14 Mortgage Help Needed for Relatives of Deceased, EAST BAY TIMES (April 25, 2015) http://www.eastbaytimes.com/2015/04/25/drummond-mortgage-help-needed-for-relatives-of-deceased/ 15 Remarks of Randal Quarles before Women in Housing and Finance, DEPARTMENT OF TREASURY (June 13, 2008) https://www.treasury.gov/press-center/press-releases/Pages/js4316.aspx Now, in the wake of the devastation he failed to mitigate, he has proposed rolling back many of the safeguards Congress approved with the Wall Street Reform and Consumer Protection Act. He has opposed raising capital, which is one of the central tools that the Federal Reserve has deployed to strengthen safety. He dismisses concerns that some of the banks are still .16 He has criticized the Volcker Rule17 calling it “principally political.”18 Meanwhile, the crisis meant profit for Quarles. He left government to join the buyout firm Carlyle Group LP. Observed , Quarles “was part of a team that invested in troubled or failed banks while he was an executive at private-equity firm Carlyle. Those investments earned hundreds of millions of dollars for Carlyle, profits that would not have been possible without government support.”19 On monetary policy, Quarles supports the Taylor rule, named for Sanford Professor John Taylor, under whom Quarles served at the Treasury Department. This constitutes a radical departure from current practice and would subordinate the Federal Reserve’s mandate to promote full employment to credit market certainty.

To date, Trump’s appointments have navigated an unmistakable course to deregulation. In the wake of a financial crisis that drained more than $10 trillion from the economy, costing millions of Americans their jobs, homes and savings, this is unacceptable. The Treasury financial sector blueprint report makes explicit that it aims to accomplish as much as possible through its regulators and without congressional action.20 The Quarles and Otting nominations fit squarely in this deregulation agenda. Since personnel is policy, senators who understand the importance of Wall Street reform should send a clear message and reject this nomination. President Trump’s rejection of the importance of financial regulation and the essential role of independent agencies in particular, means that the Senate must exercise a check and balance on this push to roll back hard-won financial safeguards put in place to insulate our economy from another crash. We ask that you oppose these nominations. For questions, please contact Bartlett Naylor at [email protected].

Sincerely,

Public Citizen

16 Randal Quarles, Focusing on Bank Size, Missing the Real Problem, Wall Street Journal (March 31, 2016) https://www.wsj.com/articles/focusing-on-bank-size-missing-the-real-problem-1459466136 17 Ronald Oral, These are the Top Obama Era Regulations at Risk From Trump’s New Bank Supervisor Pick, THE STREET (July 11, 2017) https://www.thestreet.com/story/14221090/1/obama-era-regulations-at-risk-from-trump-s- bank-supervisor-pick.html 18 Interview, Bloomberg (May 6, 2015) https://www.bloomberg.com/news/videos/2015-05-06/bernanke-using- powers-for-good-at--randy-quarles 19 Pete Schroeder, Trump nominee has history of benefitting from , REUTERS (July 12, 2017) http://www.reuters.com/article/us-usa-banks-regulation-quarles-idUSKBN19X2ZT 20 Bartlett Naylor, Treasury’s Treasures for Wall Street, PUBLIC CITIZEN (June 15, 2017) http://www.citizenvox.org/2017/06/15/treasurys-treasures-wall-street/