Diversity, inflation and payment fraud at the center of hearings

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The CEOs of the nation’s largest consumer banks are due to testify before lawmakers this week in a pair of congressional hearings scheduled for Wednesday and Thursday.

Democrats are expected to grill CEOs over reports of consumer abuse and their companies’ lack of diverse leadership, while Republicans are likely to ask questions of bank executives who they say have bowed to social pressure over their abortion and gun policies, according to industry watchers and committee documents released ahead of the hearings.

“I expect lawmakers to really engage in this hearing, one of this Congress’ last successful hearings with high profile witnesses,” said Aaron Cutler, partner at Hogan Lovells. “It certainly won’t be a 90-minute hearing.”

JPMorgan Chase’s Jamie Dimon, Bank of America’s Brian Moynihan, Wells Fargo’s Charlie Scharf, Citi’s Jane Fraser, US Bank’s Andy Cecere, PNC’s William Demchak and Truist’s Bill Rogers are scheduled to testify at both hearings.

“As Congress seeks to address major issues such as widespread racial inequities in financial services, systemic risks to our financial system, including climate change, as well as the ongoing COVID19 pandemic and the Russia’s invasion of Ukraine, this hearing will bring greater transparency and accountability to the actions of these major industry players,” the leadership of the House Financial Services Committee said in a statement. a description of Wednesday’s hearingwho also highlighted mergers and abortion policies as topics CEOs will need to address.

A statement released Monday by Democrats on the Senate Banking Committee outlines topics Senate Democrats are likely to focus on, with staff highlighting payment fraud, banks’ prioritization of those who got Paycheck Protection Program (PPP) loans, as well as Overdraft Strategies.

“While the nation’s largest banks reap enormous profits, they have continued to disappoint their customers and employees,” the Senate Democrats wrote. “Banks are taking billions in overdraft fees from customers, putting their wealthy Wall Street clients on small businesses and Main Street consumers for PPP loans during the pandemic, and failing to help customers whose money is stolen from Zelle – a payment network owned by seven banks, including Bank of America, JPMorgan Chase, PNC, Truist, US Bank and Wells Fargo.

In the statement, Democrats on the Senate Banking Committee also highlighted reports of branch closures and payment fraud at US Bank, PNC and Truist, saying the reports describe consumer abuse by the companies. .

The committee said it plans to release a similar “snapshot” for other banks who testified later this week.

Diversity

House Democrats could focus on the lack of diverse leadership at some of the biggest banks, said Mayra Rodriguez Valladares, a financial markets consultant and trainer who works with banks on risk and management issues.

The House passed the Racial Equity, Inclusion, and Economic Justice in Financial Services Act this year, and House Financial Services Committee Chair Maxine Waters, D-CA, said spearheaded several efforts over the past few years aimed at collecting data on diversity and inclusion from the largest institutions in the country.

“House Democrats will likely wonder why boards and management levels are still not diverse,” Valladares said. “There’s no reason banks can’t spend more time at historically black colleges or those with large numbers of Hispanics throughout the Southwest, in particular.”

Republicans, meanwhile, will likely push back on diversity and the banks’ environmental, social and governance (ESG) efforts, Valladares added.

Cutler said he expects Republicans to focus on CEOs who have taken a forward-thinking stance on climate change, guns and other social policies.

Abortion

On abortion, Republicans may find Fraser an easy target, following Senate and House lawmakers calls for an end to the contractual relations of their chambers with the bank over an announcement in March that the company will cover travel costs for employees wishing to benefit from the procedure.

Fraser said the bank’s decision to cover abortion travel costs is not a political statement but a long-standing company policy.

Inflation

Lawmakers can also question CEOs about consumer financial health, as well as the impact of rising inflation on bank balances and income statements.

“Rising inflation means banks are making money off consumers who have to pay more on their debt,” Valladares said. “Hwhateverinflationary pressures could eventually cause consumers to default on their credit cards and other variable rate credit instruments.

Sherrod Brown, D-OH, Chairman of the Senate Banking Committee, told Reuters Monday that lawmakers “will continue to hold the nation’s largest banks accountable so that Americans can keep more of their hard-earned money — for a time when they need it most.”

Jeremy Kressassistant professor of business law at the University of Michigan, said he hopes lawmakers will ask banks when they plan to raise deposit rates.

“We’ve seen the Fed raise interest rates, which means banks are earning more on their loans and reserves. So far, however, banks have generally not passed on rate hikes to their depositors,” he said. “That suggests to me that the banking system is not as competitive as is generally believed.”

Lawmakers can also question CEOs about the financial health and resilience of their institutions in light of a future economic downturn, Cutler said.

“Each side could raise living wills and capital ratios to ensure banks are well positioned to [an] next US recession,” he said.

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