A high-profile Washington advocacy group improperly solicited $2.4 million in contributions from banks at the same time it was being paid by the U.S. Department of Housing and Urban Development to test those financial institutions for possible discrimination, a federal watchdog has found.
The National Community Reinvestment Coalition (NCRC) was “creating conflict of interest situations” by performing the dual roles, HUD’s inspector general concludes in a little-noticed report this month that highlights one of the potential perils of the government’s use of nonprofits to do federal work.
The group is sharply contesting the finding, telling The Daily Beast that it created a firewall between its fundraising and testing operations and that the report’s conclusions are “misleading and exaggerated.”
NCRC’s mission is to push banks to provide credit and capital for low-income and minority communities; its leader, John Taylor, is often quoted in news accounts, and was invited to the 2010 signing of financial-reform legislation by President Obama. Billing itself as a “private attorney general,” the nonprofit tests banks, using undercover loan applicants, for evidence of racial, ethnic, or other forms of illegal bias, and then files complaints against financial institutions that it says don’t comply with the law.
Federal agencies frequently hand out grants to nonprofits to extend the work of the government on everything from encouraging affordable housing to providing legal help to the poor. In NCRC’s case, the group had received a HUD grant to test 38 large banks in 2009 and 2010 for possible discrimination, and during that time it asked for and received donations from 10 of those banks, HUD’s internal watchdog found. The inspector general concluded that NCRC “improperly accepted approximately $2.4 million” from the banks it was testing.
Among the donors who shelled money out to the advocacy group are some of the nation’s big banks, many of which were heavily involved in the subprime-mortgage scandals. Citibank, one target of NCRC’s tests, gave it $755,000, the watchdog said; Bank of America’s foundation contributed $450,000. JPMorgan Chase and Wells Fargo each donated $400,000.
Taylor himself appears to have been active in fundraising, according to records attached to the audit. “Dear John,” wrote a Suntrust executive sending a check in February 2010, “It was good to see you in New York last month. Enclosed is check number 21819 in the amount of $30,000 from the Suntrust Foundation.”
In the same month, a Regents Bank executive wrote, “Dear John, On behalf of Regents Bank I am pleased to present to you the enclosed $50,000 check for our sponsorship of your 2010 annual conference.”
The tests performed by NCRC on the banks are part of the government’s Fair Housing Initiatives Program, a popular program that pays groups such as NCRC to investigate lending practices and to educate the public about laws that ban discrimination in lending. Between 2007 and 2010, NCRC received $2 million in HUD funding, the inspector general reported.
In letters to HUD’s inspector general, Taylor contested the findings. “NCRC,” he wrote to auditors in October, “has taken enforcement action in its role as a ‘private attorney general.’” He argued that the audit summary was “sensationalized,” with a “misleading and exaggerated claim” that “causes significant and unnecessary reputational issues for NCRC.”
Taylor’s central argument against the inspector general’s findings is the NCRC's “firewall policy,” which he said separates its fundraising operations from its investigative operations. As there is no connection between the two, he says, there is no conflict.
“The factual bases for this conclusion, and the legal interpretation,” he said of the inspector general’s finding, “are so badly flawed that they render this finding erroneous.”
Karen Hinton, a spokeswoman for NCRC, insisted that HUD was well aware that banks gave NCRC money and that it had a firewall policy. She compared the “firewall”—the separation between fundraising and investigating at NCRC—to the policies of news organizations that rely on ad sales for revenue. “You don’t let your advertisers tell you what to write,” she said, “and we don’t let our donors tell us who to test and who not to test and how to test them.”
NCRC also pointed out that much of the funding came from the banks’ foundations—the charitable arm of the financial institutions—rather than directly from the banks it tests.
The audit was prompted by a letter to the HUD inspector general from Sen. David Vitter (R-La.) in December 2010, the month when NCRC filed complaints with HUD against 22 lenders. Vitter said his office had received complaints from financial institutions tested by NCRC alleging that “resolving the matter with NCRC and avoiding a fair lending complaint involves activities such as making a significant contribution to NCRC.”
In his letter, Vitter said, “This behavior is tantamount to blackmail.”
Evidently, though, the NCRC investigation Vitter referred to was not funded by HUD, though other NCRC investigations are federally funded.
NCRC said it has been the target of banks and conservative interests. “Conservative members of Congress have been after this program for years,” Hinton said.
Donations by the banks don’t affect NCRC’s tests or its public campaigns, she said, citing its vocal opposition to the proposed Capital One merger with ING Direct. Hinton said Capital One had been a donor to NCRC.
In October 2011, a month before the audit was released, the group was awarded $1.1 million in new HUD funding to fight unfair lending, part of $28 million distributed across the country for the Fair Housing Initiatives Program.