Acting alone, OCC issues rewritten CRA rules; FDIC takes a pass, industry cool to changes

A final rule rewriting rules implementing anti-redlining laws was released by the Office of the Comptroller of the Currency (OCC) Wednesday, which the agency said included at least four changes from the proposal released in December.

The OCC was the only one of the three federal banking agencies to finalize the rewrite of the rules for the Community Reinvestment Act (CRA). The Federal Reserve had previously declined to join in the proposal.

The Federal Deposit Insurance Corp. (FDIC), which jointly issued the proposal with the OCC, declined to finalize the rewritten rule “at this time.” A statement issued by FDIC Chairman Jelena McWilliams Wednesday cited challenges related to the coronavirus crisis in deciding not to join the OCC in finalizing the rule.

This rule is effective on Oct 1; banks must comply with the final amendments by Oct. 1, 2020, Jan. 1, 2023, or Jan 1, 2024, as applicable.

Initial industry reaction to the OCC’s final rule was muted. The American Bankers Association, in a statement Wednesday, said “we remain concerned about key provisions of the final rule including the substance & complexity of the performance measurement benchmarks, which will present significant data collection challenges for banks.” The association, the nation’s largest for banks, said its members “still have many questions.”

In addition to the FDIC choosing not to join in issuing the final rule, and an unenthusiastic response from the industry, the OCC unveiled its new, final rule to reporters without Comptroller Joseph Otting in attendance. A Wednesday press briefing on the final rule was reportedly led by OCC Chief Operating Officer Brian Brooks. No reason was given for Otting’s absence from the briefing.

The reform of the CRA rules, according to the OCC and FDIC, is designed to create more descriptive and expansive criteria for the types of activities that qualify for CRA credit. Among other things, it is designed to provide “defined criteria” that identify the types of activities that meet the credit needs of banks’ communities and, thus, can be considered qualifying activities.

The agencies have said the criteria would both encompass the many activities that currently qualify for CRA consideration and include additional activities that meet the credit needs of banks’ communities, such as expanding credit to areas considered distressed or underserved.

Second, the agencies have said, the reformed rules would require regulators to publish periodically a list of non-exhaustive, illustrative examples of qualifying activities; and establish a process for stakeholders to seek agency determination if an activity is a qualifying activity. (Since the FDIC did not sign on to the final rule, it will not be publishing such lists, at least for now.)

In a release, the OCC said changes made to its final rule include:

  • Clarifying the importance of the quantity and quality of community lending activities as well as their value.
  • Increasing credit for mortgage origination to promote availability of affordable housing in low- and moderate-income areas.
  • Clarifying credit for athletic facilities to ensure they benefit and support low- and moderate-income communities.
  • Deferring establishment of thresholds for grading banks’ CRA performance and delineating banks’ deposit-based assessment areas until the OCC assesses improved data required by the final rule.

“The final rule addresses the shortcomings in the current CRA regulatory framework that has not kept pace with banking industry advancements, and ensures the regulations no longer adversely affect the very communities the CRA was intended to help,” the OCC said in a statement.

In his own written statement (also released Wednesday), Comptroller Otting said his agency is aware of what he termed weakness in existing data regarding CRA performance. “The final rule addresses this concern by clearly defining the data needed to objectively evaluate CRA performance and establishing the necessary recordkeeping and reporting to make that data accessible,” he said. “The final rule defers setting thresholds for grading banks’ CRA performance until the OCC can assess this improved data. During the interim period, examiners will evaluate banks’ CRA performance using the current approach, using all available information, and considering all CRA qualifying activity identified in the new rule.”

Otting also pointed out that the final rule preserves examiner judgment requiring examiners to consider performance context and evidence of discrimination and illegal credit activity before assigning final ratings.

“I want to make clear that the final rule makes no change to our commitment and obligation to fight discrimination and redlining. We will continue to address these illegal practices through our fair lending examinations and, when necessary, enforcement authority under applicable laws,” Otting said.

CRA Final Rule

List of CRA Qualifying Activities

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