As OCC finalizes rewrite of CRA rules, FDIC backs off, citing ‘herculean effort’ on pandemic

In a major setback for uniform reform of rules implementing anti-redlining laws, the federal insurer of bank deposits said Wednesday it was not ready to finalize a joint proposal on rewriting the rules, citing challenges related to the coronavirus crisis.

The action came after the agency’s partner in reforming the rules, the regulator of national banks, announced that it had finalized the proposal.

In a release, Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams said her agency is not prepared to finalize “at this time” the proposal it and the Office of the Comptroller of the Currency (OCC) released for comment late last year.

“The FDIC recognizes the herculean effort community banks are making to support America’s small businesses and families during this challenging time and encourages financial institutions to work constructively with borrowers affected by COVID-19,” McWilliams said.

McWilliams noted that the FDIC “strongly supports” efforts to make rules implementing the Community Reinvestment Act (CRA) more clear, transparent and less subjective. “There are many provisions in the final rule that will greatly benefit low- and moderate-income communities, and provide greater clarity to banks on CRA expectations,” she said.

The comment period on the proposal (which had been extended from March) closed April 13. About 1,350 comments were generated over the nearly 90-day period.

Earlier Wednesday, the OCC announced it had released a final rule “strengthening and modernizing” the agency’s CRA regulations.

“The final rule will increase bank CRA-related lending, investment, and services in low- and moderate-income communities where there is significant need for credit, more responsible lending, and greater access to banking services,” the OCC said in a statement. “The final rule reflects careful consideration of the more than 7,500 comments stakeholders submitted in response to the notice of proposed rulemaking announced on December 12, 2019.”

(The 7,500 comments referred to were collected over a period of time that included both the official comment period and in the year prior to the proposal’s release.)

The proposal, issued jointly by the FDIC and the OCC, was never joined by the Federal Reserve. Fed Chair Jerome H. (“Jay”) Powell told lawmakers early this year he was not certain when or if the Fed might act on the joint proposal, or any, on the issue. He also said discussions among the Fed and the other two regulators on this issue had ceased after the release of the December proposal.

The proposal was also strongly criticized by Democratic lawmakers in both the House and Senate. At a hearing May 12 before the Senate Banking Committee, Democratic senators repeatedly asked Comptroller Joseph Otting to either postpone the proposal or drop it outright.

In response, Otting said the OCC was looking at accelerating the timetable for making the proposal final during the coronavirus’ impact on the financial system. He said that approach would ““drive more dollars into LMI (low-to-moderate income) communities across America.”

Committee Ranking Democrat Sherrod Brown (Ohio) told Otting that he was “just incredulous that our regulators continue to want to move forward” with the CRA reform proposal.

Statement by FDIC Chairman Jelena McWilliams on the CRA Joint Proposed Rulemaking

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