Working together to jointly strengthen rules implementing anti-redlining laws is a commitment made by the three federal banking agencies Tuesday, according to a statement released by all three.
The statement was released after one of the regulators – the Office of the Comptroller of the Currency (OCC) – said Tuesday it would propose rescinding its Community Reinvestment Act (CRA) rule adopted in 2020.
In their joint statement, the OCC, along with the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) said they have broad authority for implementing the CRA, and indicated that working together would be the better approach. “Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods,” the agencies stated.
Acting Comptroller Michael J. Hsu, in his statement issued before the joint regulators’ release, said the decision to rescind the 2020 rule was the result of a review he initiated shortly after taking office in early May. He indicated strengthening and modernizing the CRA rules – which implementing 1970s legislation designed to thwart redlining in lending by banks – was necessary to ensure fairness during “persistent and rising inequality and changes in banking.”
“The disproportionate impacts of the pandemic on low- and moderate-income communities, the comments provided on the (Federal Reserve) Board’s Advanced Notice of Proposed Rulemaking, and our experience with implementation of the 2020 rule have highlighted the criticality of strengthening the CRA jointly with the Board and FDIC,” Hsu said.
The acting comptroller gave credit to the agency he now leads for taking action last year to modernize the CRA rules. However, he said he believes the 2020 rule was “a false start.”
“This is why we will propose rescinding it and facilitating an orderly transition to a new rule,” Hsu said. “I look forward to working with the other agencies to develop a joint Notice of Proposed Rulemaking and building on the ANPR proposed by the Board in September 2020.”
The OCC had announced in mid-May of this year that it would reconsider the June 2020 rule. It said then that it “will not object” to banks suspending their work toward meeting the compliance requirements that kick in beginning January 2023.
The June 2020 rule was finalized by the OCC alone; neither the Federal Reserve Board nor the FDIC was party to that action, and the final OCC rule received a poor response from the banking industry. Meanwhile, the Fed issued its own advance notice of proposed rulemaking (ANPR) on modernizing CRA rules in September 2020, with a 120-day comment period. The notice was issued on a 5-0 vote by the Fed board.
Last year’s OCC rule (which Hsu is now proposing to rescind) was finalized under the leadership of then-Comptroller Joseph P. Otting. That process began with an ANPR in 2018 and was joined in the proposed rulemaking last year by the FDIC. Only the OCC, however, was party to the final rule issued in May 2020.
Otting resigned day the OCC rule was finalized. That rule left the banking industry with two sets of federal CRA rules: one, last revised 25 years ago, that applies to banks primarily supervised by the Fed and the FDIC; and one for OCC-supervised banks, though the OCC has noted that full compliance with the rule changes wouldn’t be required until 2023.