Acting comptroller seeks strengthened – not simply modernized – CRA rules; decries ‘trust-eroding’ programs

Strengthening, not just modernizing, anti-redlining rules will be necessary to reduce economic inequality and foster trust, the nation’s national bank regulator said Wednesday.

In remarks to a Washington group that includes as members bankers, regulators, trade group representatives, and lawyers, Acting Comptroller of the Currency Michael Hsu said strengthening rules that implement the anti-redlining Community Reinvestment Act (CRA) to foster economic equality and trust means substantially increasing the level of lending, investments, and services to low- and moderate-income (LMI) communities.

“Just as importantly, banks need to increase their engagement with community groups so that the specific needs of each community, which vary widely, are understood and are met,” Hsu said. “Today we are one step closer to this. Last week, the OCC formally proposed rescinding the agency’s 2020 final rule and committed to working with the other federal banking regulators to develop a joint CRA proposal.”

On Sept. 8, the OCC proposed rescinding by Jan. 1 its own CRA rule, adopted in 2020 alone by the agency, and replacing it with rules based on a 1995 interagency rule. The agency said reinstatement of the 1995 rules “would allow for an orderly transition to future, modernized CRA rules.” Comments are due by Oct. 29.

An effective date of Jan. 1, 2022, for any final rules is anticipated, the agency said last week, provided the rules are published by Dec. 1.

In other comments, Hsu said he is concerned with programs, such as buy-now-pay-later (BNPL), in which the value proposition to those who administer the programs rest on recurring penalties. He said that by contrast, banking products and programs that provide financial flexibility and enhance the financial capacity of consumers are trust-building. “Any product or program that relies on recurring penalties to be profitable is a trust-eroding one,” the regulator said.

Hsu also asserted that the public expects the financial regulatory community to work together to ensure the stability of the system and fairness to its participants.

“There are hopeful signs,” Hsu said. With regards to cryptocurrency, he noted, a working group appointed by President Joseph Biden (D) – including the Treasury Department, OCC, the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), Securities and Exchange Commission (SEC), and the Commodities Futures Trading Commission (CFTC) – is expected to issue a paper on stablecoins later this fall.

He said, additionally, that the federal banking agencies have been collaborating via a “crypto policy sprint” to agree on definitions, use cases, risks, and gaps, and to discuss policy options related to digital assets.

“While controlling the growth of crypto and defi (decentralized finance) is challenging given their nature and in light of market demand, it is imperative that financial regulators work together to ensure that crypto/defi activities that take place within the banking system or are facilitated by banks are trustworthy,” he said, adding that state bank regulators would be included in the cooperation. “Innovation is important, but safeguarding trust is paramount,” he said.

“Safeguarding Trust in Banking;” Remarks by Acting Comptroller of the Currency Michael Hsu, Exchequer Club, Washington, D.C., Sept. 15, 2021

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