On May 20, the Office of the Comptroller of the Currency announced a final rule to modernize the regulatory framework implementing the Community Reinvestment Act. The final rule marks the culmination of a three-year effort led by the Treasury Department to revamp the CRA and arrives exactly six weeks after the comment period on the notice of proposed rulemaking (NPR) closed on April 8, 2020.
Significantly, while the Federal Deposit Insurance Corporation joined the OCC in issuing the NPR, the FDIC did not join in promulgating the final rule. The Federal Reserve Board was not party to the NPR or the final rule. Accordingly, banks whose prudential regulator is the FDIC or the Federal Reserve will continue to be subject to the existing CRA regulations.
The OCC’s rule, while technically effective October 1, 2020, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024. In the interim, a performance evaluation conducted after October 1, 2020, and before January 1, 2023 or 2024, as applicable, would permit banks to rely on the current performance standards and tests or on the final rule.
The following are key takeaways from the final rule:
- Metrics: Like the NPR, the final rule establishes a series of metrics as the primary basis for evaluating a bank’s CRA performance. These metrics, applied to each assessment area and bankwide, will use a bank’s call report data to determine the amount of its qualifying activities — specifically, the volume of mortgage, consumer, small business and small farm loans, and community development lending and investments. The value of certain activities, such as investments in community development financial institutions and in CRA deserts, would be upwardly adjusted through the use of multipliers.
- Metric-Based Benchmarks: The final rule states that there will be quantitative benchmarks established as part of the metrics for determining a bank’s CRA rating. However, unlike the NPR, the OCC did not provide the specific rating thresholds for determining sufficient CRA activity based on existing data. Instead, banks will submit their lending data according to the contours of the final rule, which the OCC will then analyze to set thresholds for outstanding, satisfactory, needs to improve, and substantial noncompliance ratings.
- Deposit-Based Assessment Areas: The final rule preserves and expands upon the current requirements tying assessment area delineation to locations where a bank has a physical presence. Under the final rule and as provided in the NPR, banks sourcing 50 percent or more of their retail domestic deposits from outside their facility-based assessment areas must also designate assessment areas wherever they receive five percent or more of those deposits. The final rule permits banks to delineate those assessment areas as broadly as statewide, which is more flexible than allowed by the NPR.
- Consumer Lending: The final rule provides for the mandatory inclusion of consumer loans, other than credit cards and overdraft products, in a bank’s CRA evaluation. Credit card and overdraft products were included in the NPR. Note that inclusion of consumer loans is essentially optional under the current CRA framework.
- List of Pre-Approved CRA Activities: Accompanying the final rule, and consistent with the NPR, the OCC published a nonexhaustive illustrative list of activities that qualify for CRA consideration. The final rule also establishes a process for stakeholders to submit additional items for inclusion on the list.
- Small and Intermediate Banks: The final rule provides that small banks, defined as those with assets of $600 million or less (up from $326 million) and intermediate banks, defined as those with assets of $2.5 billion or less (up from $1.305 billion), will have the option to decide whether to be evaluated under existing CRA criteria or the new framework.
- Retention of Wholesale and Limited Purpose Designations: The final rule preserves wholesale and limited purpose designations and the applicable community development test. The NPR had eliminated those designations and contemplated subjecting such institutions to the same evaluation standards as large banks.
- Mortgage Lending: As with the NPR, the final rule provides that the OCC will no longer qualify mortgages made to middle- and upper-income borrowers in low- or moderate-income census tracts for CRA consideration.
The final rule is nearly 400 pages, and contains significantly more information than summarized above. Orrick will offer a webcast in the near future to discuss the final rule in greater detail.
If you have any questions about the CRA or other related issues, please contact an Orrick attorney with whom you have worked in the past.