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On January 10, the OCC issued a request for public input (RFI) to aid the OCC and the FDIC in determining how their joint notice of proposed rulemaking might be revised to ensure the final rule achieves the purpose of the Community Reinvestment Act (CRA). A previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The RFI “seeks bank-specific data and information to supplement currently-available data and to inform potential revisions to modernize and strengthen the CRA regulatory framework,” and specifically requests four types of bank data covering the past three years: (i) retail domestic deposit activities; (ii) total qualifying activity data; (iii) data on qualifying retail loans originated and sold within 90 days; and (iv) other retail loan data by census tract. Comments on the RFI are due March 10.
On January 8, Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the Community Reinvestment Act (CRA) modernization process, explaining why the agency chose not to join the notice of proposed rulemaking (NPR) issued in December by the OCC and the FDIC. As previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The NPR was published in the Federal Register on January 9, with comments due March 9.
According to Brainard, “it is more important to get the reforms done right than to do them quickly.” This includes, Brainard emphasized, “giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations.” Specifically, the Fed’s proposed approach for measuring banks’ CRA compliance uses “a set of tailored thresholds that are calibrated for local conditions” through the creation of two tests: (i) a retail test, applicable to all retail banks, that “would assess a bank’s record of providing retail loans and retail banking services in its assessment areas”; and (ii) a community development test, applicable to large banks, wholesale banks, and limited-purpose banks, “that would evaluate a bank’s record of providing community development loans, qualified investments, and services.” Banks would then be provided a dashboard related to its retail lending activity, as well as metrics concerning its community development performance.
Brainard also commented that separating evaluations into two different tests is important because “an approach that combines all activity together runs the risk of encouraging some institutions to meet expectations primarily through a few large community development loans or investments rather than meeting local needs.” She explained that having separate tests would ensure that performance metrics are tailored for banks of different sizes and business models, and would “provide greater scope to calibrate the evaluation metrics to the opportunities available in the market, which can differ for retail lending and community development financing.” Further, Brainard stated that using metrics based on a bank’s retail output on the number of loans rather than the dollar volume would help to measure how well a bank is serving the needs of both low- to moderate-income communities and “avoid inadvertent biases in favor of fewer, higher-dollar value loans.”
On December 31, the Federal Reserve Board, the OCC, and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks and small and intermediate small savings associations. A “small” bank or savings association is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.305 billion in assets. An “intermediate small” bank or savings association is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $326 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.305 billion in assets. This joint final rule became effective on January 1.
On December 16, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2018 small business, small farm, and community development CRA data. The analysis contains information from 700 lenders about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2018, a 2.2 percent decrease from the 718 lenders that reported data in 2017. According to the analysis, the total number of originated loans increased by approximately 8 percent from 2017, with the dollar amount of originations increasing by roughly 5 percent; however, the analysis notes that the majority of this growth is attributable to one bank’s increase in originations. The analysis further notes that 615 banks reported community development lending activity totaling nearly $103 billion in 2018, an increase from $96 billion in 2017.
On December 12, the OCC and the FDIC jointly issued a notice of proposed rulemaking (NPR) to modernize the regulatory framework implementing the Community Reinvestment Act. The NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting.
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Click here to read the full special alert.
If you have any questions regarding the CRA or other related issues, please visit our Fair Lending practice page or contact a Buckley attorney with whom you have worked in the past.
McWilliams highlights upcoming CRA examination updates for MDIs, encourages partnerships between community banks and fintechs
On October 2, FDIC Chairman Jelena McWilliams spoke at the National Bankers Association’s annual convention to discuss the agency’s objectives regarding minority depository institutions (MDIs). McWilliams highlighted recent FDIC initiatives, including past and future roundtable discussions between large and minority banks regarding potential partnership opportunities. McWilliams noted that many large banks are unaware of how these partnerships can count for Community Reinvestment Act (CRA) credit. Therefore, the FDIC is updating its examiner instructions for CRA performance evaluations to identify activities involving MDIs. McWilliams also reminded attendees about the upcoming inaugural meeting of the agency’s new MDI Subcommittee to its Advisory Committee on Community Banking, which will focus on issues, tools, and resources unique to MDIs. One of the subcommittee’s goals, she noted, is to “identify additional opportunities to provide regulatory relief for MDIs with less-complex balance sheets while maintaining safety and soundness.” Concerning the FDIC’s franchise-marketing process for failing MDIs, McWilliams commented that “[g]oing forward, when a new marketing initiative begins, we will provide a two-week window exclusively for MDIs,” and will also contact all qualified MDIs on the bid list and provide technical assistance.
Earlier, on October 1, McWilliams delivered keynote remarks at the Federal Reserve Bank in St. Louis, in which she warned community banks that their ability to survive and thrive depends on their ability to innovate and adapt to changing technology. Specifically, McWilliams discussed the growth of digitization, open banking, machine learning/artificial intelligence, and personalization, stressing that banking technology is advancing at a “relentless pace.” Consequently, “we all must challenge ourselves to think about what that means for the future of the banking industry, and community banks in particular.” McWilliams noted, however, that community banks’ inability to keep pace with innovation is due to both cost and regulatory uncertainty. “The cost to innovate is in many cases prohibitively high for community banks. They often lack the expertise, the information technology, and research and development budgets to independently develop and deploy their own technology.” She suggested that community banks partner with fintech firms that have already developed, tested, and rolled out new technology, and emphasized that her goal is for the FDIC to lay “the foundation for the next chapter of banking by encouraging innovation that meets consumer demand, promotes community banking, reduces compliance burdens, and modernizes our supervision.”
On July 31, the OCC issued Bulletin 2019-40, which provides guidelines for requesting designation as a wholesale or limited purposes bank for Community Reinvestment Act (CRA) purposes, or requesting confirmation of exemption as a special purposes bank under the CRA. The guidelines summarize the process for requesting or confirming designation, including (i) information that a bank should provide to substantiate its request; (ii) instructions on how to submit requests; and (iii) the review and approval process. Among other things, the OCC encourages banks seeking confirmation or designation to request an informal consultation with the bank’s supervisory office. As for such a request, the OCC notes that it is customary to include a description on how the bank satisfies the definition for a wholesale bank, limited purposes bank, or special purposes bank, including facts and data sufficient to describe the nature of the bank's current and prospective business, the credit products offered, and the market area served. Within 60 days of receiving a complete designation or confirmation request, the OCC will notify the bank of its decision to approve or deny the request. For designations as wholesale or limited purpose, the designation will remain in effect until the bank requests revocation or one year after the OCC notifies the bank it has revoked the designation. For special purpose confirmations, the exemption remains in effect until the OCC is informed the exemption no longer applies. Designation and confirmation requests may be made available to the public under the Freedom of Information Act (FOIA), but a bank may request confidential treatment for information that would normally be exempt from FOIA disclosure requirements.
On July 26, the FDIC issued Financial Institution Letters FIL-44-2019 and FIL-45-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Missouri and Texas affected by severe weather. FIL-44-2019 covers severe storms, tornadoes, and flooding causing significant property damage in areas of Missouri from April 29 through the present. FIL-45-2019 covers severe storms and flooding causing significant property damage in areas of Texas from June 24 to June 25. The regulatory guidance notes that certain areas in Texas and Missouri were designated federal disaster areas.
The FDIC is encouraging institutions to consider, among other things, extending repayment terms, restructuring existing loans, or easing terms for new loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.
Find continuing InfoBytes coverage on disaster relief guidance here.
On June 17, the OCC, together with the Federal Reserve and the FDIC, released the 2019 list of distressed or underserved communities where revitalization or stabilization efforts by financial institutions are eligible for Community Reinvestment Act (CRA) consideration. According to the joint release from the agencies, the list of distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies pursuant to their CRA regulations and reflect local economic conditions, including changes in unemployment, poverty, and population. For any geographies that were designated by the agencies in 2018 but not in 2019, the agencies apply a one-year lag period, so such geographies remain eligible for CRA consideration for another 12 months.
On June 13, the DOJ announced a settlement with an Indiana bank resolving allegations the bank engaged in unlawful “redlining” in Indianapolis by intentionally avoiding predominantly African-American neighborhoods in violation of the Fair Housing Act and ECOA. In the complaint, the DOJ alleges that from 2011 to 2017, among other things, the bank (i) excluded Marion County in Indianapolis and its “50 majority-Black census tracts” from its Community Reinvestment Act assessment area; (ii) did not have any branch locations in majority-Black areas of the county; (iii) did not market in the majority-Black areas of the country; and (iv) had a residential mortgage lending policy that allegedly showed preference to the location of borrowers, not the creditworthiness. Under the settlement agreement, which is subject to court approval, the bank will, among other things, expand its business services and lending to the predominantly African-American neighborhoods in Indianapolis and will invest at least $1.12 million in a special loan subsidy fund to be used to increase credit opportunities in the specified neighborhoods. Additionally, the bank will designate a full-time Director of Community Lending and Development to oversee the continued development of the bank’s lending in the specified areas.
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- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
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- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
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- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
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