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On August 3, the FDIC issued FIL-38-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky affected by severe storms, flooding, landslides and mudslides that began July 26 and is ongoing. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
The same week the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by flooding in Kentucky “for as long as deemed necessary for bank operation or public safety.” The proclamation directed institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
On July 19, Federal Reserve Vice Chair Lael Brainard spoke before the National Native Coalition Virtual Series regarding the Community Reinvestment Act (CRA) Notice of Proposed Rulemaking (NPRM). During her remarks, Brainard noted that in May, the Fed, FDIC, and OCC issued a joint notice of proposed rulemaking modernizing CRA regulations to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated (covered by InfoBytes here). Brainard called this a “once-in-a-generation opportunity to strengthen the CRA to bring greater credit, investment, and banking services to the communities that have faced the greatest challenges.” She further noted that “the CRA will provide powerful incentives for banks to make investments in communities that do not have access to branches, such as in Native lands.” Her speech then focused on several aspects of the proposal that are beneficial for Native communities. She stated that the NPRM “provides greater incentives for community investments in Native Land Areas by providing enhanced clarity and specificity about what activities qualify for CRA credit.” Noting that Native community development financial institutions and minority depository institutions “are critical players in supporting credit access and investment in Native communities,” Brainard explained that the proposal provides additional certainty that activities with Treasury-certified CDFIs will qualify for CRA consideration and provides greater clarity to banks on receiving credit for activities with MDIs. She also described “another important change” of the NPRM, which is that the proposal “would result in greater CRA activity outside of where banks have branches and physical locations in order to address unmet needs in communities that have more limited access to bank branches.” Brainard concluded her remarks by reminding the audience that comments on the NPRM are due August 5.
On July 15, the FDIC issued guidance (see FIL-31-2022 and see FIL-32-2022) to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by a severe storm, tornadoes, and flooding that occurred between May 2 and 8 and in areas of Montana affected by a severe storm and flooding that occurred from June 10 and continuing. The FDIC writes that, in supervising impacted institutions, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with borrowers impacted by the severe weather to extend repayment terms, restructure existing loans, or ease terms for new loans “in a manner consistent with sound banking practices.” The FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
On July 1, the FDIC, Federal Reserve Board, and the OCC released the 2022 list of distressed or underserved nonmetropolitan middle-income geographies where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration. The agencies designated the identified distressed or underserved nonmetropolitan middle-income geographies in accordance with their CRA regulations that continue to “reflect local economic conditions, including unemployment, poverty, and population changes.” As previously covered by InfoBytes, the agencies released a joint Notice of Proposed Rulemaking (NPRM) in May to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Under the CRA, banks are encouraged to help meet the credit needs of the local communities in which they are chartered, including low- and moderate-income neighborhoods. The agencies will receive comments on the NPRM through August 5.
On June 28, CFPB Deputy Director Zixta Martinez spoke before the FDIC Meeting of the Advisory Committee on Economic Inclusion to discuss expanding access to affordable payments, credit, and other financial products and services. In her remarks, Martinez first discussed electronic payments, which she considers to be “quickly supplanting cash and are now an essential part of the economy.” She then discussed the role of banks, noting that they have an “obligatory and leading role” in expanding electronic payments. Martinez stated that with “their obligations to increase banking access and reduce banking and financial inequities, banks can play a key role, for example, in reducing the persistent and growing homeownership gap between Black and white families and closing the economic gap between the banked and the under- and un-banked.” She also stated that having access to electronic payments will “low[er] monthly fees and further reduc[e] the cost of overdraft and non-sufficient fund fees” and will service banking deserts in rural areas and within communities of color. Martinez further discussed actions to build out banking access and described a recent proposal to update the Community Reinvestment Act’s (CRA) regulatory framework (covered by InfoBytes here). Martinez stated that the proposal will; (i) take steps to address problems with grade inflation on CRA exams (i.e., meaning that “almost every bank” passes”); (ii) “rely upon small business lending data, which will allow for a more in-depth understanding of small business lending issues,” race, and ethnicity; (iii) “increase incentives for banks to finance community development projects in areas experiencing persistent poverty”; and (vi) “recognize banks that assist low- and moderate-income communities with clean energy transition and climate resiliency.” Additionally, Martinez noted that the Bureau “is working to ensure that banking access and access to credit is not unfairly affected by algorithmic models.” In conclusion, she said the Bureau’s recently released guidance “confirm[s] that it is unlawful to use black box models that do not allow for clear understanding of adverse actions, such as denial of credit.” (Covered by InfoBytes here.)
On June 13, acting FDIC Chairman Martin J. Gruenberg provided remarks before the National Community Reinvestment Coalition (NCRC) regarding the Community Reinvestment Act (CRA). In his remarks, Gruenberg discussed “ten important provisions” in the rule proposed by the Federal Reserve Board, FDIC, and OCC in May. As previously covered by InfoBtytes, the notice of proposed rulemaking (NPRM) updates how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Calling the CRA “the foundation of responsible finance for low- and moderate-income communities in the United States,” Gruenberg noted that the “NPRM would significantly expand the scope and rigor of CRA and assure its continued relevance for the next generation.” To expand the scope of the CRA, he explained that the NPRM would “establish new retail lending assessment areas to allow for CRA evaluation in communities where a bank may be engaging in significant lending activity but where the bank does not have a branch.” He also noted that the NPRM would “raise the bar for CRA performance on the retail lending test in order for a bank to earn an outstanding or high satisfactory rating.” With respect to greater clarity for CRA evaluations, Gruenberg said that the NPRM would “clearly define community development activities by establishing eleven proposed categories of community development.” Regarding minority depository institutions, Gruenberg said that the NPRM “creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions.” Additionally, he noted that the NPRM would address credit or banking deserts, including rural areas, native lands, and areas of persistent poverty, and would encourage the retention or establishment of branches in low-to-moderate-income communities and low-cost transaction accounts.
On June 9, acting Comptroller of the Currency Michael J. Hsu spoke before the 2022 Community Development Bankers Association Peer Forum to discuss agency efforts to support underserved communities, as well as initiatives for revitalizing Minority Depository Institutions (MDIs) and increasing investments in Community Development Financial Institutions (CDFIs). Emphasizing the important role MDIs and CDFIs play in providing mortgage credit, small business lending, and other banking services to minority and low-to-moderate-income (LMI) communities, Hsu discussed ongoing challenges facing MDIs in terms of accessing capital and meeting customer needs. He noted that these challenges have caused many MDIs to close, fail, or be acquired by larger banks. Ensuring the survival of the remaining MDIs is important, Hsu said, since these are often the only financial institutions fulfilling minority communities’ financial needs. He further explained that the OCC is “doubling down” on Project REACh, which brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit (covered by InfoBytes here), and stated that Project REACh has “challenged large and midsize banks to sign a pledge to revitalize MDIs with capital investments, technical assistance, business opportunities, executive training, and other resources.” Hsu also discussed recently proposed interagency rules to modernize enforcement of the Community Reinvestment Act (CRA), which will also benefit MDIs and CDFIs. As previously covered by InfoBytes, the Federal Reserve Board, FDIC, and OCC issued a joint notice of proposed rulemaking (NPRM) in May 2022 to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
On May 9, the FDIC issued FIL-19-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of New Mexico affected by wildfires and straight-line winds that began on April 5. In the guidance, the FDIC writes that, in supervising institutions affected by the wildfires, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” 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. The FDIC will also consider relief from certain reporting and publishing requirements.
Separately, on May 6, HUD announced disaster assistance available to certain counties impacted by the New Mexico wildfires and straight-line winds, providing foreclosure relief and other assistance to affected homeowners. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. Furthermore, HUD is allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.
The federal banking agencies last week announced their highly anticipated proposal to revamp and modernize regulations implementing the Community Reinvestment Act. The proposal may significantly impact the compliance obligations of large banks, which the proposal generally defines as those with assets greater than $2 billion, while granting smaller banks the option of continuing to comply under the existing framework. The proposal aims to bring to a close the CRA reform process that began more than a decade ago, and was marked most recently by the OCC’s decision to pull back its 2020 regulatory overhaul (as covered by InfoBytes here).
On May 5, the Federal Reserve Board, FDIC, and OCC (collectively, “agencies”) issued a joint notice of proposed rulemaking (NPRM) on new regulations implementing the Community Reinvestment Act (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. According to the NPRM, the “CRA encourages banks to help meet the credit needs of the local communities in which they are chartered, consistent with a bank’s safe and sound operations, by requiring the Federal banking regulatory agencies to examine banks’ records of meeting the credit needs of their entire community, including low- and moderate-income neighborhoods.” The agencies are, among other things, proposing to:
- Expand access to credit, investment, and banking services in low- and moderate-income (LMI) communities to promote community engagement and financial inclusion. The proposal would also evaluate bank lending to small businesses and farms with gross annual revenues of $250,000 or less to maintain focus on the borrowers with the greatest need;
- Adapt changes to update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models;
- Use a retail lending volume screen and metric-based performance ranges to evaluate a bank’s retail lending volumes. CRA evaluations of retail lending and community development financing will include public benchmarks for greater clarity and consistency. The proposal would also clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities;
- Tailor CRA evaluations and data collection to recognize differences in bank size and business models. Smaller banks would continue to be evaluated under the existing CRA framework with the option of being evaluated under aspects of the proposed framework; and
- Maintain a unified approach across agencies and incorporate stakeholder feedback.
The agencies also released a Fact Sheet describing key elements of the proposal. Acting Comptroller of the Currency, Michael J. Hsu, called the issuance of the joint NPRM an “important milestone” in bringing the three federal banking agencies back together to develop a uniform approach for addressing inequalities in credit access and other financial services. Fed Governor Lael Brainard pointed out that “[t]he last major revisions to the CRA regulations were made in 1995.” “The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” she stressed. CFPB Director Rohit Chopra, who voted in favor of the NPRM as an FDIC board member, said the proposal “better effectuates Congressional directives intended to ensure that the needs of historically underserved individuals and communities are adequately met,” but reminded policymakers that it is also important “to consider whether nonbank mortgage lenders should also be required to better meet the needs of the communities they serve.” Treasury Secretary Janet Yellen similarly applauded the release of the NPRM. Comments on the NPRM are due August 5.
A Buckley Special Alert is forthcoming.
- Kathryn L. Ryan to host the affiliate members meeting at AARMR’s 2022 Annual Regulatory Conference & Training
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar