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CSBS: OCC’s proposed “non-branch” provisions undermine dual banking system
On August 3, the Conference of State Bank Supervisors (CSBS) issued its comment letter to the OCC’s Notice of Proposed Rulemaking (NPR) on national bank and savings association activities concerning “non-branch” offices. Specifically, CSBS wrote that the “non-branch” provisions in the NPR make “far-reaching” revisions without legal authority, undermine the dual banking system, conflict with National Bank Act (NBA) preemption limits, and would allow national banks to operate branches without complying with related Community Reinvestment Act (CRA) obligations. Additionally, CSBS contended that the OCC’s rulemaking process is “truncated and flawed,” and afforded a particularly brief period for public comments during the Covid-19 pandemic.
According to CSBS, the NPR, announced in June (covered by InfoBytes here), would “expand the scope of activities that may occur at non-branch offices purportedly without regard” to state restrictions. These activities include: (i) performing loan approval and origination functions at a single, publicly accessible office; (ii) disbursing loan proceeds through an operating subsidiary; and (iii) establishing drop boxes and other unstaffed facilities. CSBS also contended that the NPR’s non-branch provisions would undermine Congressional intent and give national banks competitive advantages over state-charted banks. CSBS further argued that the non-branch provisions conflict with Congress’ clear intention that “NBA preemption does not apply to agents, affiliates or subsidiaries of national banks.” Finally, CSBS highlighted a distinction between the proposed non-branches (but de facto branches) and actual branch offices, arguing that the NPR creates a legal loophole allowing non-branch national banks to avoid CRA obligations associated with licensed branches.
House approves resolution to reverse OCC’s CRA rule
On June 29, the U.S. House of Representatives approved resolution H.J. 90, along party lines, which would reverse the OCC’s final rule (covered by a Buckley Special Alert) to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY) introduced the resolution, with Waters criticizing the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” While the resolution is unlikely to pass the Senate, the White House released a Statement of Administration Policy, which opposes the resolution and states that the President’s advisors will recommend he veto the action.
Community coalitions file complaint to block OCC CRA final rule
On June 25, two community coalitions filed a complaint in the U.S. District Court for the Northern District of California asking the court to block the OCC’s final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). The complaint claims that the OCC failed to provide for meaningful public input on key revisions to the agency’s final rule, and argues that the May 20 rule (covered by a Buckley Special Alert) failed to consider the impact of the Covid-19 pandemic and is in violation of the Administrative Procedures Act. Notably, neither the FDIC nor the Federal Reserve Board joined in promulgating the final rule, the complaint notes. Among other things, the complaint argues that the final rule “guts the [CRA] and eviscerates the backing it provides to the [low- and moderate-income (LMI)] communities and communities of color that have long suffered from discrimination by financial institutions,” and will dilute benefits for these communities. The complaint also alleges that the final rule “will allow banks to claim credit for massive projects that they undoubtedly would have financed anyway; whose benefit to LMI people is questionable and speculative; and that are so costly that they will allow banks to fill up their CRA credits without making real investments in LMI communities as the CRA intended.” Additional arguments include that the final rule limits the coalitions’ ability to advocate for greater access to credit for LMI communities, issue evidence-based reports on banks’ CRA activity, and negotiate CRA funding increases with banks for specific communities. The complaint further alleges that the final rule includes definitions of “CRA deserts”—areas where banking services are not available—that were not part of the proposal, and fails to provide supporting data for many of the provisions. The coalitions seek injunctive and declaratory relief that would block the final rule from taking effect.
Waters and Meeks introduce Congressional Review Act resolution to reverse OCC’s CRA rule
On June 11, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY), introduced a Congressional Review Act resolution to reverse the OCC’s final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). The OCC’s final rule (covered by a Buckley Special Alert), while technically effective October 1, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. However, Waters criticized the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” Waters argued that the final rule “will result in disinvestment in many low- and moderate-income communities,” with Meeks stating that the OCC’s decision to “put forward a rushed, incomplete rule. . .will harm the very communities the CRA is meant to support.”
Acting Comptroller Brooks will focus on responsible innovation, fintech charters
On May 29, Acting Comptroller of the Currency Brian P. Brooks issued a statement focusing on four priorities intended to help meet the challenges facing banks today. As previously covered by InfoBytes, Brooks was named Acting Comptroller following the departure of former Comptroller Joseph Otting. These priorities include building upon responsible innovation to provide regulatory certainty, flexible frameworks, and oversight that will allow banks to “evolve and capitalize on technology and innovation to deliver better products and services, to operate more efficiently, and to reduce risk in the system.” Brooks reiterated that the OCC has the authority to issue bank charters to companies engaged in “the business of banking on a national scale, including taking deposits, lending money, or paying checks,” and emphasized that the OCC will work to “clarify what true lender means, to underscore that the terms of a lawfully made contract remain valid for the duration of that contract even if it is sold by a bank to another investor, and to specify what the parameters of the ‘fintech charter’ and other special purpose charters should be.” The same day the OCC issued a final rule (covered by a Buckley Special Alert), which establishes that when a bank transfers a loan, the interest rate permissible before the transfer will still be valid after the transfer.
Among other topics, Brook also discussed the OCC’s recent issuance of a final rule to strengthen the Community Reinvestment Act (covered by a Buckley Special Alert), stating that the OCC will work to ensure that banks provide “fair access” to all customers and stressing that the agency “should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few.”
Federal agencies issue FAQs covering CRA and Covid-19
On May 27, the Federal Reserve Board, the OCC, and the FDIC posted Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs acknowledge that while Covid-19 affected states are categorized by the Federal Emergency Management Agency (FEMA) as Category B, which would normally not be considered designated disasters under the CRA, the agencies will grant consideration for activities that revitalize or stabilize affected areas by protecting public health and safety. The FAQs frequently cite to the joint statement on CRA consideration for activities in response to Covid-19, issued by the agencies in March (covered by InfoBytes here). Among other things, the FAQs discuss how Paycheck Protection Program and Main Street Lending Program loans may be eligible for CRA consideration and how bank examiners will consider affordable housing measures under the CRA.
Special Alert: OCC issues CRA final rule
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.
Federal regulators discuss Covid-19 responses during Senate hearing
On May 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of the Financial Regulators,” which primarily focused on responses by the Federal Reserve Board (Fed), FDIC, OCC, and NCUA to the Covid-19 pandemic. Committee Chairman Mike Crapo (R-ID) opened the hearing by thanking the regulators for crafting regulatory responses to assist financial institutions in meeting the needs of affected borrowers, and encouraged the regulators to find ways to provide flexibility for financial institutions that lend to households and businesses. Crapo also stressed the importance of making sure the Fed’s Main Street Lending Program (covered by a Buckley Special Alert) and the Municipal Liquidity Facility (coved by InfoBytes here) are “up and running quickly,” and expressed continued concerns that the “inclusion of population thresholds for cities and states that were not a part of the CARES Act will still impede access to smaller and rural communities.” Ranking Member Sherrod Brown (D-OH) argued, however, that the regulators’ relief measures have not favored consumers.
Fed Vice Chair for Supervision Randal K. Quarles provided an update on the Fed’s Covid-19 regulatory and supervisory efforts. When asked during the hearing when the Main Street Lending Program would be operational, he declined to give an exact date but emphasized it is the Fed’s “top priority,” and that he did not anticipate it will take months. When questioned about whether the Fed is taking measures to “ensure businesses are getting equitable access to the [lending] facilities,” Quarles stated that the Fed relies on banks to do the underwriting, but will supervise the banks to make sure the underwriting is done “safely and fairly.”
OCC Comptroller Joseph M. Otting also discussed a range of actions taken by the agency in response to the pandemic and outlined additional OCC priorities and objectives, including its proposal to modernize the Community Reinvestment Act (CRA). Senator Menendez (D-NJ) asked whether the OCC should revisit the proposed CRA rewrite, citing the inability of some small businesses—particularly minority-owned businesses—to obtain relief under the Payroll Protection Program (PPP). In response, Otting argued that the rewrite (done in conjunction with the FDIC—see InfoBytes CRA coverage here) should actually be accelerated “because it will drive more dollars into low and moderate income communities” impacted by the pandemic. However, several Democrats on the Committee disagreed and called for a separate hearing to discuss the CRA proposal.
FDIC Chairman Jelena McWilliams also addressed actions undertaken to maintain stability and to provide flexibility to both banks and consumers. Among other things, McWilliams stated that banks should rely on borrowers’ statements certifying that their economic need is legitimate when making PPP loans. “Our instruction to banks has been to make sure these loans are not being traditionally underwritten [and] to take a look at the certification that the borrower is providing,” McWilliams said during the hearing. She also emphasized that all banks must comply with fair lending laws when making PPP loans, whether or not specific guidance has been issued.
NCUA Chairman Rodney E. Hood also outlined agency measures in response to the pandemic. Among other things, Hood noted that the NCUA has issued guidance to support credit union industry participation in the PPP and approved several regulatory changes concerning the classification of PPP loans for regulatory capital and commercial underwriting purposes.
The following day, the House Subcommittee on Consumer Protection and Financial Institutions also held a roundtable with the federal regulators to discuss Covid-19 responses.
OCC issues guidance to banks on tracking PPP loan data
On April 27, the OCC issued guidance for banks on receiving credit under the Community Reinvestment Act (CRA) for the loans the banks made to small businesses through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The guidance suggests that lenders should track the PPP loan data, particularly for loans to businesses with $1 million or less in annual revenues that are located in underserved, distressed or low to moderate-income (LMI) areas. The OCC states that tracking this data along with lending decisions and loan volume data “is a prudent banking practice consistent with the principles of safety and soundness and fair access and fair treatment of borrowers.” The SBA’s PPP frequently asked questions can be found here.
NYDFS strongly opposes OCC’s proposed CRA rulemaking
On April 8, NYDFS Superintendent Linda Lacewell sent a letter to OCC Comptroller Joseph Otting expressing her “strong opposition” to the OCC’s notice of proposed rulemaking (NPR) issued last December to modernize the Community Reinvestment Act (CRA). (See Buckley Special Alert discussing the NPR). Lacewell urged the OCC to revise substantially or abandon the NPR, referring to the Department’s “extensive experience with the CRA” through its oversight of state-chartered banks’ compliance with the New York Community Reinvestment Act, which, according to Lacewell “largely mirrors the current federal CRA.”
Lacewell addressed several concerns, including that the NPR’s proposed evaluation framework would “reduce CRA evaluations to a single, dollar value comparison of banks’ CRA-qualifying activities to deposits.” This single-metric CRA ratio, Lacewell, stated, would eliminate important qualitative aspects of CRA evaluations and “incentivize banks to focus on large-dollar CRA activities to the detriment of complex and innovative small-dollar projects.” Lacewell also expressed concerns with deposit data limitations, and cited the OCC’s separate request for bank-specific data (covered by InfoBytes here) as an indicator that the data to be relied upon for the CRA ratio may be questionable. Lacewell also asserted that the NPR detrimentally redefines CRA-qualifying activities that may not positively impact low- and moderate-income communities, and fails to evaluate properly assessment area changes. Furthermore, Lacewell argued that the NPR reduces the importance of bank branches in CRA evaluations, and imposes new burdens that disproportionately impact intermediate-small banks.
Lacewell expressed support for an alternative approach suggested by Federal Reserve Governor Lael Brainard in January (covered by InfoBytes here), whose proposal would include, among other things, a set of thresholds calibrated for local conditions and two tests—a retail test and a community development test—that would tailor performance metrics for banks of different sizes and business models.