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OCC issues CRA compliance resources
On October 1, the OCC released three items in support of the implementation of the new Community Reinvestment Act (CRA) final rule. The three newly released items include: (i) a compliance guide for small banks; (ii) an initial illustrative list of qualifying activities; and (iii) a form to request consideration of items to be added to the list of qualifying activities. As previously covered by a Buckley Special Alert, the OCC’s rule, 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. 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.
Fed issues ANPR on CRA modernization
On September 21, the Federal Reserve Board (Fed) issued an Advance Notice of Proposed Rulemaking (ANPR) inviting public comment on its approach for modernizing the regulations that implement the Community Reinvestment Act (CRA). The Fed’s ANPR follows a final rule to modernize the regulatory framework implementing the CRA issued by the OCC in May (covered by a Buckley Special Alert), which was met by opposition from community coalitions and House Democrats (covered by InfoBytes here and here). Neither the FDIC nor the Fed joined in promulgating the OCC’s final rule, which is technically effective October 1, 2020, but provides for at least a 27-month transition period for compliance based on a bank’s size and business model.
According to the Fed, the ANPR’s objectives are to increase the clarity, consistency and transparency of CRA supervisory expectations and standards, while minimizing data collection burdens. The following are key takeaways from the ANPR:
- Promoting financial inclusion. The ANPR seeks feedback on ways to strengthen regulations and evaluate how banks meet the needs of low- and moderate-income (LMI) communities and address inequities in credit access. The ANPR proposes, among other things, (i) ways to encourage more activities that support minority depository institutions (MDIs), Community Development Financial Institutions, as well as women-owned financial institutions and low-income credit unions outside of a bank’s assessment area; (ii) seeks feedback on additional incentives for investing in and partnering with MDIs; and (iii) requests input on expanding geographic areas for community development activities to allow banks to receive special CRA credit for activities in areas with high unmet needs.
- Metrics. The ANPR introduces a metrics-based approach to bring greater clarity, consistency, and transparency to how banks are assessed and rated. The ANPR proposes assessing banks’ CRA performance using a Retail Test and a Community Development Test with options to be evaluated under certain subsets based on their size. According to the Fed’s fact sheet, the metrics would be “tailored to local market conditions and adjust[ed] automatically to reflect structural economic differences and changes over the business cycle.” Additionally, the proposed retail lending metrics formulas use the number of a bank’s loans, rather than the dollar amount of those loans, to avoid weighting larger loans more heavily than smaller ones.
- Internet banks. The ANPR contemplates defining an internet bank for CRA purposes and allowing such internet banks to delineate nationwide assessment areas to “more holistically capture their banking activities.”
- CRA deserts. The ANPR considers designating “CRA deserts”—“areas with little bank presence and corresponding lesser availability of banking products and services and community development activities”—and allowing banks to receive credit for community development activities in designated areas of need outside of their assessment areas. The ANPR also suggests providing additional consideration if a bank operates a branch in a designated banking desert within an assessment area.
- CRA-approved activities. The ANPR proposes publishing an illustrative, non-exhaustive list of community development activities that qualify for CRA consideration and seeks feedback on an activity pre-approval process.
- Small banks. The ANPR proposes eliminating the current intermediate small bank category and establishing an asset-size threshold of $750 million or $1 billion to distinguish between small and large retail banks. Currently, the asset threshold between small and intermediate small banks is $326 million, and the threshold between intermediate small and large banks is $1.305 billion. Small retail banks could continue to be evaluated under the current CRA framework but would have the option to be evaluated under certain of the new subtests. Small banks are also exempt from additional deposit and certain other data collection requirements.
- Consistent approach. Fed Chair Jerome Powell released a statement stressing that the ANPR “is an important step forward in laying a foundation for the [Fed, OCC, and FDIC] to build a shared, modernized CRA framework that has broad support.”
Comments on the ANPR are due 120 days after publication in the Federal Register.
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.
NYDFS discusses state CRA exams and Covid-19 considerations
On June 30, NYDFS issued two industry letters aimed at reminding New York regulated banking institutions of their responsibilities under New York State’s Community Reinvestment Act (New York CRA) with respect to minority-and women-owned businesses, as well as opportunities to receive NYCRA credit for Covid-19 pandemic activities.
The first industry letter discusses the state’s recent amendments to the New York CRA, which were effective January 11, 2020, and require NYDFS to consider “several aspects of banking institutions’ activities with respect to minority- and women-owned businesses.” These include, among other things, (i) “‘the banking institution’s participation, including investments, … in technical assistance programs for small businesses and minority- and women-owned businesses’”; and (ii) “‘banking institution’s origination of … minority-_and women-owned business loans within its community or the purchase of such loans originated in its community.’” NYDFS notes that later this year, it will begin to request information regarding programs related to minority- and women-owned businesses in order to begin evaluating banks under the new amendments. NYDFS also provided a spreadsheet with sample requests for guidance.
The second industry letter describes the circumstances in which regulated institutions may receive New York CRA credit for activities taken in response to the Covid-19 pandemic, which the announcement notes is consistent with the guidance federal regulators have issued on the same topic (covered by InfoBytes here and here).
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.
FDIC updates FAQs for financial institutions affected by Covid-19
On May 20, the Federal Deposit Insurance Corporation (FDIC) updated its frequently asked questions issued to financial institutions affected by Covid-19 (previously covered here, here, and here). The updated FAQs provide guidance on Community Reinvestment Act requirements, including, among other things, (i) whether Covid-19-affected states and jurisdictions are considered CRA designated disaster areas, (ii) how activities undertaken in response to Covid-19 that are responsive to community needs will be considered in CRA examinations, and (iii) whether bank loans made under the Paycheck Protection Program or Main Street Lending Program are eligible for CRA consideration.