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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.”
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.
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.
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.
On May 13, the FDIC announced the April updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff for evaluating financial institutions’ compliance with federal consumer protection laws and regulations, and is designed to promote consistency and efficiency in the FDIC’s examination process. The recent updates include, among other things, (i) changes to the pre-examination planning process; (ii) incorporation of threshold changes for TILA, HMDA, and the Consumer Leasing Act; and (iii) changes to asset-based definitions for small and intermediate banks for the Community Reinvestment Act.
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.
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.
On April 15, the FDIC released updates to its list of Covid-19 frequently asked questions (FAQs) for financial institutions. The FAQs were originally released on March 19, covering bank operational issues and urging banks to work with borrowers who are experiencing payment difficulties due to Covid-19, as reported by InfoBytes here. New FAQs discuss credit reporting of payment accommodations, reminding lenders to report borrower accounts as current, provided the borrowers continue to observe the terms of the accommodations. The guidance also points financial institutions to a recent CFPB statement (covered here) for guidance on the FCRA under the CARES Act. The FDIC also updated the Troubled Debt Restructurings (TDRs) guidance, emphasizing that financial institutions do not need to classify Covid-19 borrower payment accommodations as TDRs if certain criteria are met, and that examiners “will not criticize prudent efforts to modify the terms on existing loans to affected customers.” Other updates to the FAQs include, among other things: (i) obligations to obtain updated real estate valuation information for Covid-19 related loan modifications; (ii) the use of alternative signatures for Part 363 annual reports and other notices; (iii) real estate loans in excess of loan-to-value percentages for loans refinanced by borrowers impacted by Covid-19; (iv) risk-based capital rules regarding multi-family loan modifications; (v) eligible Community Reinvestment Act activities during the Covid-19 pandemic; and (vi) Bank Secrecy Act issues regarding filing requirements, raising compliance challenges with FinCEN, and whether loans under the Small Business Administration’s Paycheck Protection Program are considered new accounts for customer due diligence purposes.
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.
On April 9, OCC Comptroller Joseph M. Otting issued a statement thanking stakeholders for commenting on the joint notice of proposed rulemaking (NPR) to modernize the Community Reinvestment Act (CRA) issued by the OCC and FDIC last December. (See Buckley Special Alert discussing the NPR.) Otting emphasized that the OCC anticipates releasing a final rule during the first half of the year, explaining that the Covid-19 pandemic has highlighted communities’ need for even greater access to lending, capital, and services. “It is our intention to craft a final rule that will encourage banks to lend and invest more in the communities they serve, including low- and moderate-income neighborhoods,” Otting stated. “Further delay would only prevent these valuable resources from reaching those who need them most in this time of national emergency.”
However, 42 Senate Democrats, led by Senator Sherrod Brown (D-OH), sent a letter the same day asking the agencies to rescind the NPR, which, according to the lawmakers, currently “threatens to undermine more than 40 years of access to sustainable mortgage credit, small business loans, community development, and partnerships between financial institutions and the communities they serve.” According to the Senators, the NPR’s proposal to give banks a presumptive CRA grade based mainly on the ratio of the dollar value of all CRA activity to deposits is “inconsistent with the clear Congressional intent of the CRA,” in that it would force “dollar values onto activities that are not easily measured in monthly balance sheet totals,” and would also, among other things, encourage “banks to meet their CRA obligations with activities that produce the maximum dollar figure with the least effort.” Additionally, the Senators stressed that the NPR fails to address the lack of investment in rural areas, Indian Country, and currently underserved CRA markets, despite Otting noting in his statement that the OCC seeks “to increase support to small businesses, small and family-owned farms, Indian country, and distressed areas.” The Senators urged the agencies “to develop a new proposal that reflects evidence, community input, and Congressional intent.”
As previously covered by InfoBytes, on April 8, NYDFS Superintendent Linda Lacewell also sent a letter to the OCC expressing “strong opposition” to the NPR. A coalition of state attorneys general submitted a comment letter urging the agencies to withdraw the NPR as well.
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