InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FDIC announces Oklahoma winter storm relief
On March 3, the FDIC issued FIL-13-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by severe winter storms. The guidance notes that the FDIC will consider the unusual circumstances faced by institutions affected by the winter storms. The guidance highlights suggest 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 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.
Agencies update CRA Covid-19 FAQs
On March 8, the OCC, Federal Reserve Board, and the FDIC released updated Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs, first issued last May (covered by InfoBytes here), provide guidance for financial institutions and examiners regarding CRA consideration for activities taken in response to the pandemic. Highlights of the five new FAQs include:
- Banks cannot receive CRA service test consideration for Paycheck Protection Program (PPP)-related activities; however, the agencies recognize that because the PPP loan program responds to community credit needs, PPP activities will be considered under the CRA lending test when evaluating flexible or innovative lending programs offered by a bank.
- Banks should not report PPP loans that have been rescinded or returned under the SBA’s safe harbor on their CRA loan register. Moreover, examiners will not consider these loans in their CRA evaluations of banks during the applicable time period.
- PPP loans over $1 million in low- or moderate-income geographies or in distressed or underserved nonmetropolitan middle-income geographies “will be considered an eligible community development activity.”
- As noted in a joint statement released by the agencies last year (covered by InfoBytes here), favorable CRA consideration will be given to banks providing retail banking services and retail lending activities that respond to the needs of affected low- and moderate-income (LMI) individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include waiving ATM fees, overdraft fees, and early withdrawal penalties on certificates of deposit (CDs), or allowing LMI consumers to make draws from a HELOC during the repayment period. The agencies note that allowing LMI consumers “to make a withdrawal from an IRA as allowed under the CARES Act, or to draw on a HELOC during the draw period are routine banking services and, as such, are not eligible for CRA consideration.”
- The agencies will consider community development services provided virtually by bank representatives on an individual level based on the event and the benefitted assessment area.
NYDFS says climate-based activities may qualify for state CRA credit
On February 9, NYDFS issued new guidance stating that financing activities that support the climate resiliency of low- and moderate-income (LMI) and underserved communities may receive credit under the New York Community Reinvestment Act (the “New York CRA”). The industry letter notes that LMI and underserved communities are “disproportionally affect[ed]” by climate change because they “tend to be more susceptible to flooding and heat waves” and have “fewer resources to recover from natural disasters.” NYDFS reminds institutions that one way banking institutions subject to the New York CRA are evaluated is the extent to which their activity revitalizes or stabilizes both LMI geographies and underserved geographies, and that financing climate resiliency actions “may help mitigate climate change risks and at the same time revitalize or stabilize those geographic areas.” Accordingly, NYDFS outlines a non-exhaustive list of specific examples that may qualify for credit under the New York CRA, including (i) “renewable energy, energy-efficiency and water conservation equipment or projects for affordable housing…”; (ii) “microgrid or battery storage projects in LMI areas with high flood and/or wind risk…”; and (iii) “installation of air conditioning in multifamily buildings offering affordable housing….” Moreover, NYDFS states that banking institutions may also receive credit for climate resiliency promoting investments or loans to Community Development Financial institutions, among others.
NYDFS details redlining issues from nonbank lenders
On February 4, NYDFS released a report on redlining in the Buffalo metropolitan area, concluding that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. Among other things, the report concluded that (i) while minorities in the Buffalo region comprise about 20 percent of the population, they receive less than 10 percent of total loans made in the region; (ii) nonbank lenders lent at a lower rate in majority-minority neighborhoods than depository institutions did; and (iii) several of the nonbank mortgage lenders did not have adequate fair lending compliance programs and do not make an effort to serve majority-minority neighborhoods. The report made numerous recommendations, including a recommendation to amend the New York Community Reinvestment Act (CRA) to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws.
Additionally, NYDFS announced a settlement with a nonbank lender in connection with its lending to minorities and in majority-minority neighborhoods in Buffalo and Syracuse, New York. The settlement agreement found no evidence of intentional discrimination or fair lending law violations but rather weaknesses in the lender’s compliance program. The agreement outlines efforts the lender will take to “provide more meaningful access to residential loans and financing for minorities and individuals living in majority-minority neighborhoods” in Western and Central New York. Among other things, the lender will (i) develop a compliance management plan; (ii) increase marketing to majority-minority census tracts; (iii) create a $150,000 special financing program to increase loan originations for residents of majority-minority neighborhoods; and (iv) increase annual training.
Court denies dismissal of OCC CRA rule challenge
On January 29, the U.S. District Court for the Northern District of California denied dismissal of an action brought against the OCC by two community coalitions, requesting the court block the agency’s final rule to revise the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, in June 2020, the groups filed a complaint alleging that, among other things, the OCC failed to provide for meaningful public input on key revisions to the agency’s final rule, and 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. The OCC moved to dismiss the action, arguing that the community groups lack standing, or in the alternative, that they do not fall within the CRA’s “zone of interests.” The district court disagreed. Specifically, the court concluded that the community groups adequately alleged standing because the members of their organizations “compete for OCC-regulated banks’ CRA dollars,” and their members “will now have to compete with investment opportunities that could not previously receive CRA credit.” Moreover, among other things, the court concluded that the community groups satisfy the “the zone-of-interests test, because they receive grants and loans for which banks obtain CRA credit, making them direct beneficiaries of the statute.”
OCC releases CRA determinations, distressed and underserved areas
On January 29, the OCC published Bulletin 2021-5, containing lists of bank type determinations and distressed and underserved areas for 2021, and its computation of the banking industry’s median hourly compensation value. The information is applicable to national banks, federal and state savings associations, and federal branches of foreign banks subject to the agency’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act rule (CRA). As previously covered by a Buckley Special Alert, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The 2021 list of bank type determinations identifies banks based on asset size or business model. According to the OCC, a bank’s type will “generally determine[] the performance standards and related examination procedures used to evaluate that bank’s CRA performance.” The agency’s list of distressed or underserved areas identifies tracts where banks participating in qualifying activities may receive CRA consideration under the final rule’s community development definition. Finally, the OCC states that the banking industry median hourly compensation value applicable to qualifying community development service activities will be $39.03. This figure, the agency explains, will be “used to quantify the value of a bank’s community development services” performed from October 1, 2020 through December 31, 2021.
OCC addresses qualifying activities for CRA final rule
On January 4, the OCC issued interpretive letter #1177, which addresses qualifying activities of the affiliates and subsidiaries of national banks and savings associations under the OCC’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by a Buckley Special Alert here, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The interpretive letter states that qualifying activities under the 2020 final rule may include the CRA qualifying activities of the consolidated subsidiaries of a bank, but that a bank’s qualifying activities generally do not include the activities of the bank’s nonbank affiliates. The OCC notes that the “very factors demonstrating the tight link between a bank and its consolidated subsidiary…suggest that activities conducted by a bank’s parent and sister companies should generally not receive CRA credit.” Thus, banks will not be given credit for qualifying activities conducted by such affiliates unless the bank “directly financed or otherwise supported such activities.”
Agencies release annual CRA asset-size threshold adjustments
On December 17, the Federal Reserve Board and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks, which are subject to streamlined CRA evaluations and not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small” bank is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.322 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $330 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.322 billion in assets. This joint final rule became effective on January 1.
The OCC did not join in this announcement. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. Its new CRA rule defines a small bank as an institution with $600 million or less in assets in four of the last five calendar quarters and an intermediate small bank as having $2.5 billion or less in assets in four of the last five calendar quarters.
OCC proposes CRA performance standards
On November 24, the OCC released a notice of proposed rulemaking (and accompanying Bulletin 2020-103) covering evaluation measure benchmarks, retail lending distribution test thresholds, and community development (CD) minimums under the new general performance standards outlined in the Community Reinvestment Act’s (CRA) final rule issued earlier this year. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. The final rule was technically effective on October 1, but 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 preamble to the final rule, the OCC noted a future proposal would provide details of the calibration process of the requirements for each of the three components (the CRA evaluation measure benchmarks, retail lending distribution test thresholds, and CD minimums) of the objective performance standards. Highlights of the proposal include:
- Requirements for each of the three components such that the proportion of banks that would have received presumptive ratings of outstanding and satisfactory would be no greater than the historical proportion of banks that received the same ratings under the previous CRA regulations.
- The OCC would issue an information survey to institutions subject to the general performance standards to obtain bank-specific information and would use this information to calculate CRA evaluation measures and CD minimum calculations for each bank’s assessment areas, as well as a bank-level CRA evaluation measure and CD minimum calculation for each bank.
- For each major retail lending product line, the OCC proposes to calculate the numerator used in determining each bank’s retail lending distribution test ratios for each bank’s assessment areas. Each bank’s numerators under the borrower and geographic distribution tests would be divided by the applicable demographic and peer comparators to calculate each bank’s retail lending distribution test ratios for each bank’s assessment areas.
- The retail lending distribution tests would yield up to 18 different threshold values. The CRA evaluation measure would involve six different benchmark values (one at the bank level and one at the assessment area level for needs to improve, satisfactory, and outstanding presumptive ratings, respectively), while the CD minimum would involve two values, one at the bank level and one at the assessment area level.
- The OCC would consider a decline of 10 percent or greater in a bank’s performance on the general performance standards that could not be explained by market conditions or other performance context factors, as “precipitous,” which may warrant a downward adjustment in the OCC’s determination of the bank’s assigned rating.
Once the proposal is finalized, the OCC stated that it will take the necessary steps to publicize the specific benchmarks, thresholds, and minimums, and will periodically review and adjust these benchmarks, thresholds, and minimums, as necessary.
Comments on the proposal are due within 60 days of publication in the Federal Register.
OCC addresses CRA provisions and FAQs
On November 9, the OCC released Bulletin 2020-99, which discusses key provisions of the June 2020 Community Reinvestment Act (CRA) Rule and includes FAQs. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. The final rule was technically effective on October 1, but the final rule 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. The Bulletin details the key provisions of the final rule, including the (i) new criteria for designating bank assessment areas, and (ii) varying performance standards by bank type. The Bulletin’s FAQs cover a range of topics including (i) the transition period; (ii) qualifying activities; (iii) activities outside bank assessment areas; (iv) examination administration; and (v) data collection and reporting.
The Bulletin notes that the OCC is conducting outreach to provide banks with more information regarding how the agency will administer the transition to the final rule. Additionally, the Bulletin notes the OCC will issue guidance addressing how the July 2016 Interagency Questions and Answers Regarding Community Reinvestment will apply to activities conducted under the final rule.
Lastly, the Bulletin rescinds OCC Bulletin 2020-3, “Community Reinvestment Act: Notice of Proposed Rulemaking,” and OCC Bulletin 2020-4, “Community Reinvestment Act: Request for Public Input.”