November 02, 2018

The OCC Leads the Way on Updating the CRA

The Office of the Comptroller of the Currency (OCC) recently issued an advance notice of proposed rulemaking (ANPR) inviting public comments on how best to modernize the regulations implementing the Community Reinvestment Act of 1977 (CRA). In the accompanying release, Comptroller Joseph Otting cites his background as president and CEO of a bank as firsthand experience of "how limitations in the current CRA regulation can fail to provide consideration to a bank that wants to lend and invest in a community with a need for capital, including many low- and moderate-income areas." According to the OCC press release, the OCC hopes to implement regulatory changes that will better achieve the statute's purpose: to provide a framework that enables financial institutions to meet the credit needs of those who live in lower- to moderate-income communities. In addition, recent statements by senior officials indicate that the other federal banking agencies will likely participate in the rulemaking process.

The ANPR follows criticism of the CRA in recent years from other government agencies, including the U.S. Department of Treasury (Treasury), which, in April 2018, published a memorandum detailing recommendations on how the federal banking agencies—the OCC along with the Board of Governors of the Federal Reserve (FRB) and the Federal Deposit Insurance Corporation (FDIC)—could update and improve the administration of the CRA. In its recommendations, the Treasury focused on (i) updating the definitions of geographic assessment areas to reflect the evolution of banking as a result of technology, customer behavior, and other factors; (ii) improving CRA performance evaluation criteria to promote more transparency and potency of CRA rating determinations; (iii) improving timeliness of performance evaluations and ensuring consistent use of census data through the assessment period; and (iv) updating regulatory policies to incentivize banks to achieve better CRA performance. Treasury Secretary Steven Mnuchin thinks the "recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they service while considering technological advances in the financial industry."

In its ANPR, the OCC seeks responses to 31 questions that touch upon some of the issues the Treasury identified, but also include, among many possibilities: (i) increasing lending and services to people in communities most in need, particularly in low- and moderate-income areas; (ii) increasing transparency of banks' CRA performance; (iii) expanding the types of activities considered for CRA evaluation; and (iv) creating a metric-based threshold for CRA ratings.

The ANPR is unusual because the federal banking agencies typically issue CRA regulations as joint rulemakings. In a recent speech, FRB Governor Lael Brainard acknowledged the need for "one set of CRA regulations" and said the FRB "will be reading the comment letters." FDIC General Counsel Charles Yi echoed that sentiment at a recent conference in Washington, DC, and clarified that the FDIC and FRB would participate jointly in any rulemaking that results from the ANPR. This is not the first time the OCC has addressed the need for community-focused regulations to adapt to modern banking trends. In its licensing manual supplement for fintech banks, which we discussed here, the OCC uses mandatory financial inclusion commitments to apply CRA-like requirements to a novel class of banks that is not subject to the CRA.

Comments responsive to the ANPR must be submitted by November 19, 2018—75 days after the ANPR was published in the Federal Register. This ANPR may be the first step in modernizing the CRA to suit the evolving banking industry, while also fulfilling its original purpose to service low- and moderate-income communities. Although the OCC started the process on its own, the ANPR signals to banks and fintech companies that changes are afoot and that a more flexible and effective CRA could be on its way.