On December 13, 2019, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a joint notice of proposed rulemaking (NPR) to amend their regulations under the Community Reinvestment Act (CRA). The NPR builds on the OCC's August 2018 advanced notice of proposed rulemaking (ANPR) and, if finalized, would be the first major revisions of the CRA regulations in nearly 25 years.
Despite the OCC's ANPR last year, this joint proposal takes more of an information-gathering posture than is typical for NPRs. However, given the agencies' actions to this point, this is not surprising. First, the FDIC did not participate in the previous ANPR. While the agencies are of course free to share the information gathered during that process, the FDIC would not have had its concerns reflected in the questions posed to the public. Second, the Federal Reserve Board is conspicuously absent from the NPR. This means all three agencies may have to put out a second NPR in order to maintain the currently identical regulations across the banking regulators.
It is also clear that the agencies are proposing a significant change to the way banks are evaluated under the CRA. It is possible, then, that the OCC and FDIC expect substantive input from commenters and, with that in mind, have issued an NPR that is intended to change more significantly than is generally the case between rules as noticed and rules as finalized. Whatever the reason, it is critically important for banks to review the NPR, consider how it will affect their business, and particularly their CRA compliance, and take advantage of the opportunity to submit comments on the NPR.
The NPR proposes changes in four key areas: (1) qualifying activities (i.e., what qualifies for CRA credit); (2) assessment areas (i.e., where banks must engage in CRA activity); (3) methods of measuring CRA performance; and (4) data collection, recordkeeping, and reporting.
Currently, the activities qualifying for CRA credit fall into two general categories: retail banking activities and community development activities. Instead of categories, the NPR establishes criteria for determining whether an activity qualifies for CRA credit.
As proposed, the criteria include many of the activities that currently qualify and would expand the qualifying activities to include, for example, activities in areas considered distressed, underserved, or "Indian country" that are not otherwise low- or moderate-income (LMI) areas. A non-exhaustive list of illustrative examples would be periodically published and updated by the FDIC and OCC. The NPR would also establish a process for stakeholders to seek agency determination on whether an activity is a qualifying activity before investing time and resources.
Currently, the CRA assessment areas are "facility-based" and include (1) where the bank has its main office, branches, and deposit-taking facilities; and (2) the surrounding geographies where the bank originated or purchased a substantial portion of its loans. The NPR proposes adding an additional "deposit-based" requirement to include areas where the bank collects a substantial portion of its deposits.
This new deposit-based requirement would affect banks receiving 50 percent or more of their retail domestic deposits from geographic areas outside of their facility-based assessment areas, not including brokered deposits. For such banks, areas where the bank receives 5 percent or more of its total retail domestic deposits would be considered a deposit-based CRA assessment area, delineated at the smallest geographic division from which it receives that level of deposits.
The deposit-based assessment areas would be delineated to consist of the following divisions:
- A state;
- A whole metropolitan statistical area (MSA);
- The whole nonmetropolitan area of a state;
- One or more whole, contiguous metropolitan divisions in a single MSA;
- The remaining areas of a state, MSA, nonmetropolitan area, or metropolitan division not containing a facility-based assessment area; or
- One or more whole, contiguous counties or county equivalents in a single MSA or non-MSA.
Furthermore, the proposal would permit banks, under certain circumstances, to earn CRA credit for activities conducted outside of their assessment area(s).
Methods of Measuring CRA Performance
The NPR would establish new performance standards for evaluating banks with more than $500 million in assets in each of the previous four calendar quarters. Banks below this threshold can opt into the new performance standards or continue to be evaluated under the current small bank performance standards.
The new standards would evaluate two key areas, comparing them to specific benchmarks and thresholds established prior to a bank's evaluation period:
- The distribution of a bank's qualifying retail loan originations to LMI individuals, small farms, small businesses, and LMI census tracts in an assessment area where the bank has at least 20 loans in a major retail product line; and
- The quantified value of the bank's qualifying activities relative to its assessment area- and bank-level retail deposits.
The NPR would continue to offer the option for any bank to be evaluated under a strategic plan, subject to certain requirements. Strategic plans would be required, however, for banks not maintaining on balance sheet retail domestic deposits and for small banks not originating retail loans. Banks with strategic plans would still be required to collect and report certain data required by the new performance standards.
Data Collection, Recordkeeping, and Reporting
Currently, small banks are generally exempt from data collection and reporting requirements. The NPR would require small banks to collect and maintain—but not to report—data related to their retail domestic deposits. The NPR would also require banks evaluated under the new performance standards to collect, maintain, and report data related to their qualifying activities, certain non-qualifying activities, retail domestic deposits, and assessment areas.
The 60-day comment period for the NPR will commence upon its publication in the Federal Register and will likely run through the end of February.