On May 20, the OCC issued its final rule intended to modernize and clarify the Community Reinvestment Act (CRA). The rule included the surprising footnote that the FDIC, which had joined as a partner in the Notice of Proposed Rulemaking (NPR) issued on January 9, would not be joining in the final rule. FDIC Chairman Jelena McWilliams released a brief statement with only a vague reference to financial institutions working with borrowers affected by COVID-19 as a possible explanation for the FDIC’s decision to withdraw. The other prudential regulator charged with CRA supervision and examination, the Federal Reserve, had not joined in the January NPR and, thus, did not join in the final rule.
The Final Rule
The 372-page final rule contains much of what was proposed in the NPR, including the list of qualifying activities, which was one of the NPR’s most popular provisions. The initial illustrative list was released alongside the final rule on May 20. The list will be published in the Federal Register every five years, rather than every three years as proposed in the NPR.
Notably, the final rule does not contain benchmarks for the CRA evaluation measure, a specific community development minimum or thresholds for the retail lending distribution tests. The OCC determined that the data it had gathered was too limited for reliable calibration and plans to issue another Notice of Proposed Rulemaking to begin the process of calibrating more precisely these three components of the objective evaluation framework. This sets the stage for another contentious comment period, between banks seeking an objective measure of their CRA activities and community groups concerned that an objective measure will encourage banks to do only the bare minimum needed to meet their obligations.
In recognition of the increasing number of banks operating through the Internet rather than through physical branch locations, the final rule follows the proposal in requiring banks that receive more than 50 percent of their retail domestic deposits from outside their facility-based assessment areas to delineate separate deposit-based assessment areas where they receive 5 percent or more of their retail domestic deposits. The final rule differs, however, from the proposal in allowing banks to delineate deposit-based assessment areas as broadly as statewide rather than at the smallest geographic area where 5 percent or more of deposits are received.
Some of the additional changes made by the final rule include (1) removing credit cards and overdraft products from the definition of consumer loans; (2) limiting CRA credit to bank activities, rather than including activities of affiliates as proposed; (3) reducing the increase in loan size thresholds and gross annual revenue thresholds for small loans to businesses and farms to $1.6 million, rather than $2 million as proposed; (4) providing credit for 100 percent of the origination value of retail loans sold within 365 days, rather than only 25 percent of those sold within 90 days as proposed; and (5) raising the asset size thresholds for small banks and intermediate banks to $600 million and $2.5 billion, respectively, to more accurately reflect the current state of the banking industry. In response to numerous requests from commenters, the final rule also reduces the time limitation for the approval process for activity confirmation requests from six months to 60 days, with the option of a 30-day extension.
Where Do We Go From Here?
Beginning on October 1, 2020, national banks and federal savings associations supervised by the OCC may be permitted to voluntarily comply with the new rules, in whole or in part. The current regulations will remain in effect as an alternative compliance option until January 1, 2023, for banks subject to the general performance standards and wholesale and limited purpose bank performance standards, and January 1, 2024, for banks subject to the small and intermediate bank performance standards. It remains to be seen whether the Federal Reserve or the FDIC, both of which have acknowledged that the CRA needs to be modernized, will attempt to craft their own individual or joint rules for the banks they supervise.