When the OCC issued its final Community Reinvestment Act (“CRA”) rule on May 20, 2020, the agency acted alone without waiting to achieve consensus with the FDIC, the agency with which the OCC had jointly issued its proposed rule. The FDIC declined to join the OCC’s CRA reform effort, despite seemingly being in lock-step with the OCC up until that point. As to the Federal Reserve Board (“FRB”), it had already bowed out of the CRA reform effort in 2019.
On the date the OCC issued its final rule, FDIC Chairman Jelena McWilliams issued a public statement indicating that “[w]hile the FDIC strongly supports the efforts to make the CRA rules clearer, more transparent, and less subjective, the agency is not prepared to finalize the CRA proposal at this time.” She went on to recognize the “herculean effort” community banks were making to help small businesses and families during the COVID-19 crisis, implying that the agency did not join the OCC in issuing the final rule because she did not want to add regulatory burden to FDIC-supervised banks during this challenging time. Chairman McWilliams did express support for the framework of the OCC’s CRA final rule, however, stating that she believed it would “greatly benefit” low- and moderate-income (“LMI”) communities and provide greater clarity to banks on CRA expectations.
In a later statement on June 26, 2020, Chairman McWilliams clarified that “the timing wasn’t right” for the FDIC to ask small community banks to meet new regulatory requirements and that her agency would wait until “peacetime” to finalize its CRA rule.
Because the FDIC was discussing the final rule with the OCC until shortly before the OCC issued it and appeared to agree on content but not timing of issuance of the final rule, we believe that it is likely that the FDIC will re-engage on CRA. That said, because of the criticism the OCC’s final rule has received, it is possible that the FDIC will assess that criticism before finalizing its rule. In any event, the FDIC could wait to act until the impacts of the COVID-19 pandemic are fully known and until after the presidential election in November.
With regard to the FRB, in testimony before the House Financial Services Committee on June 16, 2020, Fed Chairman Jerome Powell stated that his agency’s preliminary CRA reform work “won’t go to waste” because the FRB plans to move forward with its own proposal to update its CRA rules. He did not provide a time table for possible rulemaking activity, however. At this point, it seems likely that the FRB would defer any such efforts until after the presidential election.
For now, national banks must begin preparing to comply with the OCC’s final rule while state banks will continue to operate under the current rule until the FDIC determines whether it will adopt the OCC final rule and the FRB proceeds with its own proposed CRA reform. Currently, it seems possible that state member banks and non-member banks may operate under different CRA rules in the future. Although the FDIC is likely to adopt the OCC’s final rule for the reasons previously discussed, it is possible that each regulator will have its own CRA framework. While CRA modernization is called for, having two or three CRA regulatory frameworks creates uncertainty and may create competitive inequalities that could negatively impact the LMI customers the rule is designed to benefit. As noted in our most recent blog post, consumer advocacy and civil rights groups have argued that the OCC has now “fractured the interagency consensus around CRA enforcement,” and that appears to be true at this juncture.
This is the fourth in a series of five blog posts about the OCC’s CRA final rule. The first blog post described what changed from the OCC’s proposed rule to the final rule, and the second blog post explained differences among the OCC’s final rule, FDIC’s proposed rule and the FRB’s existing rule. Our third blog post described opposition to the OCC’s CRA final rule by consumer advocacy groups and Congress. Our next blog post will examine the impacts of CRA reform on community banks and how banks regulated by the FDIC and FRB should proceed in preparing for future CRA examinations.