The fate of the OCC’s Community Reinvestment Act (“CRA”) final rule, issued on May 20, 2020, hangs in the balance following the inauguration of President Biden on January 20 and the resignation of former Acting Comptroller Brian Brooks, who was a major proponent of the rule, on January 14.
Although the OCC’s CRA final rule technically became effective on October 1, 2020, it provides transition periods for compliance based on a bank’s asset size, type of charter, and business model. Specifically, large banks and wholesale and limited purpose banks must comply by January 1, 2023, and small and intermediate banks that choose to opt-in to the performance standards contained in the OCC’s final rule have until January 1, 2024 to comply. This transition period provides 2-3 years of leeway for changes to occur in the OCC’s final rule prior to full implementation. The OCC’s recent proposed rule that seeks public comment on evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums under the new general performance standards – which is more fully explained below – also must be finalized before the OCC can fully implement the CRA final rule.
In the preamble to the OCC’s CRA final rule, the agency explained that it planned to issue a proposal that would explain the process the OCC would use to calibrate the requirements for each of the three components of the objective evaluation framework (i.e., the CRA evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums). The proposed rule, issued on November 24, 2020 and published in the Federal Register on December 4, 2020, requests comment on the agency’s approach to determining these objective benchmarks, thresholds and minimums (the OCC’s “benchmarking proposal”).
Under the OCC’s benchmarking proposal, the OCC would calculate historical CRA activity levels and corresponding performance ratings under the general performance standards had they been in place. Furthermore, based on additional data analysis and consideration of public comments, the OCC would set the CRA evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums such that the proportion of banks that would have received presumptive ratings of “outstanding” and “satisfactory” under the general performance standards would be no greater than the historical proportion of banks that received assigned ratings of “outstanding” and “satisfactory” under the previous CRA regulations.
The proposal also explains how the OCC would treat significant declines in CRA activity levels in connection with performance context following the establishment of the benchmarks, thresholds, and minimums. Specifically, the OCC would consider to be “precipitous” a decline of 10 percent or greater in a bank’s performance on the general performance standards as calculated based on historical data between the establishment of the objective benchmarks, thresholds, and minimums and the bank’s first evaluation under the general performance standards. Such a decline that could not be explained by market conditions or other performance context factors may warrant a downward adjustment in the OCC’s determination of the bank’s assigned rating.
In the benchmarking proposal, the OCC notes that it plans to issue an information survey to institutions subject to the general performance standards to obtain bank-specific information. The agency would use this information to calculate CRA evaluation measures and community development minimum calculations for each bank’s assessment areas, as well as a bank-level CRA evaluation measure and community development minimum calculation for each bank.
The benchmarking proposal was published in the Federal Register for a 60-day comment period. Comments are due on February 2, 2021.
Regardless of who is nominated as the next Comptroller and confirmed by the Senate, it is likely that he or she would reexamine the CRA final rule. At minimum, the new Comptroller can be expected to review the CRA final rule in light of the criticism it has received from consumer advocacy groups and public comments on the benchmarking proposal. The fact that the benchmarking rulemaking is not yet finalized creates an opportunity for the new Comptroller to adjust those measures and potentially seek additional comment on them, if needed, or on other elements of the final rule. Even before the appointment and confirmation of the next Comptroller, the OCC recently announced that national banks will not be required to respond to the agency’s CRA information collection survey by its original May 31, 2021 deadline, which affords the OCC an opportunity to review all comments it receives in response to the Paperwork Reduction Act notice that was published in the Federal Register on December 15, 2020. The Paperwork Reduction Act notice sought bank-specific data and information to supplement available data to help the OCC calibrate the benchmarks, threshold and minimums contained in its proposed rule. The information collection applies only to banks with assets of $2.5 billion or more that are subject to the general performance standards under the CRA final rule.
There is also the real possibility that the new Comptroller could seek to amend the final rule to address some of the concerns raised by consumer advocacy groups. As we have previously reported, consumer advocates have uniformly and vigorously opposed the OCC’s CRA final rule, accusing the agency of acting hastily to “unlawfully gut” the CRA. On June 25, 2020, the National Community Reinvestment Coalition (“NCRC”) and California Reinvestment Coalition filed a lawsuit against the OCC, asking a federal district court to declare the OCC’s CRA final rule unlawful and set it aside. That lawsuit remains pending as of this writing.
The incoming Comptroller could potentially take the even more drastic step of withdrawing the OCC’s CRA final rule to try to again achieve interagency consensus with the FDIC and the Federal Reserve on a uniform CRA rule. The FDIC has not yet proceeded to finalize its CRA modernization rulemaking, waiting until “peacetime” to do so, and the Federal Reserve issued its own CRA advance notice of proposed rulemaking (“ANPR”) on October 19, 2020 after bowing out of the interagency reform effort in 2019. Based on recent speeches by Federal Reserve Governor Lael Brainard, it is clear that one of the Fed’s key goals in issuing its CRA modernization ANPR was to bring the agencies back to the negotiating table. As Governor Brainard noted in her December 17, 2020 speech to the CBA, “[m]any of the ideas in the [Fed’s] ANPR reflect interagency discussions, and our hope is that the ANPR provides a foundation for the agencies to converge on a consistent approach to CRA modernization that also has strong stakeholder support.” The NCRC and other consumer groups are also advocating that the OCC table its CRA final rule and commit to an interagency rulemaking using the Fed’s ANPR as a starting point.
The change in administration and vocal criticism of the OCC’s final rule may cause the OCC to reconsider its “go it alone approach” to CRA modernization. It remains to be seen, however, if the new Comptroller, when he or she assumes the office, will be willing to depart from the OCC’s current CRA regulatory path or whether the OCC, FDIC and Federal Reserve may be able to reach agreement on CRA reform.