3 questions as OCC chief gets set to defend CRA plan in House

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WASHINGTON — Impeachment is hardly the only battle on Capitol Hill this week. House Democrats will get their first chance Wednesday to question Comptroller of the Currency Joseph Otting since the release of his agency's Community Reinvestment Act proposal.

With the reform plan already having drawn heavy criticism from community groups, the Federal Reserve and some lawmakers, Otting's appearance before the House Financial Services Committee could be contentious.

Otting did not attend an oversight hearing with other regulators the first week of December, when the official proposal had not yet been released but some details had already begun to leak out. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. officially approved the proposal on Dec. 12.

The snub did not go unnoticed among House Democrats, as Financial Services Committee Chairwoman Maxine Waters, D-Calif., and other members decided to crash the FDIC board meeting, where Otting and FDIC Chairman Jelena McWilliams were among the regulators voting on the CRA reform plan.

“We have tried to work out a time for Mr. Otting to come over and testify, and he’s been absolutely too busy,” Waters said to reporters after the board meeting in December. “So we thought we’d come to see him.”

Here are questions about the committee's questioning of the regulator seen as the driving force behind the remaking of the 40-year-old law.

What will Democrats target, and how hard will they hit?

House Democrats are expected to come armed with sharp questions for Otting, having sided with community groups in their opposition to the OCC and FDIC’s proposal to modernize the CRA.

One area lawmakers could zero in on is the time frame the agencies provided for public comment on the plan. With the complex proposal spanning 240 pages, many groups have asked for more time to study the proposal than the allotted 60 days, including the National Community Reinvestment Coalition.

But Otting has already indicated the comment period will not be extended. He told reporters recently that with the lag time between when the proposal was released and published in the Federal Register, commenters will have had nearly 90 days.

Others have criticized the OCC and FDIC’s proposal to consolidate several different tests that are now distinct pieces of a CRA evaluation — including retail lending, community development into service tests — into a single, final score. A central component of that ratio will be the dollar value of CRA projects. This so-called single CRA metric has been among reasons the Fed has refused to back the proposal.

Critics have said that that scoring structure would put undue emphasis on pricier CRA projects with a bigger profit return for banks, allowing institutions to comply with fewer total investments and reducing the incentive for banks to make smaller, targeted loans.

Another area of criticism is the OCC and FDIC’s proposed “illustrative” list of CRA-eligible activity, which aims to give banks a better sense of what activity is most likely to earn them CRA credit.

Lending to areas classified as “opportunity zones” — a Trump tax overhaul provision that offers multiple tax benefits for developers and investors putting money towards “distressed” communities — will qualify for CRA approval. But one example of opportunity zone activity listed by regulators included lending to “sports stadiums,” which raised alarm among community advocates concerned about the potential for rapid gentrification around sports stadiums that technically find themselves in low- to moderate-income census tracts.

There has also been concerns about regulatory dysfunction and arbitrage if the OCC and FDIC finalize a proposal without the Fed. Virtually every stakeholder — from the American Bankers Association to small community development financial institutions — has requested that regulators sync up their CRA reforms at some point.

Congressional criticism has been so fierce that some analysts have suggested lawmakers could consider drumming up support for a resolution to repeal any eventual CRA rule under the Congressional Review Act.

Will Republicans come to Otting’s defense?

Republicans have expressed cautious support for the OCC and FDIC’s proposal.

"This is a common-sense proposal to ensure increasing transparency from institutions, for consumers, all while improving banks’ ability to serve their communities,” said Rep. Blaine Luetkemeyer, R-Mo., during a previous subcommittee hearing in mid-January, the first since the CRA proposal was unveiled.

But if their Democratic colleagues sharpen their knives, the question will be how much Republicans try to counteract the scrutiny of Otting's plan.

The most recent subcommittee hearing, on Jan. 14, revolved around expert testimony from community groups. Republicans focused their inquiries on a single witness, Diversity Coalition CEO Faith Bautista, who was the lone witness to air public support of the CRA proposal.

Republicans may try to argue that the pending proposal from OCC and FDIC is the best attempt to date to modernize a badly outdated law and that criticism from the Fed and others is just noise.

Will Otting stick to his guns or show room for compromise?

How Otting responds to questions from the lawmakers could offer a signal about how the CRA reform process will proceed.

As regulators have discussed modernizing the law, they have at various times shown an interest in compromising to form a consensus across all three agencies, and at other times have indicated they may agree to disagree.

In particular, it is looking increasingly like the OCC and FDIC intend to proceed with a final rule without the Fed's support. Otting's answers on Wednesday could point to whether that is still the case.

In a recent meeting with reporters, Otting said it was unlikely the Fed could come on board with the plan in time to be part of the final rule, all but ruled out a longer comment period and punched back at critics of the plan, saying he wanted “people to operate from a point of facts."

"If you want to criticize the proposal, don't only criticize it but tell us how you would make it better," Otting said.

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CRA Financial regulations Joseph Otting Maxine Waters OCC House Financial Services Committee FDIC Federal Reserve