Community groups and bank associations questioned whether bank regulatory personnel are up to the task to implement the proposed new CRA regulations. Meanwhile, some industry lawyers and consultants suggest agencies lack the authority to enforce civil money penalties and cease-and-desist orders for banks with bad CRA scores.
The comments were among many sparked since federal regulators approved the new CRA proposal on Sept. 26. The changes impose fewer strict standards and give examiners more flexibility than the current rule and the first proposed change.
The proposal win be published for comment in the Federal Register shortly and will have a relatively short 45-day public comment period.
Training and Implementation
"One of the weak links is the requirement for all regulatory institutions to incorporate massive amounts of training to bring examiners up to speed," said John Taylor, president of the National Community Reinvestment Coalition.
The American Bankers Association sounded the same note. "The real story may well be in the training of examiners and their implementation of these provisions," it said.
However, Stephen Cross, OCC deputy comptroller for compliance management, said that new inter-agency examination procedures set up for the final rule may alleviate some doubt over agencies, ability to be more consistent in exams. "We [at OCC] will have to do substantial training to refocus examiner assessments," said Cross. "We believe the proposal places a great deal of burden on examiners that is removed from banks. We also have a lot of work to do developing software and technological capabilities to be used by trained examiners."
Another issues, however, advocates for low-income consumers and industry leaders hold opposite views.
Measurement of Performance
While the ABA is, "pleased to see the market share test carry less weight," Taylor criticizes its elimination and other lending measurement devices. "The new proposal calls for a great deal of subjectivity on the part of the examiner," said Taylor. "[The agencies] want to measure performance, but they won't put measures in place that win capture it." He cites evidence of this as the elimination of the 60% loan-to-deposit ratio, which was cheered by industry leaders for its absence m the new rule but, about which Taylor said," was just a screen to grab the attention of people about whose ratios were low. Small banks, accountability is lessened in this version."
Some industry lawyers and consultants questioned whether agencies have the authority to enforce civil money penalties or cease-and-desist orders on banks that don't receive a passing CRA grade under the proposed regulation.
"When CRA was enacted in 1977 it was intended to encourage banks [to meet the economic needs of its community]. It contains no specific sanctions and never has," said David W. Roderer, a partner with Winston & Strawn in Washington. "The only sanction, if considered a sanction, is the empowerment of agencies to consider lending policies when considering applications for expansion. But that's what it was."
However, Roderer said, "If an agency undertakes a legislative act and seeks to impose legal obligations on banks, they may have a basis for asserting penalties. It's bootstrapping in a sense. Agencies are developing federal law through a regulation and seeking to enforce it. One can constitutionally question whether they can do that."
James McLaughlin, director of agency relations at ABA, concurs. "The question really is do agencies have the statutory authority to enforce penalties," he said.
"The CRA statute is so vague it says a bank only has to help meet the credit needs of its community including low-and moderate income areas" he said. "For agencies, it requires them to grade banks and publish their performance."
OCC held a briefing for trade associations and community groups about CRA. The session, conducted by Matt Roberts, director of community and consumer law division, and cross went through provision by provision all of the key, issues of the regulation, according to the OCC. A question-and-answer period followed the review.