OCC and FDIC chiefs signal progress on CRA reform

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WASHINGTON — The heads of the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency on Wednesday expressed hope that bank regulators could agree by early next year on a plan to modernize the Community Reinvestment Act.

FDIC Chairman Jelena McWilliams and Comptroller Joseph Otting were both scheduled to address a conference of the Consumer Bankers Association.

Speaking first during a question-and-answer session with CBA Chief Executive Richard Hunt, McWilliams was asked if CRA reforms would be completed in time for the trade group's next annual conference in March 2020.

“By March next year, yes. I am hopeful,” McWilliams said. “I actually believe [CRA] needs to be modernized. I don’t know that it’s working as it should.”

In his remarks, Otting, the regulator who has been the most vocal in support of modernizing the CRA, suggested a more aggressive timetable.

“I think we should move the [CBA annual] conference up to December,” he said.

The two agencies along with the Federal Reserve have been in discussions on how to update the grading system for CRA, a 1977 law that assesses banks' lending to the communities they serve. That grading system has not been updated since the 1990s, before the rapid emergence of online banking.

So far, only the OCC has released anything official regarding modernizing the law. The agency's advance notice of proposed rulemaking, which solicited feedback on the reform effort, gathered roughly 1,500 comments in November.

Recently, regulators at the FDIC and Federal Reserve have appeared to be in agreement with the OCC on general changes to CRA, including the need to develop clearer measurements of banks' community lending efforts and to revisit CRA assessment boundaries in light of digital banking and other changes.

Otting, who spoke immediately after McWilliams at the conference, said the principals of the banking agencies will meet April 11 to begin “mapping out” a notice of proposed rulemaking.

“We’re excited about where we are with CRA” among the regulators, Otting said.

The two agency heads also sounded aligned on policies to encourage banks to offer small-dollar loans. In 2013, under the Obama administration, the FDIC and OCC separately issued guidance blocking banks from offering deposit advance products, but critics say the agencies' guidance resulted in more consumers seeking loans from payday lenders.

More recently, the OCC rescinded the 2013 policy and then issued a bulletin last May encouraging certain small-dollar, short-term loans. The FDIC issued a request for information in November on how to regulate small-dollar lending without rescinding its previous guidance.

Speaking with reporters after the speech, McWilliams said her "hope" is that the FDIC, Fed and OCC will jointly take action to encourage banks to make small-dollar loans. At the same time, the Consumer Financial Protection Bureau has a pending proposal to revamp its 2017 small-dollar lending rule.

“Right now what we have are three different sets of expectations, plus the CFPB rule is being reworked. ... This is why you don’t see banks in this space,” McWilliams said. “You don’t know which regulator is going to ding you for doing it, so it’s easier not to do it.”

She added that a joint action on small-dollar lending could be either a guidance or a rule. "Whatever is the easiest, quickest channel for us to get together and do something and provide some certainty,” she said. "You don’t want to have that bifurcated approach among the agencies. You don’t get the best out of it.”

In responding to McWilliams’ comments about a potential interagency action on small-dollar lending, Otting told reporters, “I’m supportive of that, 100%.”

The OCC’s May bulletin is meant “to encourage banks to go back into that space in a safe and sound manner,” and an interagency action could be “along those lines of stretching that and seeing what’s available to banks to be able to participate,” he said.

The two regulators enjoyed a moment of levity at the event when Otting arrived as McWilliams was still speaking. The CBA's Hunt then unexpectedly invited them both to appear together.

“I would just like to say that I’m a better regulator,” McWilliams joked after Otting walked onstage.

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