OCC to overhaul CRA rule as Otting plans to leave agency

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WASHINGTON — The Office of the Comptroller of the Currency will release a final rule Wednesday that makes significant changes to its proposed overhaul of the Community Reinvestment Act, just as the head of the OCC is widely expected to be preparing his exit from the agency, according to sources.

The final rule will make extensive accommodations to respond to stakeholders who commented on the agency’s December proposal, according to sources familiar with the situation. The agency is no longer including prescriptive formulas for determining sufficient CRA activity based on existing data, and has removed sports stadiums as an example from a list of eligible CRA activity, the sources said. But the OCC will add CRA credit for loans in Indian country as well as loans sold to the secondary market, they said.

Meanwhile, a senior OCC official familiar with the situation confirmed that Comptroller of the Currency Joseph Otting is stepping down effective Thursday. The reasons for his departure — before the end of his term — are unclear. Otting was sworn into office in late 2017 for a five-year term.

The Wall Street Journal on Tuesday first reported on his resignation and that the rule would be released this week.

"We think we should accelerate it, because it would drive more dollars into low- and moderate-income communities across America,” Comptroller Joseph Otting said of the CRA rule in a May 12 virtual hearing with the Senate Banking Committee.
"We think we should accelerate it, because it would drive more dollars into low- and moderate-income communities across America,” Comptroller Joseph Otting said of the CRA rule in a May 12 virtual hearing with the Senate Banking Committee.

The agency will not be joined by the Federal Deposit Insurance Corp., which had originally signed on to the interagency proposal in December, in releasing the rule this week, according to the senior OCC official. An FDIC spokesperson declined to comment for this story. The Federal Reserve declined to join the two agencies on the initial proposal.

The OCC has made clear its intent to complete the rule despite strong criticism of the proposal and heightened attention among banks and regulators on the response to the coronavirus pandemic. Still, as speculation grew this week that the OCC was readying a final CRA framework, the speed with which the agency has sought to conclude its work rule caught many by surprise.

Even though many called on the OCC to slow down the rulemaking in the midst of the pandemic, Otting has indicated he wanted to keep going.

“Actually, we think we should accelerate it, because it would drive more dollars into low- and moderate-income communities across America,” Otting said in a May 12 virtual hearing with the Senate Banking Committee. “And a lot of the comments that we got will allow us to do that and build a program that will allow us to serve in low- and moderate-income areas.”

Yet, according to sources, the final rule will respond to many of the concerns that were raised about the proposal in public comments.

One of the hotly debated provisions of the proposed framework was a so-called single metric to determine what constitutes a sufficient amount of CRA activity. Critics had questioned the data used by the OCC to establish the metric, which they said could incentivize banks to focus on a smaller amount of larger CRA projects, rather than smaller-scale loans.

The final rule will include no specific thresholds or targets for sufficient CRA activity, said sources familiar with the situation. Instead, the banks will be asked to submit their own data to determine sufficient activity. New thresholds or targets may be established later in order to evaluate banks under the new method.

The rule is expected to take effect in October, but it will include a two-year phase-in period before banks are evaluated, the sources said.

In significant victories for the banking industry, the OCC’s rule will remove a proposed restriction on CRA credit being available for certain loans only if they are held on the balance sheet, and raise the asset threshold — by $100 million — for community banks allowed to opt out of the new regime to $600 million, the sources said.

However, banks are not expected to win relief they had sought from proposed data collection requirements.

The final rule also is not expected to make substantive changes to the proposal’s method for expanding CRA assessment areas. The proposal established a system for predominantly online banks to be assessed for CRA activities in areas where customers held a lot of deposits but the bank had no physical branches.

The initial changes proposed to the CRA, a historic anti-redlining law dating to 1977, had received mixed reviews from the banking industry, community advocates, congressional Democrats and fellow regulators at the Fed.

With the onset of the global coronavirus pandemic, many industry stakeholders pleaded with the OCC to suspend rulemaking as financial institutions and community organizations alike grappled with the disruptions, but the agency showed no indication of slowing down.

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OCC CRA Joseph Otting Regulatory reform Coronavirus Community banks Financial regulations
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