Regulators' powerful incentive to fast-track CRA reform
While community and industry groups are pressing regulators to extend the public comment period for proposed changes to the Community Reinvestment Act, the agencies have a powerful incentive to move quickly — a potential Democratic sweep of the 2020 elections that could enable Congress to scrap the plan before it is ever enacted.
Many community groups are already mobilizing against the proposal, which they say would undermine the intent of the law meant to help ensure banks provide loans and services to disadvantaged consumers in areas in which they operate. Democrats have echoed their concern and asked the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. to double the 60-day public comment period, allowing for more time for them and others to weigh in.
Yet the looming possibility of a Democratic victory later this year may push regulators to resist such calls, and move faster than expected to finalize the CRA proposal, according to analysts.
If the Senate, House and White House are controlled by Democrats in 2021, they could potentially use a congressional procedural challenge that allows them to quickly scuttle a final CRA rule with a simple majority vote in both chambers. But such a move is only possible if the CRA plan is finalized in the last half of this year or later, providing a rationale for regulators to move quicker to avoid such a fate.
“As written, this proposal is bad enough to warrant overturning in whatever way possible,” said Jesse Van Tol, CEO of the National Community Reinvestment Coalition. “If the Democrats win big in 2020,” such a move “will be relatively high on the regulatory agenda if the proposed changes are finalized.”
A tale of two CRAs
At issue is the Congressional Review Act, which allows Congress to overturn any recently-enacted regulation with a majority vote. Though the review law was passed in 1996, it was seldom used until after the 2016 election, which delivered the House, Senate and White House into Republican hands. The GOP used the review act to overturn two Obama-era regulations by the Consumer Financial Protection Bureau.
Some analysts predict the Democrats may strike back at Trump-era regulations if the election goes their way in 2020, with any CRA final rule a high priority. But the Congressional Review Act only covers regulations enacted within a certain time frame. If regulators were to move quickly enough, by midsummer of this year, a CRA final rule would not be eligible to be rejected by the Congressional Review Act.
As a result, some predict the OCC and FDIC will attempt to move quickly to finalize CRA.
“They can’t afford to drag this out,” said one person familiar with regulator deliberations. “Between not knowing what Congress is going to look like this fall, folks going out of town, whether we have a lame duck situation — everyone is trying to avoid Congressional Review Act. This needs to be done early summer.”
Why it matters now
The concerns about the Congressional Review Act are simmering as consumer groups — and even some in the financial industry — are asking for additional time to review the CRA proposal.
Under the plan unveiled in mid-December, the public has 60 days to comment once the proposal is published in the Federal Register. That clock has technically not started since it has yet to be published in the register, but that is expected to happen later this week.
However, House Financial Services Committee Chairwoman Maxine Waters has already called for the comment period to be doubled to 120 days, citing the proposal’s complexity. She plans to hold two hearings on the proposal this month.
“It is important to understand that when a proposal is being made by a single agency for the most part, asking everybody else to sign on — there are so many things we don't know,” Waters told reporters after the proposal was released. “The devil is in the details when you talk about timing of this, and the time that it's going to take — we don't know that. So that's why we've got to take this apart.”
Even some in the industry are sympathetic to the calls for additional time to analyze the impact of the proposal.
“The industry wants to run these numbers and see what the impact of these metrics would be. That’s not something every CRA officer will readily be able to do,” said Warren Traiger, senior counsel at Buckley.
For community groups, the task is even harder, Traiger said. They may work with several banks in a given area, but lack access to granular CRA data.
For them, “it's harder to look at this holistically and ask, Is this a good thing for society in general?” said Traiger. “There’s a good reason people want more time.”
Karen Thomas, senior executive vice president of government relations at the Independent Community Bankers of America, said in an email that her organization would support an extended comment period.
“The proposal is complex,” Thomas said. “An extension would provide us a better opportunity to continue our analysis of the proposal and allow bankers to apply the concepts to their individual circumstances, assess the impact.”
Not every industry group is seeking such an extension, however. The Consumer Bankers Association “as of this moment” is not “planning to request an extension and is working toward the OCC and FDIC’s original 60-day comment period,” according to spokesperson Nick Simpson.
The American Bankers Association is “encouraging our members to meet the comment deadline and will do the same,” according to ABA spokesperson Mike Townsend. “We respect that other stakeholders may ask for more time with this proposal, and we leave that decision to the agencies.”
A spokesperson for the OCC disputed that parties would not have enough time to fully review and understand the proposed changes.
“Agencies have engaged stakeholders for more than 18 months on modernizing CRA regulations, including a previous round of public comment on the ANPR in 2018. The proposal is largely consistent with those discussions,” the spokesman said in a statement to American Banker, using the abbreviation for advance notice of proposed rulemaking.
The spokesman noted that given the procedural delay in publication in the Federal Register, commenters have effectively been granted extra time. “The comment period in effect now exceeds 75 days and based upon current estimates could be 90 days, and since Federal Register publication falls after the holidays, the 60-day period is not adversely affected by holiday staff schedules at stakeholder organizations,” he said.
The OCC spokesman did not comment on concerns relative to the Congressional Review Act.
Consumer groups still say it’s not enough time.
The proposed changes to the Community Reinvestment Act “purports to address a problem with complexity in the system by putting together something that is very complex,” said Kevin Stein, deputy director of the California Reinvestment Coalition. “So even more time is needed than usual — because the stakes are so big for these communities.”
A challenging task?
To be sure, regulators face challenges in enacting a final CRA rule quickly even without additional fears centered around the election. For one thing, the OCC and FDIC released the proposal without the approval of the Federal Reserve.
If the OCC and FDIC acted without the Fed, it would create the possibility of divergent enforcement of CRA standards depending on charter type — a situation regulators would like to avoid.
Moreover, even if regulators held to the 60-day comment period, it would be logistically challenging to sift through the comments and craft a final rule by early summer.
“I can’t see them getting the rule done before that,” said Lawrence Kaplan, an attorney at Paul Hastings. “It would be virtually Herculean.”