What does the OCC think 'debanking' has to do with the CRA?

To the editor:

At some point in the near future, I hope I learn not to open the American Banker app on my iPad with coffee in my mouth. If it's not an article about the Consumer Financial Protection Bureau looking for reasons not to supervise the sector of the industry that is evolving the quickest (nonbanks), or an item on how the Federal Deposit Insurance Corporation wants to take branch applications out of the Community Reinvestment Act, or CRA, it's an article about how the Office of the Comptroller of the Currency will need to staff up in order to handle the tsunami of fintech and crypto charter applications it's receiving which, if Draft Kings had this on their system, a good parlay would be "next financial crisis" combined with "tax payer bailout."

The latest "wipe coffee off my screen" moment occurred when the OCC advised its regulated entities that it will consider "debanking" as part of its CRA examination process. (There are really smart people at the OCC, so one is left to assume that this came from the pool of temporary visitors scattered throughout our regulatory landscape that think they know better.) The constituencies associated with the CRA are low- and moderate-income individuals, low- and moderate-income communities, small businesses, and small farms. Here's the simple version of how it works. First, examiners take lending data, map it out and see if there are any obvious gaps based on the income of the community (aka, redlining). This portion of the exam counts toward 50% of a bank's final CRA grade.

Next, examiners look at donations and investments made by the bank that have community development as their primary purpose (affordable housing, economic development, and other financial service-related activities targeting low- and moderate-income individuals and/or communities). This is 25% of a bank's final grade. Finally, they take a look at the accessibility of the institution's branches, the products and services they offer, and any financial services-related volunteering by bank employees ... all of which must be accessible to low- and moderate-income individuals and/or communities. This is the final 25% of a bank's final grade. The rule is outdated, but it's what we've got to work with for the time being until the industry and its regulatory agencies go through marriage counseling and figure things out. But that's a letter for another day.

Trump administration

Banks in a bind as regulators operationalize debanking order

The Office of the Comptroller of the Currency's recent bulletin warning banks that past debanking actions could affect supervisory reviews is the latest effort to put the president's executive order on debanking into action. But industry sources say the order itself forces banks to choose between pleasing their regulators and taking on unwanted risk.

By Ebrima Santos Sanneh

September 12

I'd like to hear how the OCC thinks "debanking" is at all related to any of those tests or to meeting the banking and credit needs of low- and moderate-income individuals and communities. I suppose there's a scenario where a small-business owner in a low-income community could be denied a business checking account because they sell Trump-branded guitars (selling on eBay for about $349, so not entirely a bad business model) and the banker is a die-hard Lyndon LaRouche supporter. However, this is not something that the CRA was created to address. This attempt to shove the CRA into the culture war would be right at home in a Sesame Street "One of These Things Is Not Like the Other" segment.

Come to think of it, Congress already created an agency to help consumers that feel aggrieved by the financial industry. It's called the CFPB. If this administration actually wants to address so-called "politicized debanking" (which is not a premise that I necessarily accept), then maybe they should stop dismantling the CFPB rather than trying to shoehorn the issue into a law where it clearly does not belong.