In testimony before the House Financial Services Committee, OCC Comptroller Joseph M. Otting defended proposed amendments to the Community Reinvestment Act ("CRA") designed to encourage banks to provide more CRA-qualified lending, investment and services.

Under the CRA framework, the OCC, FDIC, and Federal Reserve conduct regular examinations evaluating banks' activities in providing credit, services and investments in low- and moderate-income ("LMI") communities where such banks operate. As previously covered, the OCC and FDIC proposed amendments to the CRA to encourage banks to provide more CRA-qualified lending, investment and services by making the framework more objective and transparent. While the Federal Reserve Board ("FRB") proposed a different approach (see here), FRB Governor Lael Brainard argued that a "strong common set of interagency standards is the best outcome."

In his testimony before the House Financial Services Committee, Mr. Otting defended the proposal, and clarified that the proposed amendments to the CRA would:

  • remove uncertainty that deters bankers' investment in LMI communities by adopting clear criteria as to what qualifies for CRA credit;
  • focus on LMI borrowers through targeted incentives for banks;
  • reduce "CRA deserts" by clarifying that banks can receive credit outside of their assessment area;
  • standardize reporting in order to minimize the gaps between performance evaluations and publication;
  • focus on banks' sustained commitment to meeting communities' credit needs and rewarding long-term investment;
  • support small farms and businesses; and
  • accommodate banks of varying sizes and business models by allowing small banks with less than $500 million in total assets to choose between the existing and proposed performance standards for their evaluations.

Mr. Otting also identified multiple misperceptions about the proposal by clarifying that the proposed amendments would not:

  • legalize redlining (i.e., banks discriminating against prospective customers based on where they live, or on their racial or ethnic identity), but instead would increase the objectivity of evaluations and make banks more accountable;
  • use a single metric to determine a bank's CRA rating, but instead would require examiners to use their judgment when assigning a final rating only after (i) considering a retail lending test and (ii) evaluating the impact of a bank's CRA activity based on the dollar value measurement of that activity;
  • lose focus on low- and moderate-income people and neighborhoods but instead would close harmful loopholes (e.g., giving CRA credit to banks for giving loans to wealthy borrowers who buy homes in LMI areas);
  • eliminate the importance of branches, but instead would maintain their central role in CRA assessment and give banks specific credit for having branches in LMI areas;
  • allow banks to get a satisfactory rating without achieving a satisfactory rating in a significant portion of its assessment areas;
  • implement a new incentive by giving banks CRA credit if they finance athletic facilities;
  • create "chaos" if the FDIC, OCC and FRB act independently of one another;
  • lessen CRA activity, but instead would add assessment areas where banks would be evaluated for CRA performance; and
  • limit the amount of CRA dollars banks have to spend, but instead would provide greater regulatory clarity regarding how much an activity counts for CRA credit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.