By: Wilhelmina Wachter, Managing Director – Compliance Services
On May 20, 2020, the Office of the Comptroller of the Currency (OCC) issued a final rule on the Community Reinvestment Act (CRA) despite over 7,000 comments received that were not in favor of the new rule. FDIC Chairman Jelena McWilliams stated that the FDIC “is not prepared to issue a new CRA rule during the COVID-19 pandemic.”
The new rule completely overhauls the existing CRA and creates numerical benchmarks to measure a bank’s CRA performance. One positive change includes a publicly available list of CRA-qualifying activities that will be updated annually and a pre-approval process that will confirm if an activity will receive CRA credit. This change will provide a clearer path to compliance for institutions subject to CRA rather than the current dependency on interpretation.
Some believe the new metrics will not yield positive results for smaller banks and will make it more challenging to serve low to moderate-income communities. For example, the new rule places a higher value on the dollar amount of CRA activities versus the quality of the activities. The emphasis on dollar amount will allow bigger banks to receive more CRA credit, and the activities do not have to benefit low to moderate-income neighborhoods primarily.
Another example relates to retail services; the retail lending test is weighted low in the overall CRA performance of a Bank. Retail lending and the location of branch offices in low to moderate-income communities are weighted less and retail services are disregarded. Community groups are afraid this may result in the closing of branches in these communities, which would make it more difficult for low to moderate-income individuals to obtain loans and services.
The implementation dates vary depending upon the size of the bank. While the new rule is effective October 1, 2020, most banks regulated by the OCC have until January 1, 2023 to comply with the new rule. With the new rule, the threshold for a “small bank” is $600 million in assets. An “intermediate bank” asset threshold is greater than $600 million to $2.5 billion, and the “large bank” threshold is over $2.5 billion in assets. Banks may voluntarily comply with the new regulations before the compliance dates.
The reporting requirements for large banks have significantly increased. On a quarterly basis, large banks will be required to report retail deposit accounts based on each depositor’s physical address. Banks must also collect and maintain balance sheet information and the quantified dollar value of qualifying and certain non-qualifying activities. Also, rather than the examiner preparing a performance evaluation, the bank will collect, maintain, and report their presumptive ratings and the results of various metric calculations. The examiners will then review the ratings for accuracy. Industry experts have identified several flaws within the calculations and discrepancies within the mandatory reporting requirements. One discrepancy related to the mandatory compliance dates is that data collection and recordkeeping requirements for large banks are the same as for the reporting requirements (January 1, 2023). In addition, banks will be required to develop their performance standard and presumptive rating on the date this data gathering begins. Small and Intermediate Banks will have to collect and maintain information on retail deposits, including the depositor’s physical address with a compliance date of January 1, 2024.
The OCC has indicated they will provide additional guidance that will hopefully resolve the calculation disparities and clarify the effective data collection dates and data reporting.