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FDIC, FRB, OCC, OTS: Revising the Community Reinvestment Act Regulations

ABA Contact: Paul Smith, (202) 663-5331
Published: 69 Federal Register 5729; February 6, 2004
Comments Due: April 6, 2004
Disposition: Filed April 6, 2004

UPDATE: On July 16, 2004, OTS announced that it will raise the small thrift CRA examination threshold to $1 billion. See OTS final rule.  The FRB and the OCC then withdrew their parts of the interagency proposal. See FRB Press Release. In September 2004, the FDIC asked for comment on a new CRA proposal – state nonmember banks between $250 million and $1 billion in assets would be eligible for the small bank streamlined exam, but it would be augmented by an assessment of their community development activities. FDIC also proposed expanding the definition of community development to include rural residents. ABA supported the proposal, but ABA urged the FDIC to apply the community development criterion only to banks over $500 million. See ABA Regulatory Proposals Chart on this FDIC proposal. On November 24, 2004, the OTS proposed revising its definition for community development in line with the FDIC’s proposal but also proposed revising the large bank examination ratings system to allow large banks to vary the weight of the lending, service and investment tests. See OTS proposal. On March 2, 2005, the OTS adopted this proposal. See OTS final rule.  On March 11, 2005, the FDIC, FRB and OCC published a new proposal on CRA, REPLACING this proposal.  See May 10, 2005 Reg Chart entry for FDIC, FRB, OCC Proposed Revision of CRA Regulation.

Despite receiving literally hundreds of letters requesting changes to the CRA regulations, the Agencies have concluded that "[t]he comments reflected a general consensus that fundamental elements of the regulations are sound…."  The Agencies propose amendments to the regulation in two areas.

1. To amend the definition of ''small institution'' to mean an institution with total assets of less than $500 million, without regard to any holding company assets, so as to reduce unwarranted burden consistent with the Agencies' ongoing efforts to identify and reduce regulatory burden where appropriate and feasible.

ABA commented that this urgently needed to be done, but that the Agencies should increase the threshold for a small bank to $1 billion.

2. To amend the regulations specifically to provide that evidence that an institution, or any of an institution's affiliates, the loans of which have been considered pursuant to

§__.22(c), has engaged in specified discriminatory, illegal, or abusive credit practices in connection with certain loans adversely affects the evaluation of the institution's CRA performance, in order to better address abusive lending practices in CRA evaluations.

ABA commented that we believed that the proposed changes went beyond the policy guidance and in fact was overbroad. ABA recommended that the Agencies leave the current guidance in place, but urged the Agencies to clearly limit those violations that might lower a CRA rating to significant ones affecting the provision of credit. ABA was particularly concerned about the inclusion of any state violations. Finally, ABA pointed out that the inclusion of equity stripping as a prohibition appeared to be misplaced: CRA is not a substantive consumer protection regulation and the Agencies lack enforcement authority under CRA except to deny an application for a deposit-taking facility. If the Agencies want to ban equity stripping, they need to do so in a substantive consumer protection regulation, such as the Federal Reserve Board's Regulation A.

Additionally, the Agencies propose several enhancements to the data disclosed in CRA public evaluations and CRA disclosure statements relating to information on loan originations and purchases, loans covered under the Home Ownership and Equity Protection Act (HOEPA) and other high-cost loans, and affiliate loans.  According to the Agencies, these changes impose no additional burden on institutions but only change how the Agencies prepare and release data already collected under CRA.

ABA pointed out that a number of smaller banks have indicated that they believe individual business borrowers of theirs will have their financial privacy breached, if the Agencies do this. ABA urged the Agencies to not cause such a breach in financial privacy.

Finally, the Agencies indicate in the proposal that they will also address certain other issues raised in connection with the ANPR through additional interpretations, guidance, and examiner training. These include further clarifications about the investment test's requirements for innovativeness and complexity, the weight to be given investments considered in a previous examination, and how to demonstrate that an activity's "primary purpose" is to serve low- and moderate-income individuals.

2004 Regulations Chart
Federal Register
Comment Letter