The OCC has issued a final rule revising its regulation implementing the Community Reinvestment Act (CRA).  The final rule applies to national banks and federal savings associations.

Although the OCC’s proposed revisions were issued jointly with the FDIC, the FDIC did not join in the final rule.  FDIC Chairman Jelena McWilliams issued a statement in which she indicated that although the FDIC continues to support CRA reform, “the agency is not prepared to finalize the CRA proposal at this time.”  The Fed has not yet issued a separate proposal.  Accordingly, Fed-member state banks supervised by the Fed and non-member state banks and savings associations supervised by the FDIC will be subject to different CRA compliance frameworks than national banks and federal savings associations supervised by the OCC.

The final rule is effective October 1, 2020 but sets mandatory compliance dates based on the applicable performance standards.  Banks subject to the general performance standards and banks subject to the wholesale and limited purpose bank performance standards must comply with the new CRA framework by January 1, 2023.  Banks subject to the small and intermediate bank performance standards must comply with the new CRA framework by January 1, 2024.  During the period between October 1, 2020 and the 2023 or 2024 compliance dates, the provisions of the current CRA regulation will remain in effect but the OCC may permit a bank to voluntarily comply, in whole or in part, with the new framework as an alternative compliance option.

While the final rule substantially tracks the OCC’s proposal, it does make some significant changes to the proposal that include:

Qualifying activities.  The final rule removes credit cards and overdraft products from the “consumer loans” for which banks can receive CRA credit.  It increases the loan size threshold for small loans to businesses and farms to loans of up to $1.6 million and increases the business and farm revenue thresholds to gross annual revenues of up to $1.6 million (with both thresholds to be adjusted for inflation every five years).  The “affordable housing” activities that receive CRA credit under the final rule do not include activities that finance or support middle-income rental housing in high-cost areas and the “essential infrastructure” activities that receive CRA credit under the final rule are limited to those that partially or primarily serve low- and moderate-income (LMI) individuals or families or LMI areas or other identified areas of need.  The final rule also adds a definition of “CRA desert” (underserved areas) and provides multipliers to increase the amount of CRA credit a bank receives for qualifying activities in these areas.  It also limits the qualifying activities that receive CRA credit to those conducted directly by a bank and does not provide credit for activities undertaken by bank affiliates as proposed.  For qualifying retail loans, the final rule quantifies originations sold at any time within 365 days at 100 percent of the origination value (in contrast to the proposal’s quantification of loans sold within 90 days of origination at 25 percent).

Qualifying activities list.  The final rule is accompanied by an illustrative list of qualifying activities.  It provides that the OCC will review the list every five years rather than every three years as proposed but will update the list annually to reflect requests from banks for confirmation that an activity qualifies for CRA credit.  The final rule shortens the approval process for such requests from six months to 60 days with the option of a 30-day extension.

Delineation of assessment areas.  The final rule adopts the proposal’s requirement that a bank that receives more than 50 percent of its retail domestic deposits from outside of its facility-based assessment areas must delineate separate deposit-based assessment areas where it receives 5 percent or more of its retail domestic deposits.  Unlike the proposal which would have required a bank to delineate such areas at the smallest geographic area where it receives 5 percent or more of its retail domestic deposits, the final rule gives a bank the option of delineating its deposit-based assessment areas at a larger area that includes such smaller areas, up to an entire state.  The final rules allows a bank to change its assessment area designations once a year.

Measuring CRA performance.  The final rule:

• Raises the asset threshold for “small banks”  and “intermediate banks” that continue to be evaluated under the current small and intermediate bank performance standards (unless they opt into the new general performance standards) to, respectively, $600 million and $2.5 billion.
• Instead of evaluating wholesale and limited purpose banks under the general performance standards or a strategic plan as proposed, evaluates such banks under the current performance standards applicable to them.
• Provides that in applying the retail lending distribution tests, whether a product line qualifies as a “major retail lending product line” will be based on a bank’s originations in the two years preceding the beginning of the evaluation period rather than on originations during the evaluation period as proposed.  The final rule also (1) clarifies that when determining which product lines qualify as a “major retail product line,” each of the three consumer lending product lines (considered in the tests) will be treated as a separate product line for purposes of reaching the 15 percent threshold, and (2) provides that a bank will be required to have at most two major retail product lines and if more than two product lines comprise more than 15 percent of a bank’s retail lending, the two largest retail product lines will be considered a “major retail product line.”
• While only counting home mortgages to LMI individuals for purpose of a bank’s CRA evaluation measure, applies a geographic distribution test to a bank’s home mortgage loan product line even though it will result in positive consideration to loans provided to middle- or high-income borrowers in LMI areas.
• Unlike the proposal, does not contain benchmarks for the CRA evaluation measure, a specific community development lending and investment minimum, or thresholds for the retail lending distribution tests.  In the Supplementary Information accompanying the final rule, the OCC indicates that these items were not included in the final rule because “the data that the OCC gathered in response [to its RFI to gather additional data] was too limited to reliably calibrate these measures for all banks subject to the general performance standards.”  The OCC states that it will “shortly” issue another Notice of Proposed Rulemaking “that will explain the process the agency will engage in to calibrate more precisely the requirements for each of three components of the objective evaluation framework” and will set specific measures once it considers comments and analyzes additional data.
• For banks that use the strategic plan option for their CRA evaluations, shortens the time frame for approval of a plan from the proposed nine months to 90 days with a potential 30-day extension.

Data collection, recordkeeping, and reporting.  The final rule requires banks to report the results of their retail lending distribution tests and their presumptive ratings at the end of the evaluation period instead of annually as proposed.  The final rule does not specify the length of an evaluation period but the OCC indicates in the Supplementary Information that it expects that, in general, evaluation periods will be between three and five years in length.

We will share our reactions to the final rule in subsequent blog posts.