What happened

Testifying before the Senate Committee on Banking, Housing and Urban Affairs as well as the House Financial Services Committee on consecutive days, Otting shared his priorities as the 31st Comptroller of the OCC.

Of greatest importance, Otting intends to reduce the regulatory burden associated with the CRA, which “has become too complex, outdated, cumbersome and subjective” during the four decades since it became law. Otting—former president and CEO of OneWest Bank, founded by current Secretary of the Treasury Steven Mnuchin—tapped into his prior experience with the statute to call for its modernization.

Changes should include an expansion of the types of activities that qualify for CRA consideration, Otting told lawmakers, instead of the current heavy focus on single- and multifamily residential lending. “Communities also need more small business lending, student lending, economic development opportunities, and in some cases, additional opportunities for consumers to access credit including responsible, short-term, small-dollar consumer loans,” he said. “These activities deserve more consideration during CRA evaluations.”

The concept of assessment areas also needs to be revisited, Otting said. “Limiting assessment areas to a bank’s branch-based footprint has become an impediment to investment and providing capital in areas of need that the bank may serve,” he testified. “In reconsidering assessment areas, we need to broaden our thinking to include all areas where institutions provide their services rather than only narrow geographies defined by branches and deposit-taking automated tellers.”

As a third change to the statute, Otting advocated for the development of a metrics-driven approach to evaluating CRA performance using clear thresholds. This would allow for greater transparency of facts and data regarding a bank’s CRA activity, provide a more objective base for examiner ratings, allow regulators to report on aggregate activity to show a bank’s overall performance and create more meaningful comparisons across institutions, he explained.

Together with the other federal banking agencies, the OCC is working on an Advance Notice of Proposed Rulemaking (ANPR) to solicit comments from stakeholders on modernizing the CRA, Otting told lawmakers.

Turning to BSA/AML compliance, the Comptroller noted the challenge for bank regulators, law enforcement, national security personnel and bankers to continually adapt to increasingly sophisticated criminals and other illicit actors who take advantage of the nation’s banks and financial system. Adding to the problem is the fact that “the process for complying with current BSA/AML laws and regulations has become inefficient and costly,” Otting said.

“We need to reform the BSA/AML to be more efficient while improving the ability of the federal banking system and law enforcement to safeguard the nation’s financial system from criminals and terrorists,” he said, offering several suggestions for improvement.

For example, regulators should be allowed to schedule and scope BSA/AML examinations on a risk basis, changes to the threshold requiring mandatory reporting of Suspicious Activity Reports (SARs) should be considered (as well as simplification of the reporting forms), and the use of technologies to reduce the reporting burden and provide more effective access and information to law enforcement should be explored.

Otting also touched on recent guidance from the OCC that encouraged national banks and federal savings associations to offer responsible short-term, small-dollar investment loans to help meet the credit needs of their customers, issued in Bulletin 2018-14.

“Banks are well suited to offer affordable short-term, small-dollar installment lending options that can help consumers find a path to more mainstream financial services without trapping them in cycles of debt,” Otting said.

Rounding out his priority list with simplifications to regulatory capital calculations and the Volcker Rule, the Comptroller also expressed his pleasure with the passage of the Economic Growth, Regulatory Relief and Consumer Protection Act.

To read Otting’s prepared testimony before the House, click here.

To read Otting’s prepared testimony before the Senate, click here.

Why it matters

Momentum appears to be growing for changes to the CRA. Piggybacking on the Treasury Department’s April report on the need for modernizing the statute, the Comptroller told both houses of Congress that the types of activities eligible for CRA credit should be expanded, the concept of assessment areas needs to be broadened and quantitative standards should be applied consistently. The financial services industry should keep an eye out for the forthcoming ANPR from the OCC and other federal regulators, which will provide insight into proposed changes.