In May 2020, the Office of the Comptroller of the Currency (OCC) finalized its Community Reinvestment Act (CRA) reform rule. Enacted by Congress in 1977, the CRA seeks to encourage lending, investment, and services in low and moderate-income (LMI) communities where a bank has branches or deposit-taking ATMs. The Federal Reserve (Fed) and Federal Deposit Insurance Corporation (FDIC), which administer the CRA alongside the OCC, did not sign on to the final rule although the FDIC joined the December 2019 proposal. The OCC conducts 70% of US banks’ CRA evaluations.
The OCC, along with the other regulators that oversee compliance with the rule, the Federal Reserve (Fed) and Federal Deposit Insurance Corporation (FDIC), have periodically issued Q&As to assist the industry in meeting CRA requirements, but it has been over 25 years since it has undergone any material changes. During this time, banks and consumer behavior have continued to evolve in response to rapid technological innovation and the adoption of digital/mobile banking. As a result, bankers, regulatory agencies, Congress and community groups have reached broad consensus that updates to the CRA’s evaluation criteria are necessary.
However, there is far less agreement about the extent and content of those updates. While the industry will welcome certain aspects of the rule’s clarity and transparency, some have expressed criticism and confusion about the OCC’s decision to finalize it on its own. The industry has also expressed concerns that the amount of information required by the metrics-based framework will require banks to significantly enhance their data collection programs. Meanwhile, Congressional Democrats and community advocacy groups have voiced their opposition to the final rule - for example, noting that the expansion of qualifying activities will allow banks to direct investments away from lower-income individuals and toward larger revenue generating projects such as infrastructure. House Financial Services Committee chair Maxine Waters (D-CA) recently introduced a resolution that would overturn the OCC’s rule under Congressional Review Act authority.
While the rule will become effective on October 1, 2020, large, wholesale and limited purpose banks will have until January 1, 2023 to comply and small and intermediate banks will have until January 1, 2024. OCC-regulated banks should closely evaluate the final rule and begin planning updates to their CRA strategies, but given the long phase-in period and a desire from the industry to see a consistent standard, we could still see changes - particularly if the FDIC and Fed on an alternative approach.
A publication of PwC's financial services regulatory practice
Financial Services Leader, PwC US