One of the nation’s top banking regulators says he embraces the debate over community lending laws, urging critics to publicly comment on his agency’s efforts to reform the Community Reinvestment Act.
“Bring it on and give us the comments that you don’t like those attributes,” Comptroller of the Currency Joseph Otting told Yahoo Finance in an exclusive interview on Tuesday. “That’s the purpose of the comment period.”
The CRA was passed in 1977 and requires banks to lend to low and moderate income people in communities where the bank has physical branch locations. Amid the rise of digital banking, most agree that the over 40-year-old statute needs “modernization.”
Otting was joined by the Federal Deposit Insurance Corp. in a proposal for reform released last December, billed as a way to increase transparency for bank compliance. Since opening the proposal for 60 days of public comment in January, the regulators have received over 2,000 comments. The OCC and the FDIC recently expanded the comment period by another 30 days.
Community advocates have flooded the regulators with letters arguing that the changes would enable banks to avoid lending to communities of need which can, in many instances, also be communities of color.
The National Community Reinvestment Coalition alleges that the changes would result in fewer loans and investments to low and moderate income communities needing the capital the most.
“The agencies would lessen the public accountability of banks to their communities by enacting performance measures on CRA exams that would be complex and opaque while at the same time over-simplifying how to measure bank’s responsiveness to local needs,” the NCRC said.
Otting, appointed by President Donald Trump in 2017 to head the agency, told Yahoo Finance that the OCC is open to improving its proposal based on feedback.
“We’ve learned, since we released the [notice of proposed rulemaking], that there are things that we can to do make it even better,” Otting said. “I think that’s part of this process through April - don’t just complain about it, give us your feedback.”
Community lending
The Community Reinvestment Act requires the OCC, the FDIC, and the Federal Reserve to evaluate banks for their lending activity in communities of need. Banks are given CRA ratings, ranging from “substantial noncompliance” to “outstanding,” which are all viewable to the public.
The ratings can create more than just reputational damage; in some cases, regulators have blocked proposed bank mergers on the grounds of poor CRA compliance.
Compliance relies heavily on the physical locations of bank branches, and assesses CRA activity based on whether or not they were being done in the footprint of their brick-and-mortar locations. But with the advent of digital banking, regulators opened the doors to updating the assessment criteria.
With high stakes to poor CRA ratings, many in the banking industry also called for more transparency about the types of bank activity that would earn CRA credit. The American Bankers Association recommended more “predictability” so that banks could prepare accordingly for CRA examinations.
Advocacy groups allege that the CRA changes would allow a bank to fail more portions of the test and still receive a passing score.
Otting says the reform would allow, for the first time, banks to see the full list of qualifying activity.
But he insists that the list has not expanded the types of CRA-eligible activities, accusing community advocacy groups of “promoting” the idea that sponsoring a stadium name, for example, would help a bank pass CRA examination.
“There is some, what I would say false information out about this,” Otting told Yahoo Finance. “It is going to increase redlining? It is not, that is a false statement. It’s going to reduce low and moderate income lending across America? No, it will not do that.”
The Fed itself has not joined the FDIC and OCC’s proposal, and Fed Governor Lael Brainard has expressed concern that banks could pass “through a few large community development loans or investments rather than meeting local needs.”
Otting said in a separate part of the interview he hopes at some point the Fed “sees the merit of this” and ultimately joins the FDIC and OCC.
He added that if the FDIC and OCC proposal reaches a final stage without the Fed’s sign-off, about 85% of the banking industry would be subject to the new rule, with the 15% of banks under the Fed’s jurisdiction continuing to operate under the existing regime.
The comment period on the CRA proposal for reform lasts through April 8.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.
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