Deployment of New Anti-Redlining Rules Confused Banking Industry

A leading federal bank regulator on Wednesday released an in-depth review of anti-redlining rules amid reports of his pending resignation, which raised alarm and confusion among the banking industry and its detractors.

The Office of the Comptroller of the Currency (OCC) unveiled new rules for banks and regulators to follow under the Community Reinvestment Act (CRA), a 1977 law that requires banks to serve low-income communities and to finance loans and projects in historically neglected areas. by the financial sector.

The OCC and the Federal Deposit Insurance Corporation (FDIC) unveiled a joint proposal in December to update CRA regulations, which are widely recognized by industry and consumer advocates as outdated. The CRA regime has not been significantly overhauled since 1995, long before the Internet fundamentally reshaped consumer banking.

But the Comptroller of the Currency Joseph Otting released the final version of those rules without the FDIC on Wednesday, and just hours after multiple media outlets reported he planned to step down this week. Otting was also absent from a call with reporters on Wednesday about the CRA’s proposal, a surprise given his intense focus on overhauling the law and his history of accessibility with the media.

“He’s spent every day of his checking on this rule but he’s not available,” said Brian Brooks, chief operating officer of OCC, the agency’s second manager, when asked. why Otting was not on the call.

Bryan Hubbard, deputy comptroller of public affairs, said in an email that Otting “is making further calls on the subject” and the agency “does not confirm or comment on his personal plans.”

A financial industry source told The Hill Otting is due to leave before his five-year tenure ends in 2022 and possibly before January 2021.

Yet Otting’s decision to break with other financial regulators and release a controversial rewrite of federal banking rules as he stepped out amid a pandemic has left lawyers and lawmakers scratching their heads.

“The impact, given that they went alone and faced with legal challenges, is questionable,” the financial sector source said.

Otting, former banker and business partner of the Secretary of the Treasury Steven mnuchinSteven Mnuchin Large Russian Hacking Group Linked to Sinclair Ransomware Attack: The Hill’s Morning Report – Presented by Alibaba – Biden Engages in Frenzied Talks About Dem Spending Former Treasury Secretaries Tried To Solve The debt limit deadlock in talks with McConnell, Yellen: MORE report, made the rewriting of CRA regulations the main focus of his move to the OCC. Banks that do not meet the lending criteria encouraged by the CRA cannot be blocked for future mergers, acquisitions or new branches.

Otting and other industry advocates have argued for an CRA scoring system that relies less on subjective analyzes by bank inspectors and more on specific standards based on loan data. The OCC and FDIC released a proposed framework in December to judge banks with a single ratio intended to capture the volume and frequency of lending to low-income areas, among other changes.

FDIC Chairman Jelena McWilliams, another former banker, and Otting released their December proposal without Federal Reserve approval, raising concerns among Democrats who were already skeptical of their efforts.

“Other regulators must give more weight to the experiences of communities across the country that have historically experienced divestment and reject this hasty and flawed rule,” the senator said. Sherrod BrownSherrod Campbell Brown Biden faces new pressure from climate groups after Powell picks five Senate Democrats who reportedly opposed Biden’s bank candidate Senate Democrats call on Biden to push for vaccine patent waivers COVID-19 at the WTO PLUS (Ohio), the top Democrat on the Senate Banking Committee, in a statement Wednesday.

Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, lambasted Otting for “a clumsy, rambling and hasty decision by a single agency that failed to secure the agreement of the other two agencies that regulate banks within from the same administration “.

“The OCC should have been able to come to an understanding and work with the other two agencies that oversee the application of the same law. It couldn’t. It failed. It’s an administrative fiasco, ”he said.

While the three agencies had expressed a desire to unite behind a common proposal, Otting’s decision to publish the final rules without the FDIC may hamper that effort, leaving banks subject to three different regulatory regimes for a single law.

McWilliams said in a statement on Wednesday that while the agency “strongly supports efforts to make the CRA’s rules clearer, more transparent and less subjective, the agency is not ready to finalize the proposal. ‘ARC for now,’ citing the intense strain of the pandemic on small banks.

OCC officials have argued throughout the pandemic that the economic downturn caused by COVID-19 only reinforces the need to reform the rules designed to support the most vulnerable communities.

Otting told a Senate banking committee last week that the new CRA regime “would drive more dollars to low and moderate income communities across America,” a post picked up by Brooks on Wednesday.

“We really think this will help speed up the granting of credit to the communities in greatest difficulty. Does anyone really want us to delay this? “He said.

Brooks also brushed off the importance of the FDIC’s refusal to sign the final proposal, suggesting the agency might come later.

“If you write a story that says the FDIC doesn’t join, I’d be careful not to embarrass you, because I think that’s premature judgment on your part,” Brooks said in response to a question about McWilliams not signing on the OCC. rules.

“She is an important partner for us and she was very involved in helping us get straight to the point today,” he added.

The OCC’s release of the new CRA rules came just 41 days after the official comment period ended, a remarkably short timeframe compared to the typical life cycle of a federal rule and especially in the midst of a massive financial shock.

Brooks brushed aside concerns about the rapid deployment of the new CRA rules, arguing that they had been in the works for more than two years and that OCC staff had made a “Herculean effort” to change the rule. rule to reflect the concerns of consumer groups and industry.

“The best parts of the Final Rule are the changes we’ve made in response to feedback from community groups, and we really thank them for their help,” Brooks said.

He cited changes that included placing greater emphasis on the frequency and number of loans instead of the total amount, increasing the credit a bank would get for mortgages to low-income borrowers. and the deferral of a new CRA scoring rubric and process for determining their loans. Region.

But defenders of the banking sector had mixed feelings about the OCC rules.

Rob Nichols, president and CEO of the American Bankers Association, praised the OCC “for its commitment to this important effort,” but expressed concern about the data used to determine the rule’s new benchmarks and the lack of universal adoption among regulators.

“We have always advocated for a modernization of the ARC that encourages banks to invest effectively and efficiently in every neighborhood they serve,” Nichols said in a statement. “The fact that only one of the three federal banking regulators overseeing the CRA has adopted this final rule means that it is failing to achieve this goal.

The Consumer Bankers Association was more laudatory, touting “needed improvements in OCC qualification activities, quantifying exam scores and providing incentives for outstanding scores.”

“Now that the OCC has released its proposal, we hope the FDIC and Fed will finish their job and issue a modernized rule that is consistent with modern banking practices and the needs of today’s consumers,” the group said.


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