The Office of the Comptroller of Currency (OCC) released its final rule that aims to modernize and update the Community Reinvestment Act’s framework. While the FDIC and Federal Reserve did not join the OCC in releasing this rule, they have released their proposed rule. This final rule has significant implications for banking practices and could provide insight into what the other regulatory agencies may decide when they release their rules later. From qualifying activities to reporting standards, a lot of change is coming for financial institutions. To help you prepare, we created this overview of the critical changes in regulation.
Expanded Qualifying Activities for CRA Consideration
Since the Community Reinvestment Act was enacted in 1977, financial institutions conduct a bevy of qualifying activities that vary from region to region, bank to bank. These differences in activities resulted in ambiguity and uncertainty from financial institutions and made the process of trying to serve their communities more difficult. Activates migrated toward the few that institutions had confidence in qualifying and left other, sometimes vital, services unperformed. The final rule from the OCC aims to reverse this trend by detailing their criteria for activities that count for CRA credit and defining a process by which banks could confirm that a specific activity would count. Further, the OCC will regularly publish illustrative examples of qualifying activities that banks can use to search for answers.
It is now easier for banks to understand the criteria for qualifying credit and expand their activities to new services to help their communities.
New Assessment Area Delineations
Banking practices changed significantly in the digital era. Assessment areas used to be centered around bank branches, as this commonly reflected the areas where banks drew most of their deposits. Today, it’s a common practice for deposits to come from regions where there aren’t any branches. Revising the assessment areas to reflect this helps ensure that banks are reinvesting in the communities that provide them resources. This rule aims to eliminate the tendency for some areas to be underserved due to outdated assessment area requirements.
Banks can better serve their communities by having assessment areas delineated by both branch and deposit locations.
Updated Performance Evaluations
As mentioned previously, one of the fatal problems with the old CRA framework was ambiguity in evaluations. Examiners were previously able to use their discretion when reviewing different activities. This had the unintended consequence of the disparate treatment – where some banks would receive credit for a service while others would not. Further, the rating banks would receive wouldn’t necessarily match their involvement and actions in their assessment areas. Therefore, the removal of these disparities is a top priority of the final rule. Definite, objective guidelines are established across several different tests to help auditors better review bank performance.
Bank assessments aim to be a “complete picture” analysis of their activities and how they are serving their communities.
Revised Reporting Guidelines
A final consequence of the old rules is that the process for evaluating CRA performance sometimes took over a thousand pages. These lengthy reports are challenging to read, have little value for the public, and take an excessive amount of time to prepare. OCC’s final rule updates performance evaluations to be systematic, standardized and streamlined for banks. This reduces the evaluation time and helps banks get back to the work they do best.
CRA performance evaluations will take less time to complete and help banks better measure and improve service to their communities.
The final rule by the OCC is set to go into effect in October 2020, but reporting and data collection enforcement will come later. The full text of the OCC’s final rule is available on their website. To learn more about these changes, check out “What you Need to Know about Proposed Changes.”