Bank regulator unveils new anti-redlining rules ahead of expected departure

The Office of the Comptroller of the Currency (OCC) on Wednesday released new rules covering how banks should be judged under a 1977 anti-redlining law, breaking with two other bank regulators ahead of the comptroller’s expected resignation.

The OCC unveiled its proposal to update the rules that regulators and banks must follow under the Community Reinvestment Act (CRA), a law that requires banks to serve low-income communities and finance loans and projects in areas historically neglected by the financial sector.

“By finalizing the rule to improve the regulatory framework, we will make CRA work better for everyone and are encouraging banks and savings associations to lend, invest, and provide more services in the communities they serve, including low- and moderate-income neighborhoods across our country,” Comptroller of the Currency Joseph Otting said in a statement.

The OCC and Federal Deposit Insurance Corporation (FDIC) unveiled a joint proposal in December to update the CRA regulations, which are widely acknowledged by the industry and its critics as outdated due to the rise of internet banking. But neither the FDIC nor Federal Reserve Board, which also enforces the CRA, joined the OCC’s Wednesday proposal, raising the chance the banks may need to comply with different rules for different agencies under the same law.

The OCC’s final proposal came with remarkable speed, as formal agency rulemaking often takes years from start to finish. The agency released the new CRA rules less than five months after the OCC and FDIC released their joint proposal in December and three months of public comments.

FDIC Chairman Jelena McWilliams said in a Wednesday statement that while her agency “strongly supports the efforts to make the CRA rules clearer, more transparent, and less subjective, the agency is not prepared to finalize the CRA proposal at this time.”

“The FDIC recognizes the herculean effort community banks are making to support America’s small businesses and families during this challenging time and encourages financial institutions to work constructively with borrowers affected by COVID-19.”

The swift release of the OCC’s final rule comes as Otting is expected to resign with roughly two years of his five-year term remaining, according to reports from The Wall Street Journal and Politico.

Otting, a former banker and business partner of Treasury Secretary Steven Mnuchin, had been fiercely criticized by consumer advocacy groups and Democratic lawmakers for charging ahead with a sweeping rule change amid the economic collapse driven by the coronavirus pandemic.

Otting insisted during a Senate Banking Committee hearing last week that the downturn made improving the CRA even more critical “because it would drive more dollars into low- and moderate-income communities across America.”

Democrats and consumer advocates were also fiercely critical of the OCC’s original proposal with the FDIC, which would replace the current, more-subjective CRA framework used to rate banks’ compliance with a single ratio meant to capture the volume and frequency of loans to low-income areas.

Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, in February bashed the OCC and FDIC’s “misguided proposed rule and the harmful consequences it could have for communities across the country” as she urged Otting to hit the brakes.

After more than 7,500 formal public comments and intense public backlash, the final rules released by the OCC on Wednesday include several changes intended to settle concerns from both consumer advocates and the banking industry. 

Those changes include putting greater weight on the frequency and number of loans instead of their total amount, increasing the credit a bank would get for mortgage loans to low-income borrowers, ensuring that a bank’s financing of a sports venue must help low-income communities to count toward a positive rating and delaying a new CRA grading rubric and process for determining their lending area.

“The OCC and Comptroller Otting should be commended for attempting to bring an analog regulation into a digital world. In doing so, the agency met with community groups, banks, Congressional leaders and other regulators. The end result lays out a more transparent and objective process for measuring banks’ continued service to their communities,” said Richard Hunt, president and CEO of the Consumer Bankers Association, a trade group for banks. 

Updated at 10:30 a.m.