OCC’s Otting on CRA timeline, Camels and fintech legal battles

The OCC already acted alone last year when it issued an advance notice of proposed rulemaking, asking the public for input about CRA reform. But officials have expressed hope that the three agencies could work together on a draft plan.

In his speech, Otting said his agency at least will release a notice of proposed rulemaking "before the end of the year." But echoing recent comments by FDIC Chairman Jelena McWilliams, he would not guarantee that it would be a joint proposal.

“I can assure you that, left to my own druthers, we would be sitting here celebrating the one-year anniversary of CRA modernization,” Otting said. “But I can tell you this: The OCC will lead and have an NPR out before the end of the year. And we're just dedicated to doing that.”

"As everybody knows the notice of proposed rulemaking only positions it so the next round of feedback and comments can come along," he added. “We'd be hopeful that the FDIC and the Fed would join [the NPR]. But at this point in time, I don't know where that is. You'd have to ask the Fed and the FDIC.”

Otting said the consequences of the agencies not working together would be limited, yet he acknowledged the potential for "downsides" and "slight inconsistencies" since there are separate CRA regimes.

"The OCC regulates 70% of CRA investments in lending. The preponderance of that activity is sitting in the national banks," he said.

Otting turned heads towards the end of the panel discussion as he expressed skepticism about a recent notice by the FDIC and Federal Reserve to receive public comments to overhaul the Camels rating system.

Notably, the OCC was not included in that release, despite being the third regulator tasked with applying the Camels system. But the comptroller shined light on the decision Tuesday, saying he was “not sure that banks want the Camels ratings to change.”

Otting said the OCC reviewed its procedures under the Camels system to ask: "Are we consistent [in] the way we apply the Camels ratings?"

"And I think our conclusion was — we were consistent.”

Otting seemed to doubt that a request for comment on Camels ratings would do much to clarify the system.

A bank’s Camels rating is a “very well-kept secret among the top of an institution,” he said. “So people having an opinion of that — it would be highly limited. And then clearly you can't talk to, you know, other organizations about your Camels rating.”

The comptroller said regulators should consider tweaking the management rating component “to be more formulaic.”

“Historically,” management ratings have “been used by some regulatory agencies when there are violations of law, or violations of not serving your customers properly. And I think that's what will open up some dialogue," he said.

Otting struck a confident tone Tuesday on the OCC’s plans to appeal a court ruling striking down the agency’s beleaguered special-purpose fintech charter.

Asked about the fintech charter’s rocky road through the courts, Otting dismissed the loss.

“When you use the word ‘courts,’ I would use the word ‘court,’ ” he said. “It's only been decided by one judge, and the beauty of America is, one person doesn't get to decide the rules.”

The key feature of the OCC’s fintech charter was that recipients would not need to apply for deposit insurance. In his ruling against the OCC, Judge Victor Marrero wrote that the National Bank Act’s “business of banking” clause “unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from the OCC,” according to the court filing.

But Otting disputed the necessity of deposit insurance in banking Tuesday, arguing that banks have the option to do any of the basic functions of banking, not a requirement.

“We feel it's definitely within our power. The National Bank Act is pretty clear: You can take deposits, or process checks, or make loans,” Otting said. “Any of those are defined as in the business of banking.”

Yet Otting said many fintech firms may end up being more interested in applying to become a full-fledged depository institution.