Regulators hit reset on CRA reform, commit to joint rulemaking

WASHINGTON — Federal bank regulators committed to rescinding the Trump-era reform of the Community Reinvestment Act, announcing a second attempt at an interagency rulemaking to modernize the anti-redlining law.

The Office of the Comptroller of the Currency announced on Tuesday that the agency would unwind the CRA overhaul spearheaded by former Comptroller Joseph Otting. The OCC finalized the rule last year and partially implemented the framework despite a lack of support from the other regulatory agencies.

The widely anticipated move under acting Comptroller Michael Hsu marks a new chapter in what has been, up to now, a deeply contentious process that began almost three years ago. Banks and other stakeholders had urged the OCC to rescind its unilateral rule and resume talks over an interagency approach.

“While the OCC deserves credit for taking action to modernize the CRA through adoption of the 2020 rule, upon review I believe it was a false start,” Hsu said in a press release. The agency will propose "rescinding it and facilitating an orderly transition to a new rule.”

In a joint statement, the OCC, Federal Reserve and Federal Deposit Insurance Corp. committed to pursuing a common CRA regime.

Bloomberg News

“Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods,” the three regulators said in an interagency statement.

The OCC and Fed separately said the second attempt to reform the CRA will build on the advance notice of proposed rulemaking published by the central bank in September. The Fed's alternative approach, championed by Gov. Lael Brainard, has been applauded by community advocates.

“We are delighted to work together to develop a joint Notice of Proposed Rulemaking building on the Board’s September 2020 Advance Notice of Proposed Rulemaking,” Brainard said in a press release.

Hsu, a former Fed official, said he looked “forward to working with the other agencies to develop a joint Notice of Proposed Rulemaking and building on the ANPR proposed by the Board in September 2020.”

The announcement did not provide an anticipated timeline for the regulation, nor did it detail how the OCC will attempt to rescind and replace the Trump-era reform. Because parts of the regulation finalized in May 2020 have been in effect for months, rescinding the rule without having a framework to replace it could leave a regulatory vacuum.

Financial policy experts have called on the anti-redlining law to be reformed for years to reflect the rise of digital finance. But the direction taken by Otting was criticized by community advocates and others, who blasted the agency for putting too much emphasis on the dollar value of CRA activity, among other concerns. They also criticized the OCC for not pausing the rulemaking process after the onset of the pandemic.

Bankers were less than enthusiastic about the regulation’s significant structural changes, which would have likely required substantial new data and recordkeeping requirements. The OCC also punted on the new framework’s actual scoring thresholds, which stymied efforts to evaluate the impact the reform may have had on banks’ CRA activity nationwide.

“It is well past time for federal regulators to finally demonstrate responsible government by modernizing CRA for the first time in over two decades,” said Richard Hunt, president and CEO of the Consumer Bankers Association, in a statement that commended the OCC for its leadership on CRA reform. “Any modernized CRA rule should be transparent, flexible and consistent across regulators to ensure banks are able to optimize support for the communities they serve.”