Trade groups call on OCC to withdraw CRA rule

WASHINGTON — Financial industry groups called on the Office of the Comptroller of the Currency this week to formally withdraw its rule modernizing the Community Reinvestment Act.

The rule, finalized last May under former Comptroller Joseph Otting, has technically been in effect since October but the most significant changes won’t take hold until 2023 or later. With the Biden administration now in office, analysts widely expect policymakers to re-open negotiations on the historic anti-redlining law.

The CRA was originally intended to encourage banks to invest in their market areas and boost community development in low-income neighborhoods. But many say the assessment boundaries in which a bank is evaluated and how banks are graded for their overall CRA activity needs to be updated.

The OCC has taken quiet steps behind the scenes in recent months to slow the rule’s rollout. But in a letter sent to the agency by trade organizations covering a wide swath of financial services, representatives said that without more formal action from the OCC, banks will waste considerable resources trying to prepare for a regulatory framework that will likely never materialize.

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“[A]s budget season and the 2023 compliance date draw near, CRA personnel will be required to allocate significant funds and other resources to begin building new technology systems, hiring consultants, assembling project management teams, and retooling CRA programs,” the trade groups wrote in the letter. “These will be significant expenditures that will be wasteful if the OCC significantly modifies the Rule as part of a future interagency rulemaking.”

The letter, dated May 3, was signed by the American Bankers Association, Association of Military Banks of America, Bank Policy Institute, Community Development Bankers Association, Consumer Bankers Association, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association, National Association for Affordable Housing Lenders, and the National Bankers Association.

“[W]e urge you to take official action now — to publicly pursue a joint CRA rulemaking with the Federal Reserve and the FDIC and to officially withdraw the Rule or issue a two-year delay,” the groups wrote.

One of the Trump era’s most contentious rollouts in financial regulation, Otting’s approach to modernizing the CRA was controversial from the beginning. The rule sought to make compliance more objective and transparent but was blasted by community advocates, who feared the changes would significantly weaken bank obligations. Banks also protested over potential data and recordkeeping requirements.

But one of the more fundamental complaints from financial services providers and community groups alike was the lack of consensus between the OCC, Federal Deposit Insurance Corp. and Federal Reserve. The absence of an interagency rule, they argued, would create long-term confusion and ultimately worsen industry performance under the law.

“As we have indicated in previous correspondence, banks, community advocates, and policymakers overwhelmingly agree that the OCC should undertake CRA modernization jointly with the Federal Reserve and the FDIC,” the trade groups wrote in their letter to the OCC.

An OCC spokesperson declined to comment.