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Bank Regulator to Repeal Trump-Era Community Lending Rules

July 20, 2021, 8:31 PM

The Office of the Comptroller of the Currency has officially abandoned Trump-era rules that revised how banks are graded on their lending to and investments in low-income communities.

The OCC on Tuesday said it plans to rescind Community Reinvestment Act regulations that the bank regulator issued on its own in May 2020. The agency said it plans to work with the Federal Deposit Insurance Corp. and the Federal Reserve on unified rules that would apply to all federally regulated banks.

The Trump-era rules would have given banks an overall grade on lending to low- and moderate-income communities, with a greater emphasis on the total dollars committed, rather than branch-level activities.

Community groups said the OCC’s changes made it too easy for banks to get credit for low-income lending and investments, while some in the industry were unhappy with the compliance metrics that the agency put in place. The Trump-era rules weren’t set to take effect until 2023.

The OCC said it would reconsider the rules in May when President Joe Biden named Michael Hsu acting comptroller of the currency.

“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 Tuesday in a statement.

Otting’s Final Act

The Community Reinvestment Act is a 1977 law that requires banks to lend to and invest in low- to moderate-income communities to combat historical redlining. The Fed, the FDIC, and the OCC can block bank mergers and other business growth plans if a bank doesn’t receive good marks for its CRA activity.

CRA regulations haven’t seen a major overhaul since the the Clinton administration, before banks adopted mobile banking and other technological innovations that critics say make the current rules a bad fit.

Former Comptroller of the Currency Joseph Otting made new rules a top priority during the Trump administration and finalized them shortly before leaving office in May 2020 without the Fed and FDIC, which also oversee compliance.

The OCC rules would have allowed banks to earn an overall grade for CRA activities. The rules also focused on dollar volume, which community groups said could lead to bigger CRA projects—like loans for highway or bridge reconstruction—that might not directly benefit communities.

The National Community Reinvestment Coalition and the California Reinvestment Coalition sued to block the OCC’s rules in June of last year.

“We’re pleased to see the OCC abandon their ill-considered rule, over which we sued them. Now, the agencies need to move urgently together to develop a strong and comprehensive rule,” said Jesse Van Tol, the NCRC’s chief executive.

Fed Rewrite

The Fed began its own process to modernize the CRA last September, with a greater focus on the number of loans issued in targeted low-income areas.

Federal Reserve Chairman Jerome Powell told the Senate Banking Committee July 15 that he expected the three agencies to work together on a CRA rewrite and was encouraged by the progress being made.

Banks applauded the OCC’s announcement that it would work with the Fed and FDIC on joint rules.

Consumer Bankers Association President and CEO Richard Hunt welcomed the move, saying in a Tuesday statement that the industry “looks forward to working collaboratively with the OCC, FDIC, and Federal Reserve to modernize the CRA through a joint rulemaking.”

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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