OCC Will Rescind Trump-Era CRA Rule
The Office of the Comptroller of the Currency (OCC) recently announced it will propose rescinding the Community Reinvestment Act (CRA) rule issued in May 2020. In 2020, the OCC proposed regulations intended to modernize the agencies’ regulations under the CRA, which haven’t been substantively updated for nearly 25 years.
The CRA was enacted in 1977 to encourage insured depository institutions to help meet the credit needs in their local communities, including low- and moderate-income neighborhoods. It was created as a reaction to the practice of redlining, where banks avoided making loans to low-income neighborhoods.
The affordable housing industry has an interest in these regulations because affordable housing and community development plays a role in whether financial institutions meet their CRA requirements. Although the CRA doesn’t specifically mention the LIHTC program, the program benefits from its ties to CRA credit. An estimated 85 percent of LIHTC investment is made by CRA-intentioned banks.
The previous rule would have taken effect in 2023 or 2024, depending on the size of the institution. The CRA regulations had evaluated banks in different ways, based on their level of assets. The regulations implemented under the Trump administration created a performance standard that banks would be evaluated on both the number of CRA-eligible loans and investments and the total amount of loans and investments to communities. At the time, affordable housing advocates pointed out that emphasizing the dollar amount could result in deemphasizing LIHTC equity investment as compared to lending, because it’s much easier for banks to make loans, especially in high-cost areas, than it is to underwrite equity investments.
The OCC's decision to rescind the CRA rule follows the completion of a review initiated by Acting Comptroller of the Currency Michael Hsu shortly after he took office. The OCC also announced that it will work with the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) to put forward a joint rulemaking that strengthens and modernizes the CRA.
“To ensure fairness in the face of persistent and rising inequality and changes in banking, the CRA must be strengthened and modernized,” said Hsu. "The disproportionate impacts of the pandemic on low- and moderate-income communities, the comments provided on the Board's Advanced Notice of Proposed Rulemaking, and our experience with implementation of the 2020 rule have highlighted the criticality of strengthening the CRA jointly with the Board and FDIC. 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. This is why we will propose rescinding it and facilitating an orderly transition to a new rule. I look 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.”