WASHINGTON -- Comptroller of the Currency John D. Hawke,
Jr. issued the following statement today regarding the FDICs vote to issue for
public comment a set of proposed amendments to the inter-agency regulations
that implement the Community Reinvestment Act:
Today, the FDIC is voting to issue for public comment a set
of proposed amendments to the inter-agency regulations that implement the
Community Reinvestment Act. The OCC
and the other Federal banking agencies will be acting shortly to issue for
comment identical sets of proposed changes.
The proposed amendments of all the agencies will be published together
in the Federal Register thereafter.
This proposal is the result of an extensive and
collaborative review of the CRA regulations by the banking agencies. Our staffs analyzed roughly 400 comments
received in response to the Advance Notice of Proposed Rulemaking that we
issued in July 2001. The fact that we
are just now proposing amendments to the regulations reflects both the care
with which the review was undertaken and the complexity of the issues
presented.
The comments that we received indicated a high degree of
consensus that the fundamental approach of the regulations is sound, but
commenters offered a myriad of suggestions for improvements. Community organizations generally advocated
expanded application of CRA and more detailed reporting requirements; financial
institutions focused on reducing the burdens that flow from various features of
the current regulation.
The agencies carefully considered the many possible
approaches suggested by commenters, as well as other options. We recognized, however, that we were not
writing on a blank slate, and we were mindful of the need to balance the desire
to make changes and improve the regulations, with the need to avoid unnecessary
and costly disruption to reasonable CRA policies and procedures already in
place.
We concluded that the current CRA regulations are
essentially sound, and we focused on a limited number of areas where we thought
there would be a clear and substantial benefit from updating the regulation to
keep pace with developments in the financial industry. We also recognized that updating is not a
one-way street, favoring only the views of industry or community
organizations. We believed that a
balanced approach to changes in the CRA regulation was essential, and the
changes we are proposing today embody a careful balance between easing
unnecessary regulatory burdens on small institutions and enhancing achievement
of the underlying goals of the Community Reinvestment Act.
First, we are proposing to amend the definition of small
institution to mean an institution with total assets of less that $500
million, without regard to the assets of any other institution owned by the
same holding company. This revised
threshold takes into account the asset growth and industry consolidation that
have occurred since the small institution threshold was set at $250 million
in 1995, and recognizes the disproportionate regulatory burden placed on
smaller-sized institutions by the data collection and reporting requirements
associated with classification as a large institution for CRA purposes. This change would have a minimal impact on
the percentage of industry assets that would remain subject to the large
institution provisions of the CRA regulation the percentage would decline
slightly from a little more than 90% to slightly less than 90%. Most importantly, this change would not
diminish in any way the continuing, affirmative obligation of institutions that
would now be classified as small institutions to help meet the credit needs
of their communities, nor does the proposal affect the statutory exam cycle
established under the Gramm-Leach-Bliley Act for institutions above and below
$250 million of assets. Rather, the
changes affect the regulatory burden associated with detail and extent of
information that institutions must collect and report to the bank regulator
that conducts their CRA evaluation.
Second, in order to more appropriately address evidence of
discriminatory, illegal and abusive lending practices in an institutions CRA
rating, the proposal provides that evidence that an institution has engaged in
discriminatory and other illegal credit practices will adversely affect the
institutions CRA evaluation, and specifically lists examples of types of such
illegal credit practices, including unfair or deceptive practices. The proposal also provides that a pattern or
practice of secured lending based predominantly on the liquidation or
foreclosure value of the collateral, where the borrower cannot be expected to
make the payments required under the terms of the loan will similarly adversely
affect an institutions CRA evaluation.
Thus, practices such as loan flipping and fee packing, that are shown to
be unfair or deceptive, or a pattern or practice of equity-stripping motivated
underwriting, will adversely affect an institutions CRA evaluation. These proposed changes reflect our
strongly-held view that discriminatory, illegal and abusive lending practices
are inconsistent with the fundamental purposes of the CRA.
Third, the proposed regulation clarifies that an
institutions CRA evaluation also can be affected by evidence of
discriminatory, other illegal, and abusive credit practices in an assessment
area by any affiliate, if any loans of that affiliate have been
considered in the institutions CRA evaluation. This change would close what some perceive to be a gap in the
current regulation that may allow an institution to cherry-pick certain
lending activities of certain affiliates to enhance the institutions CRA
evaluation, while not taking account of other lending activities by the
affiliate that might negatively impact the evaluation.
Finally, the agencies are proposing to enhance the detail of
information contained in the public performance evaluation the agencies prepare
for each institution at the conclusion of its CRA examination. These changes should make it easier for the
public to understand and evaluate the institutions lending activities. It does not change institutions data
collection or reporting procedures, but rather the detail and format of the
reports that the agencies prepare.
We believe the changes proposed reflect a balanced approach
to constructive changes to the CRA rule.
Others may well disagree. We
welcome views and suggestions from all perspectives and look forward to
considering them in the public comment process.