Going it Alone: OCC Proposes CRA Performance Standards

On November 24, 2020, the Office of the Comptroller of the Currency (OCC) issued their proposal for determining the Community Reinvestment Act (CRA) performance standards.  In this proposal, it outlined the evaluation measure benchmarks, retail lending distribution test thresholds and the community development minimums under the new general performance standards previously outlined in the OCC CRA final rule issued June of this year.  This 2020 final rule was a culmination of a multi-year process in attempts to revitalize and modernize the CRA to continue to encourage insured depository institutions to serve the needs of their entire communities, including low- and moderate-income (LMI) neighborhoods.  These subsequent proposals are all attempting to bring about those goals of modernization and transparency. 

Just to recap: the 2020 final rule changed four key areas of the CRA framework: (1) clarified and expanded the bank lending, investment and services that qualify for CRA consideration; (2) updated how banks delineate the assessment areas in which they are evaluated; (3) provided additional methods for evaluating CRA performance; and (4) outlined transparent and timely reporting requirements.    It finalized the framework for the general performance standards: CRA evaluation measure, retail lending distribution tests, community development (CD) minimums, and percentage of assessment areas in which a bank must receive a satisfactory or outstanding assigned rating to achieve a bank presumptive rating of satisfactory or outstanding.  But the OCC noted that it would not adopt the specific benchmarks, thresholds and minimums as initially proposed.  This November proposal is seeking comment on the OCC’s approach to use those benchmarks, thresholds, and minimums. 

Separate from this proposal, the OCC will use an Information Collection Survey to obtain bank-specific information from institutions subject to the general performance standards.   This information will be used to calculate CRA evaluation measures and CD minimum calculations for each bank’s assessment areas, as well as a bank-level CRA evaluation measure and CD minimum calculations for each bank.  First, the CRA evaluation measure would involve six different benchmark values, one at the bank level and then one at the assessment area level for substantial noncompliance, needs to improve, satisfactory, outstanding presumptive ratings.  Second, the CD minimum would have two values, one at the bank level and one at the assessment level, respectively.  

The OCC is anticipating that various CRA performance standards will differ across retail lending product lines and aggregation levels (i.e.- distribution of mortgage product line may be significantly different than that of the automobile or small loan to a business product lines).  For this reason, the OCC is foreseeing as many as 26 different calibrated benchmark, threshold, and minimum values under the general performance standards.

Once the OCC analyzes the public comments to the proposal and the data received will it then issue a final rule that will adopt an approach for setting the benchmark, threshold and minimum values that correspond to the presumptive ratings. This proposal also discussed how the OCC will address declines in CRA performance following the initial establishment of benchmarks, thresholds, and minimums. 

Ultimately, what is important to note here is the participation of covered financial institutions during this comment period.  Banks must be assessing how these final rules and proposals are going to impact the bank not only from an operational standpoint, but a procedural and monetary one as well. Compliance Alliance continues to write summaries on all CRA modernization initiatives for the benefit of its members.