OCC enters new phase of CRA reform with scoring proposal

WASHINGTON — The Office of the Comptroller of the Currency issued a long-awaited proposal on Community Reinvestment Act scoring, but said the agency still needs more data from banks before the new framework is complete.

The proposal unveiled Tuesday, which accompanies broader CRA reforms finalized in May first proposed by former Comptroller Joseph Otting, stops short of providing concrete scoring standards that the agency says will ultimately make the CRA process more objective for banks. Rather, the OCC announced plans to require banks to submit more data about their CRA activity to help inform the scorecard.

The goal of the new scoring standards ultimately is to establish minimum benchmarks for “satisfactory” and “outstanding” ratings on certain aspects of the CRA exam.

“Once the OCC analyzes the public comments on this proposal and the data it receives,” the agency wrote in its proposed rule, “the OCC plans to issue a final rule that will adopt an approach for setting the benchmark, threshold, and minimum values that correspond to the presumptive ratings … for banks assessed under the general performance standards.”

The OCC appeared to make key commitments aimed at appeasing critics who claim that the new CRA regime will make it far easier for banks to pass their CRA exams.

Bloomberg News

At the same time, the OCC appeared to make key commitments aimed at appeasing critics who claim that the new CRA regime will make it far easier for banks to pass their CRA exams. For example, the proposal said the scoring methodology will not lead to grade inflation compared to past exams.

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“[T]he OCC is proposing to establish benchmarks, thresholds, and minimums that correspond to a proportion of banks that would have received a hypothetical bank-level presumptive CRA rating of outstanding and satisfactory that is no greater than the historical proportion of banks that have received a bank-level assigned CRA rating of outstanding and satisfactory,” the proposal said.

The OCC also proposed a new requirement that would scrutinize a bank’s CRA performance under the new framework against its own historical CRA data.

If the OCC finds a decline of 10% or greater between banks’ historical performance and actual performance under the new regime that “cannot be explained by market conditions or other factors,” the agency wrote in its proposal, regulators would consider a “downward adjustment in determining the bank’s assigned rating.”

The OCC went out on its own to finalize the broader CRA reform rule in May, as the Federal Deposit Insurance Corp. and Federal Reserve Board declined to support the regulation. The Fed released its own CRA reform outline and many stakeholders have held out hope that the three agencies ultimately will formulate a joint plan.

The election of Joe Biden as president also casts uncertainty over the leadership of the OCC. If the incoming administration tries to replace acting Comptroller Brian Brooks, who is the Trump administration’s nominee for the permanent job, it could lead the agency to start over on CRA reform.

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The OCC’s scoring standards will be determined by the data the OCC receives through a forthcoming mandatory Information Collection Survey, or ICS, which will shed light on banks’ CRA-related data.

According to Tuesday’s proposed rule, the OCC said it would request four discrete types of bank data in its survey.

The first type would focus on national banks’ “presence,” including data on banks’ main offices, bank branches and other deposit taking facilities. The second type of data would include the “quantified dollar value of banks’ CRA qualifying activities,” which will be processed under the framework the OCC finalized in May.

The third type of data would focus on retail loan applications relative to banks’ CRA qualifying loan originations.

The fourth and final type requests geographic data showing how banks have distributed their branches in low-to-moderate income areas compared to higher-income areas.

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