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FDIC releases report on bank's past discriminatory lending practices
On April 3, the FDIC made public for the first time its Community Reinvestment Act Performance Evaluation for a bank from September 2022. The bank focused on residential and commercial lending and had $1.15 billion in assets at the time of the review. During its supervision window from 2019 to 2022, the FDIC rated the bank’s CRA rating as “Needs to Improve,” which was a downgrade from its previous rating of “Satisfactory.” Although the FDIC found that the bank “demonstrated satisfactory performance” under the Lending and Community Development Tests, it was found to have violated ECOA and FHFA. Specifically, the FDIC found that the bank engaged in discriminatory lending through alleged redlining practices, the FDIC deemed. The FDIC noted that these violations occurred due to a lack of sufficient oversight and appropriate policies and procedures.
FDIC’s Gruenberg speaks on plans for economic inclusion
On April 4, Federal Deposit Insurance Corp. Chairman, Martin J. Gruenberg, delivered a speech on the FDIC’s economic inclusion strategy. The speech highlighted the FDIC’s commitment to economic inclusion, efforts to understand the size and characteristics of the unbanked market, and past FDIC economic inclusion efforts.
When Chairman Gruenberg highlighted previous FDIC inclusion efforts, he noted that the unbanked rate fell from 8.2 to 4.5 percent during the decade ending in 2021, with even steeper decreases for some minority populations. He also announced a new economic inclusion strategic plan to expand customers’ participation in the banking system and help households achieve greater financial security. The plan would intend to help customers build credit, including through small-dollar lending programs with affordable rates, and calls for specific steps to encourage bank lending and investments in low- and moderate-income neighborhoods.
OCC releases March CRA evaluations for 19 banks
On April 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last March. The OCC evaluated 19 national banks, federal savings associations, and insured federal branches of foreign banks with a rubric that included four possible ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 19 evaluations reported by the OCC, two Midwest banks received the lowest rating, which was “Needs to Improve.” Most entities were rated “Satisfactory,” and four entities were rated “Outstanding.” A full list of the bank evaluations is available here. In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluated and rated financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution serves (such as its demographics, economic data, and its lending, investment, and service opportunities).
CFPB, FTC submit amicus brief in FCRA case
On March 29, the CFPB and the FTC filed an amicus brief in the U.S. Court of Appeals for the Eleventh Circuit, arguing that the FCRA mandated consumer reporting agencies (CRAs) when a consumer challenged the “completeness or accuracy of any item or information” in their file, must perform a “reasonable reinvestigation.”
In the underlying case, a consumer claimed she identified multiple inaccuracies in her credit report held by the defendant CRA, including issues with her name, address, and Social Security number. She allegedly contacted the defendant three times to dispute these errors, but the defendant directed her to resolve the issues with the misinformation sources and did not conduct its own reinvestigation as the consumer believed was required by the FCRA.
The consumer then filed a lawsuit against the defendant CRA for not performing the reinvestigation. The district court acknowledged that the defendant should have completed the reinvestigation under the FCRA but nonetheless concluded that the defendant did not violate the statute because it did not reasonably interpret that the FCRA did not require a reinvestigation.
The case will now be under the appeal process and the CFPB and FTC have submitted a joint amicus brief arguing that the FCRA required a CRA to reinvestigate a consumer’s dispute about personal identifying information, and that the district court correctly determined that a reinvestigation was required. The brief also argued that the district nonetheless erred in concluding that the defendant did not negligently or willfully violate the FCRA because the defendant’s interpretation of the FCRA was not “objectively reasonable.”
Agencies extend applicability date of certain provisions of their Community Reinvestment Act final rule
On March 21, the FDIC, Fed, and OCC jointly issued an interim final rule to extend the applicability date of certain provisions of the Community Reinvestment Act (CRA) final rule and requested comments on the extension. As previously covered by InfoBytes, the final rule was intended to modernize how banks comply with the CRA, a law that encouraged banks to help meet the credit needs of low- and moderate-income communities.
Stated “[t]o promote clarity and consistency,” the agencies have postponed the applicability date of the facility-based assessment areas and public file provisions from April 1, 2024, to January 1, 2026. As a result, banks would not be required to modify their assessment areas or public files in response to the final rule until the new 2026 date. This extension would put these elements on the same timeline as other components of the 2023 CRA final rule that also would take effect on January 1, 2026, including the performance tests and geographic area provisions.
The agencies also made technical, non-substantive updates to the CRA final rule and related agency regulations that reference it. One of these technical adjustments specified that banks are not required to update their public CRA Notices until January 1, 2026. Public comments on the postponed implementation date must be received 45 days following the rule's publication in the Federal Register.
Bank regulators respond to bankers’ motion to enjoin CRA final rule
On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.”
FDIC releases March CRA evaluations for 56 banks, three rated as “Needs to Improve”
On March 4, the FDIC released a list of state nonmember banks evaluated for compliance with the Community Reinvestment Act (CRA) for March. The FDIC evaluated 56 banks with four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 56 evaluations reported by the FDIC, three banks hold the lowest given ratings as “Needs to Improve.” Most banks were rated “Satisfactory,” and seven banks were rated “Outstanding.” According to the FDIC’s release, a copy of a bank’s CRA evaluation is available directly from the bank, as required by law, or from the FDIC’s Public Information Center.
OCC releases February CRA evaluations for 31 banks, one “Needs to Improve”
On March 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last February. The OCC evaluated 31 national banks and federal savings associations under four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 31 evaluations reported by the OCC, only one entity holds the lowest rating, a small bank in Indiana, which was rated “Needs to Improve.” Most entities were rated “Satisfactory,” and six entities were rated “Outstanding.” In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluates and rates financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution it serves (such as its demographics, economic data, lending, investment, and service opportunities).
Fed’s Bowman speaks on current trends in banking regulation
On February 27, Michelle Bowman, a member of the Federal Reserve Board of Governors, gave a speech reflecting on the state of the broader U.S. economy and banking regulation in Tampa, Florida. Bowman highlighted the need for the Fed to focus on “efficiency in how we deliver on our safety and soundness goals.” On capital reform, Bowman noted that since the closure of the comment period for the Basel III “Endgame” reforms, the federal banking agencies have been reviewing the feedback and identifying areas of concern: she hopes that the agencies will take this opportunity to revise the proposal in a way that addresses the concerns raised by the public. After voicing her non-support for the recently adopted Community Reinvestment Act (CRA) final rule, Bowman shared that while the new rule provided some positive changes, the changes are still “unnecessarily complex, overly prescriptive,” and have greater costs than benefits. Bowman highlighted that the final rule treats a wide range of community banks with more than $2 billion in assets as “large banks, and would have resulted in a “nearly tenfold increase in banks with a ‘Need to Improve’ CRA rating” if applied to the period from 2018 to 2020. On Regulation II and debit card interchange fees, Bowman noted that the comment period has been extended until May 12, adding that the proposed permanent decrease in debit card interchange fees will have “consequences for banks of all sizes.” Bowman ended with discussion on bank mergers, climate change, and liquidity.
Trade associations sue OCC, FDIC, and Federal Reserve on their Proposed Rules for the CRA
On February 5, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the OCC, Federal Reserve, and FDIC (the Agencies) for their enforcement of the new rulemaking (the Rule) implementing the Community Reinvestment Act of 1977 (CRA). The plaintiffs argued that the Rule creates a “wholesale and unlawful change” to a successful fifty-year-old statute. After listing several problems, the plaintiffs requested the Court to “enjoin, hold unlawful, vacate, and set aside” the Rule; additionally, plaintiffs requested the Court declare that the Rule violates the CRA and the Administrative Procedures Act.
As previously covered by InfoBytes, the Rule was approved by the Agencies on October 24, 2023, published in the Federal Register on February 1, 2024, and would take effect on April 1, 2024. The plaintiffs state that the new regulatory rules are “extraordinarily and unnecessarily complex” since they require a “staggering” 649 pages. (An FDIC Vice Chairman was quoted as labeling the rules as “by far the longest rulemaking the FDIC has ever issued.”) In detail, the plaintiffs support their claims by pointing out the Rule creates different performance tests that differ “radically” from the previous regulatory framework, e.g., the Retail Lending Test is a two-part test, and that each of these tests includes “multiple sub-parts and sub-parts of sub-parts” that create complexity in the Rule. Banks will be given two years (until January 1, 2026) to comply with the Rule. Plaintiffs argue that banks must act immediately, citing the OCC’s own words that the estimated compliance costs are over $90 million during the first year.
The plaintiffs argue the Rule violates the APA by exceeding the Agencies’ statutory authority by “assessing banks on their responsiveness to credit needs outside of their geographic deposit-taking footprint” (Count I), and by issuing a rule that is arbitrary and capricious by failing to give reasonable notice of the areas and products that will be assessed and the market benchmarks against which performance will be evaluated; failing to conduct an adequate cost benefit analysis; and failing to consider the implications of the Rule (Count II).