February 2, 2021
RE: NCRC Comments on Docket ID OCC 2020–0025, Community Reinvestment Act regulations, methodology for determining thresholds on general performance standards
To Whom it May Concern:
The National Community Reinvestment Coalition, an association of community-based organizations dedicated to increasing lending and investing in underserved communities, opposes the Office of the Comptroller of the Currency’s (OCC’s) final Community Reinvestment Act (CRA) rule of the summer of 2020. The final rule violates the intent and purpose of CRA by diverting lending and investing out of low- and moderate-income (LMI) neighborhoods.
In this Notice of Proposed Rulemaking (NPR), the OCC proposes a methodology for determining thresholds for various metrics in the final rule that will help determine the final rating for banks. However, it will not be possible for the OCC to develop a reasonable methodology for establishing thresholds for its performance measures due to structural and fundamental flaws in the performance measures.
NCRC urges the OCC to halt this proposed rule, rescind its final CRA rule, and embark on an interagency process for updating the CRA regulation. The Federal Reserve’s Advance Notice of Proposed Rulemaking (ANPR) is a solid basis for starting an interagency process for changing the CRA regulation. Both the OCC and the FDIC should work with the Federal Reserve in crafting a proposed rule based on the ANPR and comments received by the Federal Reserve on the ANPR.
Throughout its process for developing its CRA final rule, the OCC disregarded the great majority of comments from community groups and banks that were opposed to the rule, saying it would hurt underserved communities. Given this widespread opposition to the final rule, NCRC expects that most stakeholders will comment this time that the OCC must scrap its final rule and embark on an interagency process.
OCC Final Rule Would Divert CRA Activity Away from LMI Neighborhoods
NCRC maintains that even if the OCC is rigorous in establishing thresholds, the structure of their CRA evaluation measure as a ratio of CRA activity divided by deposits will distort CRA activity away from the most critical needs in underserved communities. Banks would seek the large deal, in particular large infrastructure projects, to boost their ratios and would ignore pressing needs for smaller dollar home and small business lending needed in LMI communities. This violates the intent and purpose of CRA to combat redlining and ensure that banks are meeting needs in LMI communities.
The inherent flaw of the CRA evaluation measure is compounded by new definitions of community development that allow activities to count if LMI people and communities receive only partial benefits. The new definition includes a category of community development called “essential infrastructure” that can include major bridges or other large infrastructure that spans cities and large areas instead of being more concentrated in LMI neighborhoods.
It is conceivable that such large infrastructure projects could total hundreds of millions of dollars of financing and could only tangentially benefit LMI communities, yet allow banks to score highly on the CRA evaluation measure and thus the overall rating. Furthermore, the tolerance in the final rule for high failure rates in assessment areas, pass/fail retail lending tests instead of rated lending tests, and allowance for community development activities in any geographical area will decrease retail lending and exacerbate the incentives for banks to find large scale infrastructure projects with minimal benefits for LMI communities.
The OCC also created a new CRA rule without the necessary data analysis to measure the impact of the rule.
NCRC has sought the data underlying OCC’s 2020 CRA changes in numerous Freedom of Information Act (FOIA) requests. In response, the OCC has not produced adequate data to evaluate the impacts of its new and ill-conceived evaluation measures. The OCC would need supplemental information, particularly regarding community development financing data that is not publicly available, to assess its new performance measures rigorously. From our review of available information, the OCC lacks such data.
The data collection effort proposed in this proposed rule is unlikely to provide useful information
The OCC has also issued a request for information seeking data from banks to further evaluate its new measures through an “Information Collection Survey.” This is the second time the OCC has tried to collect data from banks for its new CRA measures. Like the first attempt that generated six responses from banks, this one will likely fail to create a robust database.
The OCC would use data collected from the survey to develop thresholds for its CRA evaluation measure thresholds, retail lending distribution test thresholds, and community development minimums under the general performance standards. The thresholds would be set for achieving Satisfactory and Outstanding ratings for CRA exams.
This effort is doomed to failure because of the unlikelihood of the agency receiving enough data from its survey. The data is for a three-year time period, 2017 through 2019, that reflects relatively good economic conditions. However, the nation has now been plunged into a deep recession due to the pandemic; the long recovery expected is unlikely to be as robust as the years 2017 through 2019. Therefore, basing the CRA evaluation measure and other measures for future years on data from 2017 through 2019 would likely produce thresholds that could be too high to be realistically achieved as the nation recovers from the pandemic. In contrast, the current CRA performance measures and those proposed by the Federal Reserve Board do not hinge to as great an extent on comparing activity to bank deposits and hence are less likely to be unrealistic to achieve during recessions. Moreover, the current exams and the Federal Reserve ANPR do not produce thresholds that banks are expected to achieve in future years but instead compare banks to their peers and demographic benchmarks in recent past years.
The proposed thresholds in this proposed rule do not address CRA grade inflation
The OCC took a timid approach in the NPR that would reproduce the current ratings distribution in which 98% of the banks currently pass. The OCC states that thresholds would “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 OCC’s description of how it would be guided by the historical ratings distribution is sparse and vague. In its brief description, the OCC states it will use data collected from its survey to calculate CRA performance measures, retail lending metrics and community development minimums for banks that currently have Satisfactory and Outstanding ratings. Thus, the OCC implies that the thresholds would be established to replicate the historical distribution of ratings, which are inflated.
In addition to the fundamental flaws in the performance measures, any CRA reform effort that reproduces an inflated ratings distribution that does not reveal more distinctions in bank performance will fail to motivate banks to improve their CRA performance. Such a reform effort fails to achieve the statute’s objective of banks affirmatively and continually serving communities, an objective that suggests banks constantly seeking to improve their responsiveness to community needs.
The 10% decline penalty in this proposed rule is not meaningful
The OCC states that it would likely fail a bank whose performance deteriorates by 10% as measured by its performance measures. The OCC states that such a decline “may result in the bank receiving an assigned rating that is no higher than needs to improve at the assessment area level as well as at the overall bank level.” It is hard to fathom a bank decreasing performance to such an extent in a regime in which passing would be no harder than it is currently; and in which passing is likely to be easier since banks can pursue large-scale projects with minimal benefits for LMI communities.
In addition, declines in performance can be explained or justified by performance context (economic conditions or the financial condition of the bank) according to the proposal. The OCC has identified what it thinks is an unacceptable decline in performance but then says it can be excused depending on circumstances. It is thus not possible to determine whether this is threshold is meaningful as a sanction for poor CRA performance.
The formulation of what exactly constitutes a 10% decline is unclear. Does the 10% refer to a decrease in the dollar amount of CRA activities in the numerator of the CRA evaluation measure? Does 10% refer to a decrease in the CRA ratio itself? The proposed rule is also unclear regarding the time period for when declines are to be measured and penalized. In addition, how are declines in the retail lending measures or community development minimums considered? The NPR lacks details, making it impossible to understand what is proposed, and thus it is not possible for the public to comment conclusively on the proposal.
NCRC found that the thresholds that the OCC had previously proposed would likely result in several banks decreasing their retail lending and community development financing to low- and moderate-income (LMI) borrowers and in LMI communities. The previous thresholds were below the levels needed for passing ratings. However, in order to motivate banks to improve their CRA performance, thresholds should be set, so it is harder to obtain passing ratings instead of replicating the high pass rate. Nevertheless, the OCC’s exercise of establishing thresholds for flawed performance measures is doomed to failure and will not reverse the harms of diverting lending and investment away from LMI communities.
In the final analysis, the OCC reproduces current CRA inflation, which will result in stagnating CRA performance, exactly the opposite of increases in reinvestment needed by communities recovering from the pandemic. Moreover, the types of CRA activities would change in a detrimental manner. Previous NCRC analyses have concluded that the OCC performance measures would encourage banks to favor larger infrastructure projects that have little if no benefits for LMI neighborhoods. At the same time, bank home and small business lending is likely to drop significantly in these neighborhoods, creating yet another almost insurmountable barrier to economic equity and recovery from the pandemic.
The OCC must halt this proposed rule, rescind the damaging 2020 final CRA rule and embark on an interagency rulemaking with the Federal Reserve Board and the FDIC.
If you have any questions, please contact me or Josh Silver, Senior Advisor, on 202-628-8866.
Jesse Van Tol
 Office of the Comptroller of Currency, Notice of Proposed Rulemaking (NPR), Community Reinvestment Act regulations, methodology for determining thresholds on general performance standards, Federal Register, Vol. 85, No. 234, Friday, December 4, 2020, p. 78258.
 Josh Silver, Comments On Proposed CRA Rule: Pause And Go Back To Drawing Board, NCRC, April 2020, https://ncrc.org/comments-on-proposed-cra-rule-pause-and-go-back-to-drawing-board/
 Office of the Comptroller of the Currency, 12 CFR Parts 25 and 195, Docket ID OCC–2018–0008, RIN 1557–AE34 Community Reinvestment Act Regulations Federal Register, Vol. 85, No. 109, Friday, June 5, 2020, p. 34786
 Office of the Comptroller of the Currency, CRA Information Collection Survey, Federal Register, Vol. 85, No. 241, Tuesday, December 15, 2020, p. 81271.
 Josh Silver and Jason Richardson, Do CRA Ratings Reflect Differences In Performance: An Examination Using Federal Reserve Data. NCRC, May 2020, https://www.ncrc.org/do-cra-ratings-reflect-differences-in-performance-an-examination-using-federal-reserve-data/
 OCC, NPR, December 2020, p. 78261.
 OCC, NPR, p. 78262.
 Josh Silver, The CRA Evaluation Measures Would Allow Banks To Relax Their Retail Lending To LMI Borrowers And Communities, NCRC, February 2020, https://www.ncrc.org/the-cra-evaluation-measures-would-allow-banks-to-relax-their-retail-lending-to-lmi-borrowers-and-communities/ and NCRC Supplemental CRA Comment Using Federal Reserve CRA Data, April 2020, https://www.ncrc.org/ncrc-supplemental-cra-comment-using-federal-reserve-cra-data/
 NCRC, Analysis Of The OCC’s Final CRA Rule, June 2020, https://www.ncrc.org/analysis-of-the-occs-final-cra-rule/