May 21, 2020

OCC Unilaterally Finalizes Community Reinvestment Act Changes

The Office of the Comptroller of the Currency issued its long-awaited final rule making significant changes to the regulations implementing the Community Reinvestment Act, the first overhaul of the CRA framework in more than three decades. The 370-page final rule makes critical changes in four key areas.
 
  • Qualifying Activities — The final rule clarifies and expands the qualifying activities that can receive CRA consideration to include certain activities in areas of need that are not low-to-moderate-income communities and certain activities that benefit an entire community. A nonexhaustive list of qualified activities will be published on the OCC’s website in a searchable format and updated on an annual basis.
  • Determining Bank Assessment Areas — The final rule preserves facility-based assessment areas but also requires institutions to delineate deposit-based assessment areas where they have significant concentrations of retail domestic deposits.
  • Evaluating CRA Performance — The final rule seeks to establish a more objective, consistent and transparent means of evaluating CRA performance that will assess a bank’s retail lending and community development activities by analyzing the distribution of retail lending activities relative to LMI populations and census tracts in a bank’s assessment area, as well as the impact of all CRA activity measured in dollars.
  • CRA Reporting — The final rule will impose significant data collection, recordkeeping and reporting requirements that are intended to standardize the reporting process, increase transparency and reduce the lag time in preparing CRA exam reports.
The new rule, which will apply to OCC-regulated national banks and savings associations, is effective Oct. 1, 2020. The agency is providing a phase-in period for the new requirements, and institutions with less than $600 million in assets choosing to opt into the new regime will have until Jan. 1, 2024, to comply. Community banks with assets of up to $2.5 billion also will have the option to opt out of the new performance standards. 
Comptroller of the Currency Joseph M. Otting issued a statement on the final rule. While the FDIC joined the agency’s initial proposal, FDIC Chairman Jelena McWilliams declined to sign on to the final rule, citing the burden on banks responding to the coronavirus pandemic. The Federal Reserve did not join in the proposed rulemaking.

Otting Announces Departure From OCC; Brooks To Serve As Acting Comptroller

Comptroller of the Currency Joseph Otting today announced that he would step down from office, effective May 29. Brian Brooks, a former vice chairman at OneWest Bank and general counsel at Fannie Mae banker who joined the OCC last month as first deputy comptroller and COO, will serve as acting comptroller.

Otting’s exit from the agency comes just after the OCC moved unilaterally to finalize its Community Reinvestment Act modernization proposal, a longstanding priority for Otting since he became comptroller in November 2017.

DOL Finalizes Rule Expanding Use Of Electronic Delivery For Plan Documents

The Department of Labor today issued its final rule to modernize retirement disclosures by facilitating the use of electronic delivery for participant notices and disclosures through the creation of a new safe harbor. DOL simplified and provided additional flexibility about how electronic disclosure may be provided to retirement plan investors.

The new safe harbor will feature a “notice and access” structure under which disclosures would be posted to a public website and participants notified electronically about these documents. DOL also included in the final rule an option for administrators to furnish documents directly by email as an alternative to this approach. Participants would still be able to opt out of electronic delivery and receive paper documents.The final rule will take effect 60 days after publication in the Federal Register.

FHFA Re-Proposes Regulatory Capital Framework Changes For Fannie, Freddie

The Federal Housing Finance Agency re-proposed a 2018 proposal to establish a new regulatory capital framework for Fannie Mae and Freddie Mac, charting a clear path for the GSEs to exit conservatorship. The proposed framework is based around several core goals, including addressing procyclicality, facilitating the GSEs’ regulatory capital planning, and increasing the quantity and quality of capital held by the enterprises.

Under the new framework, the GSEs will be required to hold a combined $243 billion in capital, up significantly from the $45 billion they currently hold. They also will be required to satisfy several capital and leverage ratio requirements, similar to those adhered to by banks. Comments will be due 60 days after publication in the Federal Register.

Financial Regulators Issue Joint Principles For Responsible Small-Dollar Loan Programs

To encourage banks and other depository institutions to engage in responsible small-dollar lending, federal financial regulators issued long-awaited joint guidance for offering these types of loans to consumers and small businesses.

“Well-designed small-dollar lending programs can result in successful repayment outcomes that facilitate a customer’s ability to demonstrate positive credit behavior and transition into additional financial products,” the agencies noted. They added that these programs should be developed in accordance with sound risk management principles.

When making small-dollar loans, the agencies said that lenders may underwrite loans using internal or external data sources, such as deposit account activity, to assess a customer’s creditworthiness, effectively manage risk, and lower the cost of providing responsible small-dollar loans. In prior comments, ABA urged regulators to create a framework that encourages banks to establish sustainable small dollar lending programs that use automated, efficient underwriting.

Lenders also should ensure that they comply with all applicable laws and regulations, including fair lending laws, the agencies said. Other core lending principles include effectively managing the risks associated with the products offered and underwriting small-dollar products based on prudent policies and practices. These policies and practices should generally address loan structures, pricing, underwriting, marketing and disclosures, along with servicing and safeguards for customers who may find themselves experiencing stress or unexpected circumstances.

The FDIC also announced it has rescinded its 2013 small dollar lending guidance, which imposed prescriptive underwriting requirements that conflicted with the joint guidance.

DOL Opens Door To Exempt Mortgage Loan Officers From Overtime Requirements

The Department of Labor issued a final rule clarifying that employees in retail or service businesses who receive more than half of their compensation in commissions may be exempt from federal overtime pay requirements under Section 7(i) of the Fair Labor Standards Act. The rule opens the door for banks to treat commissioned mortgage loan officers as exempt employees.
 
The rule withdraws DOL’s list of businesses, such as banks, that are specifically excluded from the Section 7(i) exemption. Instead, a business’ employees may be eligible for the exemption if they work in a “retail or service establishment.”

IRS Raises HSA Contribution Limits For 2021

The IRS announced new inflation-adjusted health savings account contribution limits and max out-of-pocket limits for 2021. Individuals may contribute $3,600, up $50 from this year, and families may contribute $7,200, up $100 from this year. The maximum out-of-pocket limit for high-deductible health plans will rise $100 to $7,000 for individuals and $200 to $14,000 for families. The minimum deductibles for an HDHP ($1,400 for individuals and $2,800 for families) will remain unchanged.

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