9
Community Reinvestment Act and Consumer Laws
The Bank is subject to the provisions of the CRA and the Fede
ral Reserve’s regulations thereunder.
Under the CRA, all
FDIC-insured institutions have a continuing and affirmative
obligation, consistent with their safe and sound operation, to
help meet the credit needs for their entire communities, including low-
and moderate-income neighborhoods.
The CRA
requires a depository institution’s
primary federal regulator to periodically assess the institution’s
record of assessing and
meeting the credit needs of the communities served by that institution,
including low- and moderate-income neighborhoods.
The bank regulatory agency’s CRA
assessment is publicly available.
Further, consideration of the CRA is required
of any
FDIC-insured institution that has applied to: (i) charter a national bank;
(ii) obtain deposit insurance coverage for a newly-
chartered institution; (iii) establish a new branch office that
accepts deposits; (iv) relocate an office; or (v) merge
or
consolidate with, or acquire the assets or assume the liabilities of,
an FDIC-insured financial institution.
In the case of bank
holding company applications to acquire a bank or other
bank holding company, the Federal
Reserve will assess the records
of each subsidiary depository institution of the applicant bank holding
company, and such records
may be the basis for
denying the application.
A less than satisfactory CRA rating will slow,
if not preclude, acquisitions, and new branches and
other expansion activities and may prevent a company from becoming
a financial holding company.
CRA agreements with private parties must be disclosed and annual
CRA reports must be made to a bank’s
primary federal
regulator.
A financial holding company election, and such election and financial holding
company activities are permitted
to be continued, only if any affiliated bank has not received
less than a “satisfactory” CRA rating.
The federal CRA
regulations require that evidence of discriminatory,
illegal or abusive lending practices be considered in the CRA
On December 13, 2019, the FDIC and OCC issued a joint notice
of proposed rulemaking seeking comment on modernizing
the agencies’ CRA regulations. The OCC issued final revised
CRA Rules effective October 1, 2020, with compliance dates
of October 1, 2020, and January 1, 2023 or 2024. The FDIC
has not issued final revised CRA regulations. On November
24, 2020, the OCC sought additional comment on the general
performance standards of its CRA regulations. On September
21, 2020, the Federal Reserve issued an advanced notice of proposed
rulemaking seeking comment on ways to strengthen,
clarify and tailor its CRA regulations, which, if adopted,
would govern the Bank’s CRA compliance.
Under the Federal
Reserve proposal, “small banks” would be limited to banks with assets
of $750 million or $1 billion, and could elect
between the existing CRA rules or any newly adopted CRA rules.
The Bank is also subject to, among other things, the Equal Credit
Opportunity Act (the “ECOA”) and the Fair Housing Act
and other fair lending laws, which prohibit discrimination based
on race or color, religion, national origin,
sex and familial
status in any aspect of a consumer or commercial credit or
residential real estate transaction.
The Department of Justice
(the “DOJ”), and the federal bank regulatory agencies have issued
an Interagency Policy Statement on Discrimination in
Lending to provide guidance to financial institutions in determining whether
discrimination exists, how the agencies will
respond to lending discrimination, and what steps lenders might take
to prevent discriminatory lending practices.
The DOJ
has prosecuted what it regards as violations of the ECOA, the
Fair Housing Act, and the fair lending laws, generally.
The federal bank regulators have updated their guidance several
times on overdrafts, including overdrafts incurred at
automated teller machines and point of sale terminals.
Overdrafts also have been a CFPB concern.
Among other things,
the federal regulators require banks to monitor accounts and
to limit the use of overdrafts by customers as a form of short-
term, high-cost credit, including, for example, giving customers who
overdraw their accounts on more than six occasions
where a fee is charged in a rolling 12 month period
a reasonable opportunity to choose a less costly alternative and decide
whether to continue with fee-based overdraft coverage.
It also encourages placing appropriate daily limits on overdraft
fees, and asks banks to consider eliminating overdraft fees for
transactions that overdraw an account by a
de minimis
amount.
Overdraft policies, processes, fees and disclosures are
frequently the subject of litigation against banks in various
jurisdictions. The federal bank regulators continue to consider
responsible small dollar lending, including overdrafts and
related fee issues and issued principals for offering small
-dollar loans in a responsible manner on May 20, 2020.
The CFPB
proposed on February 6, 2019 to rescind its mandatory underwriting
standards for loans covered by its 2017 Payday,
Vehicle
Title and Certain High-Cost Installment Loans
rule, and has separately proposed delaying the effectiveness
of such
2017 rule.
The CFPB has a broad mandate to regulate consumer financial
products and services, whether or not offered by banks
or
their affiliates.
The CFPB has the authority to adopt regulations and enforce
various laws, including fair lending laws, the
Truth in Lending Act, the Electronic Funds Transfer
Act, mortgage lending rules, the Truth in Savings Act,
the Fair Credit
Reporting Act and Privacy of Consumer Financial Information
rules.
Although the CFPB does not examine or supervise
banks with less than $10 billion in assets, banks of all sizes are
affected by the CFPB’s
regulations, and the precedents
set
in CFPB enforcement actions and interpretations.