Comptroller of the Currency Joseph M. Otting has made clear that reducing regulatory burden on the financial institutions supervised by the Office of the Comptroller of the Currency is his highest priority. Otting’s written testimony, prepared for the House of Representatives Financial Services Committee, focused on four areas where the OCC is working to modernize regulatory requirements and enhance efficiency: the Community Reinvestment Act; payday loans and other small-dollar consumer credit; the Bank Secrecy Act; and capital requirements and the Volcker Rule. Neither enhancing safety and soundness nor protecting consumers featured significantly in what Otting told the committee, as shown by the agency’s press release.
Community Reinvestment Act compliance. According to Otting, CRA regulatory requirements have become "too complex, outdated, cumbersome, and subjective." The OCC now is working with the other federal regulatory agencies on a new CRA framework to make clear what activities will receive CRA credit, redefine what constitutes an assessment area, and measure CRA performance using quantitative standards in a consistent manner. He mentioned that the agencies are preparing an advance notice of proposed rulemaking to gather information.
Otting told the committee that more and different activities should be eligible for CRA credit. Small business lending, student lending, and economic development activities should receive more consideration, he said, rather than the current focus on residential lending. Even short-term, small-dollar loans might be eligible for CRA credit.
The delineation of a bank’s assessment area should not be based solely on where the bank has a physical presence, the Comptroller said. All areas that a bank serves should be considered, not just places where the bank has branches and automated teller machines.
Banks need to be given "clearer, more transparent metrics" so they understand what must be done to earn a desired CRA rating, in Otting’s view. Reducing subjectivity and enhancing consistency would make ratings more useful.
Short-term, small-dollar lending. Encouraging banks to offer consumers short-term, small-dollar loans will make credit more available to consumers, according to Otting, while making this type of credit "safe, fair, and less expensive" compared to high-cost payday loans from nonbanks. He described the OCC’s recent bulletin outlining considerations for banks that want to engage in this activity (see Banking and Finance Law Daily, May 23, 2018).
The guidelines set out in OCC 2018-14 say that loans should be consistent with safety and soundness and fair to consumers. They should be underwritten properly, and the resulting risks should be properly managed. Otting also made clear that the OCC "views unfavorably" what are sometimes called "rent-a-charter" arrangements in which a nonbank lender partners with a national bank so that it can use federal laws to evade state law interest rate limits.
Bank Secrecy Act. The Bank Secrecy Act and resulting anti-money laundering regulations are necessary to protect the U.S. financial system, Otting agreed. However, compliance "has become inefficient and costly."
The OCC believes that compliance improvements could be made by:
- allowing regulators to use risk-based examinations;
- raising the dollar thresholds that call for Suspicious Activity Reports and Currency Transaction Reports;
- giving banks better feedback on what information in SARs and CTRs is the most useful; and
- improving technology to make reporting less burdensome and enhance law enforcement agency access to information.
Capital and the Volcker Rule. Otting did not disagree with the need for higher capital levels, but he did argue that "calculating regulatory capital has become too complex." To counter this complexity, the regulatory agencies are moving to simplify their rules, especially for institutions that are not among the largest and most internationally active. Noting that the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act included some statutory changes, Otting added that implementation of the law might reveal the need for further "fine tuning."
Volcker Rule compliance requirements also are unnecessarily burdensome, particularly for smaller banks that pose no threat to financial stability, according to Otting. He noted that a pending regulatory proposal would eliminate any subjectivity. Whether a bank’s trading desk was operating within the rules would be determined based on its adherence to prescribed profit and loss thresholds, not on an effort to determine the intent of the transactions.
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