[Federal Register: January 10, 2001 (Volume 66, Number 7)]
[Rules and Regulations]
[Page 2051-2113]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ja01-22]
[[Page 2051]]
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Part II
Department of the Treasury
Federal Reserve System
Federal Deposit Insurance Corporation
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Office of the Comptroller of the Currency
Office of Thrift Supervision
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12 CFR Parts 35, 207, 346, 533
Disclosure and Reporting of CRA-Related Agreements; Final Rules
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 35
[Docket No. 00-34]
RIN 1557-AB85
FEDERAL RESERVE SYSTEM
12 CFR Part 207
[Regulation G; Docket No. R-1069]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 346
RIN 3064-AC33
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 533
[Docket No. 2000-107]
RIN 1550-AB32
Disclosure and Reporting of CRA-Related Agreements
AGENCIES: Office of the Comptroller of the Currency (OCC); Board of
Governors of the Federal Reserve System (Board); Federal Deposit
Insurance Corporation (FDIC); Office of Thrift Supervision (OTS).
ACTION: Joint final rule.
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SUMMARY: The OCC, Board, FDIC, and OTS (collectively, the agencies) are
publishing final rules to implement the CRA sunshine provisions of
section 48 of the Federal Deposit Insurance Act. These provisions
require nongovernmental entities or persons (NGEPs), insured depository
institutions, and affiliates of insured depository institutions that
are parties to certain agreements that are in fulfillment of the
Community Reinvestment Act of 1977 to make the agreements available to
the public and the appropriate agency and file annual reports
concerning the agreements with the appropriate agency. These provisions
were contained in section 711 of the Gramm-Leach-Bliley Act.
The rule identifies the types of written agreements that are
covered by section 48 (referred to as covered agreements) and defines
many of the terms used in the statute. The rule also describes how the
parties to a covered agreement must make the agreement available to the
public and the appropriate agencies and explains the type of
information that must be included in the annual report filed by a party
to a covered agreement.
EFFECTIVE DATE: This joint rule is effective April 1, 2001.
FOR FURTHER INFORMATION CONTACT:
OCC: Michael S. Bylsma, Director, Community and Consumer Law (202)
874-5750; or Karen O. Solomon, Director, Legislative and Regulatory
Activities (202) 874-5090, Office of the Comptroller of the Currency,
250 E Street, SW, Washington, DC 20219.
BOARD: Scott G. Alvarez, Associate General Counsel (202) 452-3583,
Kieran J. Fallon, Senior Counsel (202) 452-5270, or Andrew Miller,
Senior Attorney (202) 452-3428, Legal Division; Glenn E. Loney, Deputy
Director (202) 452-3585, James H. Mann, Senior Attorney (202) 452-2412,
or Kathleen C. Ryan, Senior Attorney (202) 452-3667, Division of
Consumer and Community Affairs; For users of Telecommunications Device
for the Deaf (*TDD*) only, contact Janice Simms at (202) 452-4984;
Board of Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, NW, Washington, DC 20551.
FDIC: Deanna Caldwell, Senior Policy Analyst (202) 942-3366, or
Robert Mooney, Assistant Director (202) 942-3378, Division of
Compliance and Consumer Affairs; or A. Ann Johnson, Counsel, Regulation
and Legislation Section (202) 898-3573, Federal Deposit Insurance
Corporation, 550 17th Street, NW, Washington, DC 20429.
OTS: Richard Bennett, Counsel (Banking and Finance), (202) 906-
7409; or Karen Osterloh, Assistant Chief Counsel, (202) 906-6639;
Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552.
SUPPLEMENTARY INFORMATION: The contents of this preamble are listed in
the following outline:
I. Background
II. Overview of Comments Received
III. Detailed Explanation of Final Rule
A. Definition of Covered Agreement
B. Disclosure of Covered Agreements
C. Annual Reports
D. Effective Dates of Disclosure and Reporting Requirements
E. Compliance Provisions
F. Other Definitions and Rules of Construction
IV. Regulatory Flexibility Act Analysis
V. Executive Order 12866 Determination
VI. Paperwork Reduction Act
VII. Comments Regarding the Use of ``Plain Language''
VIII. Unfunded Mandates Act of 1995
IX. Compliance Chart
I. Background
Section 711 of the GLB Act (Pub. L. 106-102, 113 Stat. 1338 (1999))
added a new section 48 to the Federal Deposit Insurance Act (12 U.S.C.
1831y) (FDI Act) entitled ``CRA Sunshine Requirements.'' Section 48
applies to written agreements that (1) are made in fulfillment of the
Community Reinvestment Act of 1977 (CRA),\1\\ \ (2) involve funds or
other resources of an insured depository institution or affiliate with
an aggregate value of more than $10,000 in a year, or loans with an
aggregate principal value of more than $50,000 in a year, and (3) are
entered into by an insured depository institution or affiliate of an
insured depository institution and a nongovernmental entity or person.
Section 48 does not, however, cover any agreement with a
nongovernmental entity or person that has not had a CRA contact with an
insured depository institution or affiliate or a banking agency, such
as agreements entered into by entities or persons that solicit
charitable contributions or other funds without regard to the CRA.
Under section 48, the parties to a covered agreement must make the
agreement available to the public and the appropriate agency. The
parties also must file a report annually with the appropriate agency
concerning the disbursement, receipt and use of funds or other
resources under the agreement.
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\1\ 12 U.S.C. 2901 et seq.
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On May 19, 2000, the agencies published a joint notice of proposed
rulemaking in the Federal Register (65 FR 31962, May 19, 2000) to
implement section 48. The joint notice requested comment on all aspects
of the proposed rule and on a wide variety of specific topics
identified in the Supplementary Information accompanying the proposal.
II. Overview of Comments Received
The agencies collectively received more than 800 comments from the
public on the proposed rule, although many commenters submitted copies
of the same comments to each of the agencies. Comments were received
from a wide variety of sources including members of Congress; state and
local government officials; banks, savings associations and their
holding companies and other affiliates; community-based and non-profit
organizations, including national and regional associations whose
membership is composed of such organizations; trade associations; other
businesses; and individuals.
[[Page 2053]]
These comments addressed to some degree nearly all aspects of the
proposed rule. A number of these comments are described in more detail
in the description of the final rule below. This section provides a
brief overview of the comments and is not intended to represent a
detailed summary of all of the comments. The agencies have carefully
reviewed and considered the information and views provided by all
commenters.
Commenters generally requested additional guidance on the types of
actions that would constitute a written arrangement or understanding
between an insured depository institution or affiliate and a NGEP. Many
commenters supported the proposed rule's definition of ``fulfillment of
the CRA,'' while others asserted that the proposed definition was too
broad.\2\ In this regard, a number of commenters expressed concern that
the proposed rule could require the disclosure of, and reporting on, a
wide range of agreements between banking organizations and NGEPs that
are not directly related to or affected by the CRA. They also expressed
concern that the proposed rule could discourage banking organizations
from entering into agreements with NGEPs to provide loans, investments
or banking services in their local communities.
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\2\ The proposed rule generally defined ``fulfillment of the
CRA'' by reference to the full list of factors that the agencies
consider in evaluating the CRA performance of an insured depository
institution or in acting on an application for a deposit facility
under the CRA, as described in the lending, investment and service
tests set forth in the CRA regulations jointly adopted by the
agencies (``CRA Regulations''). See 12 CFR Part 25 (OCC); 12 CFR
Part 228 (Board); 12 CFR Part 345 (FDIC); 12 CFR Part 563e (OTS).
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Many commenters addressed the exemption included in the statute and
the proposed rule for agreements that are entered into by an insured
depository institution or affiliate with a NGEP that has not
``commented on, testified about, or discussed with the institution, or
otherwise contacted the institution, concerning the Community
Reinvestment Act.'' \3\ Most commenters that addressed this issue
requested that the agencies clarify the types of actions by a NGEP that
would constitute a CRA contact as described in the statutory exemption.
Some commenters recommended that the agencies define a CRA contact to
include only CRA-related contacts by a NGEP with a Federal banking
agency or discussions with an insured depository institution or
affiliate about such contacts. Commenters also urged that the agencies
clarify that certain types of discussions with an institution or
affiliate, such as a general discussion by a NGEP with an institution
concerning the eligibility of products or services for consideration
under the CRA, were not CRA contacts (and were therefore exempt) within
the meaning of the statute. Other commenters asserted that the statute
did not allow the agencies to limit CRA contacts only to those that
occur with a Federal banking agency and that Congress intended a CRA
contact to encompass a broad range of CRA-related contacts including
discussions by a NGEP with an insured depository institution or
affiliate concerning the CRA.
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\3\ See 12 U.S.C. 1831y(e)(1)(B)(iii).
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A number of commenters also argued that a CRA contact must be with
an appropriate official or representative of the insured depository
institution or affiliate. A significant number of commenters also urged
that a CRA contact be recognized only if the contact occurred within a
specified period of time before the parties entered into the agreement.
Some commenters expressed concern that, without these or other
limitations, the statute or proposed rule would impose a substantial
burden on persons claiming the exemption and make the exemption
virtually meaningless. Other commenters asserted that the agencies
lacked the authority to require that a CRA contact be temporally
related to a CRA-related agreement.
A number of commenters argued that the statute or the proposed rule
imposed a substantial burden on persons who engage in discussions with
banking organizations concerning the CRA or petition the Federal
banking agencies for action related to the CRA. These commenters argued
that these burdens could chill the public's exercise of free speech or
right to petition the government as protected by the Constitution.
Commenters generally supported the provisions of the proposed rule
that sought to streamline the disclosure and annual reporting
obligations of the parties to a covered agreement to the extent
consistent with the statute. For example, commenters widely supported
the proposed rule's provisions giving insured depository institutions,
affiliates and NGEPs flexibility in making covered agreements available
to the public and allowing insured depository institutions, affiliates
and NGEPs that are party to a number of covered agreements the ability
to file a single, consolidated annual report relating to all of the
agreements.
Commenters also generally supported the provisions of the proposed
rule that required a NGEP to make its covered agreements available to
an agency only upon request. Some commenters requested that insured
depository institutions and affiliates also be permitted to make
covered agreements available to the appropriate agency upon request, or
that the agencies further streamline the agency disclosure obligations
applicable to institutions and affiliates. Commenters requested that
the agencies streamline the process for determining what information
contained in a covered agreement may be withheld from public
disclosure, such as by identifying categories of information that could
be withheld from public disclosure without prior agency review.
Commenters overwhelmingly supported the proposed rule's provisions
allowing NGEPs to use Federal tax forms and other reports to fulfill
the reporting requirements of the rule. Comments were mixed concerning
the proposed rule's provisions governing the reporting of specific
purpose funds received by a NGEP, with some commenters supporting this
reporting method and others asserting that the method was burdensome or
not authorized by the statute.
Commenters also supported the provisions of the rule that provided
that a NGEP is not required to file an annual report for any year in
which NGEP did not receive funds under a covered agreement. Several
commenters requested that the agencies provide a similar exemption from
the annual reporting requirements to insured depository institutions
and affiliates.
III. Detailed Explanation of Final Rule
This section provides a more detailed discussion of the comments
received on the proposal, the changes made by the agencies in response
to comments, and the other provisions of the final rule. As with the
proposal, the final rule uses the term ``insured depository
institution,'' rather than ``bank'' or ``savings associations,'' to
facilitate compliance and consistency among the agencies' rules. As
discussed below, the rule identifies the specific agency or agencies
with whom a covered agreement and its related annual reports should be
filed, and the agency or agencies that would be considered a relevant
supervisory agency for a covered agreement.
The final rule and the remaining portions of this preamble also
refer to a ``nongovernmental'' entity or person'' as a ``NGEP.'' The
final rule uses this term, rather than the term ``person,'' to avoid
confusion over the scope of the rule. The term ``nongovernmental entity
or person'' or ``NGEP'' is defined in section ____.11 of the rule
generally to include
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any company or individual other than the Federal government; a state,
local or tribal government; an insured depository institution or
affiliate; or a representative of any of the foregoing.
The Supplementary Information accompanying the proposed rule
included examples illustrating the scope and application of the
proposed rule. Commenters generally favored having examples that
provide additional guidance concerning the rule's provisions. Some
commenters requested that the agencies clarify or amend certain
examples, and commenters were divided on whether the agencies should
incorporate all examples into the final rule.
The final rule includes examples illustrating some of the key
provisions of the rule, including the definition of a ``CRA
communication,'' the scope of the exemptions for qualifying loan
agreements, and the information required to be provided in the annual
report of an NGEP. The examples included in the rule are part of the
rule and compliance with an example, to the extent applicable,
constitutes compliance with the rule. (See section ____.1(d).) The
examples included in the rule illustrate only the scope and application
of the particular topic addressed by the example and do not illustrate
any other topic or issue that may arise under the rule.
The agencies also have included in this preamble examples that
illustrate other provisions of the rule. The agencies have not included
these other examples in the final rule because fewer questions appear
to arise in connection with these provisions and, thus, including the
examples in the rule could make the rule longer without providing a
commensurate level of benefit. The agencies, however, have included
these examples in the preamble to illustrate the manner in which the
agencies expect to interpret the rule in these areas. To further assist
members of the public in complying with the rule, the agencies have
included in this preamble a chart that summarizes the disclosure and
reporting requirements of the rule. This chart, which is not part of
the rule, is located at Part IX of this preamble.
By operation of law, the regulations of the agencies implementing
section 48 shall take effect on the first day of the calendar quarter
which begins on or after the date on which the regulations are
published in final form, which is April 1, 2001.\4\
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\4\ 12 U.S.C. 4802(b).
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The agencies requested comment on whether the rule should remain,
as proposed, in a separate part of each agency's regulations or be
incorporated into the agencies' existing CRA Regulations. Commenters
generally favored keeping the rule separate from the CRA Regulations.
In addition, section 48 amended the FDI Act, and not the CRA, and is
independent of the CRA and the CRA Regulations. Accordingly, the final
rule is promulgated as a new part to each agency's regulations. Section
____.1(c) of the final rule provides that nothing in the final rule
affects in any way the CRA, the agencies' CRA Regulations, or any
agency's interpretations or administration of the CRA or the CRA
Regulations.
The following description applies to the rule of each agency. Since
each agency's rule will be codified at a different part of the Code of
Federal Regulations, the following description references the rule
using only the section numbers used in the rule.
A. Definition of Covered Agreement
Section ____.2 of the rule defines which agreements are covered by
the rule and includes the Act's exemptions from the definition of a
covered agreement for qualified loan agreements.
1. Covered Agreements
The proposed rule defined a covered agreement as any contract,
arrangement, or understanding that meets all of the following four
criteria:
The agreement is in writing;
The agreement is made pursuant to, or in connection with,
the fulfillment of the CRA, as defined by the rule (see section __.4);
The parties to the agreement include (1) one or more
insured depository institutions or affiliates of an insured depository
institution, and (2) one or more NGEPs; and
The agreement provides for the insured depository
institution or affiliate to provide cash payments, grants, or other
consideration (except loans) having an aggregate value of more than
$10,000 in any calendar year, or to make loans in an aggregate
principal amount of more than $50,000 in any calendar year.
The final rule retains these four criteria for coverage. The final
rule also provides that, in order for an agreement to be covered, one
of the NGEPs that is a party to the agreement must have had a CRA
communication (as defined in section __.3) prior to the time the
parties entered into the agreement. As noted above, section 48
specifically exempts from coverage any agreement entered into by an
institution or affiliate with a NGEP who has not had a CRA
communication. The agencies believe that structuring this statutory
exemption as an affirmative requirement for coverage makes the rule
easier to understand without affecting the scope of the rule. The scope
of the exemption for agreements with a NGEP that has not had a CRA
communication is discussed in detail below.
A covered agreement may be with an insured depository institution
or any affiliate of an insured depository institution, including a bank
holding company or a nonbank affiliate. Section 48 and the rule apply
only to written contracts, arrangements or understandings, and do not
apply to oral contracts or agreements.
Some commenters requested that the agencies provide additional
guidance concerning when written communications between a NGEP and an
insured depository institution or affiliate would constitute a
``contract, arrangement or understanding.'' In addition, some
commenters asserted that the rule should apply only to legally
enforceable contracts, while comments were mixed on whether the rule
should apply to unilateral lending or investment pledges made by an
insured depository institution or affiliate in response to previous
actions by a NGEP.
As noted above, section 48 by its terms applies not only to written
contracts, but also to written arrangements and written understandings
that are entered into by an insured depository institution or affiliate
with a NGEP and that otherwise meet the statutory criteria to be a
covered agreement. For this reason, the agencies have not limited the
final rule to legally binding written contracts. Other written
agreements that do not constitute a legally binding contract, but that
reflect a mutual arrangement or understanding between an insured
depository institution or affiliate and a NGEP would be a covered
agreement if they meet the other criteria set forth in the rule.\5\ A
written arrangement or understanding may be reflected by one or more
documents.
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\5\ 12 U.S.C. 1831y(a) and (e)(1).
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The agencies have included three examples in the final rule that
illustrate when a written arrangement or understanding would and would
not exist. (See section ____.2(b).) Example 1 involves a NGEP that
meets with an insured depository institution and states that the
institution needs to make more community development investments in the
NGEP's community. The NGEP and institution, however, do not reach an
agreement concerning the community
[[Page 2055]]
development investments the institution should make in the community,
and the parties do not reach any mutual arrangement or understanding.
The institution later unilaterally issues a press release that
announces the institution has established a general goal of making $100
million of community grants in low- and moderate-income neighborhoods
in the institution's community over the next 5 years and does not
identify the NGEP. Since there was no agreement or understanding
between the institution and NGEP, and the institution acted
unilaterally to establish its investment goal, Example 1 states that
the press release issued by the institution is not a written
arrangement or understanding.
In Example 2, a NGEP meets with an insured depository institution
and states that the institution needs to offer new loan programs in the
NGEP's community. The NGEP and the insured depository institution reach
a mutual understanding that the institution will provide $10 million in
additional loans in low- and moderate-income neighborhoods in the
NGEP's community. The insured depository institution tells the NGEP
that it will issue a press release announcing the program and
subsequently issues a press release that incorporates the key terms of
the mutual understanding between the institution and NGEP. The press
release reflects the mutual arrangement or understanding between the
NGEP and the insured depository institution and is, therefore, a
written arrangement or understanding.
In Example 3, a NGEP sends a letter to an insured depository
institution requesting that the institution provide a $15,000 grant to
the NGEP. The insured depository institution responds in writing and
agrees to provide the grant to the NGEP in connection with its annual
grant program. Since the exchange of letters reflects an understanding
or arrangement between the insured depository institution and the NGEP,
the agreement would be a covered agreement if it meets the other
criteria set forth in the rule including, in particular, the
requirement that the NGEP have had a CRA communication.
These examples are not exclusive and other written exchanges may or
may not constitute a written arrangement or understanding depending on
the facts and circumstances of the particular situation.
2. Loan Agreements That Are Not Covered Agreements
Section 48(e)(1)(B) specifically exempts certain types of loan
agreements from coverage even if they otherwise meet the definition of
a covered agreement. Section ____.2(c) of the final rule implements
these exemptions.
a. Mortgage Loans. The first statutory exemption is for any
individual mortgage loan. Under this exemption, any mortgage loan made
by an insured depository institution or affiliate to any individual or
entity is exempt from the requirements of section 48. This exemption is
available for any mortgage loan, regardless of the identity of the
borrower or the rate charged on the loan.
The agencies requested comment on what types of loans would qualify
as a ``mortgage loan'' for purposes of this statutory exemption. A
number of commenters addressed this issue, with the vast majority
stating that the exemption should be available for any loan that is
secured by real estate. A few commenters asserted that the agencies
should define a mortgage loan to include any loan the proceeds of which
are used for real estate-related purposes, even if the loan was not
secured by real estate. Some commenters also contended that investments
in mortgage-backed securities or other types of real estate investments
should be exempt under this provision.
The final rule provides that this statutory exemption is available
to any individual loan that is secured by real estate. The real estate
securing the loan may be used for residential or commercial purposes,
and the loan does not need to have been obtained for purposes of
purchasing or improving the real estate. Since section 48 specifically
provides that this exemption is available only to mortgage loans, an
agreement to make a real-estate related investment (including an
investment in mortgage-backed securities) or to make a loan that is not
secured by real estate is not exempt under this provision, although
such agreements may be exempt from coverage under other provisions of
the rule.
Section ____.2(d) of the final rule provides examples illustrating
the rule's exemptions for qualifying loan agreements. The first example
(Example 1) illustrates the exemption for any individual mortgage loan.
In this example, an insured depository institution provides an
organization with a $1 million loan pursuant to a written agreement.
The loan is secured by real estate that is owned or to-be-acquired by
the organization. Accordingly, Example 1 states that the agreement is
exempt from coverage regardless of the interest rate on the loan or
whether the loan was made for purposes of re-lending.
b. Specific Contracts or Commitments for Qualifying Loans. The
statute also exempts from coverage ``any specific contract or
commitment for a loan or extension of credit to individuals,
businesses, farms, or other entities, if the funds are loaned at rates
[that are] not substantially below market rates and if the purpose of
the loan or extension of credit does not include any re-lending of the
borrowed funds to other parties.`` \6\ Under the statute, this
exemption is available for any type of loan to any individual or entity
if the loan meets the market rate and re-lending restrictions of the
statute.
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\6\ 12 U.S.C. 1831y(e)(1)(B)(ii).
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The agencies requested comment on whether this exemption covers
only a specific commitment to make a qualifying loan or extension of
credit (such as a loan commitment typically made in the course of
providing a line of credit to a small business), or also would provide
an exemption for a commitment to make multiple loans that meet the
Act's restrictions. The agencies also requested comment on whether the
agencies should define when a loan is made at ``substantially below
market rates'' or for purposes of re-lending. Most commenters that
addressed these issues requested that the agencies provide additional
guidance concerning the phrases ``substantially below market rates''
and ``for purposes of re-lending,'' and some of these commenters
suggested definitions for these phrases. Comments were mixed on whether
the exemption was available only to a specific contract or commitment
for an individual loan or if it also would cover a general commitment
by an insured depository institution to make multiple loans over a
period of time.
After carefully reviewing the language and purposes of section 48
and the comments received, the agencies have determined that the
exemption in section ____.2(c)(2) is available only with respect to a
specific contract or commitment by an insured depository institution to
make a single loan or extension of credit that meets the Act's market-
rate and re-lending restrictions, and does not cover an agreement or
commitment by an institution or affiliate to make multiple loans or
extensions of credit. The agencies also have amended the rule to
provide that a loan is made for ``purposes of re-lending'' only if the
loan application or other loan documents indicate that the borrower
intends or is authorized to use the borrowed funds to make a loan or
[[Page 2056]]
extension of credit to one or more third parties.
The final rule retains the statute's restriction that the loan or
extension of credit may not be made at a rate that is substantially
below market rates. In determining whether a loan or extension of
credit is made at ``substantially below market rates,'' an institution
should compare the rate charged on the loan or extension of credit to
the rate the institution has or would charge a comparable borrower
(e.g., a NGEP with similar financial resources and credit history) on a
comparable type of transaction (e.g., a construction loan, permanent
financing, small business loan, or unsecured consumer loan). Since the
rates charged on particular types of loans vary over time and may vary
depending on the location of the lender and borrower, the agencies have
not included in the rule a fixed formula for determining whether a loan
or extension is made at ``substantially below market rates.''
Examples 2, 3 and 4 in section ____.2(c) of the rule illustrate the
scope and application of this exemption. In Example 2, an insured
depository institution commits to provide a $500,000 line of credit to
a small business pursuant to a written agreement. The example provides
that the loan is made at a rate within the range of rates offered by
the institution to other similarly situated small businesses in the
market and the loan documentation does not indicate that the borrower
intends or is authorized to re-lend the borrowed funds. Accordingly,
the example states that this commitment for an individual loan is
exempt under section ____.2(c)(2) of the rule.
In Example 3, a small business obtains a $75,000 small business
loan, documented in writing, from an insured depository institution.
The institution offers its borrowers small business loans that are
guaranteed by the Small Business Administration (SBA) and the loan is
made under this loan program. The loan documentation does not indicate
that the borrower intends or is authorized to re-lend the funds to any
third-party. Although the rate charged by the institution on the loan
is well below that charged by the institution on commercial loans, the
rate is within the range of rates that the institution would charge a
similarly situated small business for a similar loan under the
institution's SBA loan program. Accordingly, the example states that
the loan is not made at substantially below market rates and is exempt
from coverage under section ____.2(c)(2) of the rule.
Example 4 involves a bank holding company that enters into a
written agreement with a community development organization. The
agreement provides for the insured depository institutions owned by the
bank holding company to make $250 million in small business loans in
their communities over the next 5 years. Since the agreement provides
for the institutions to make multiple loans, the agreement is not a
specific contract or commitment for a loan or extension of credit and,
thus, is not exempt from coverage under section ____.2(c)(2) of the
rule. The example notes, however, that each small business loan made
pursuant to this general commitment would be exempt from coverage if
the loan separately meets market rate and re-lending restrictions of
the exemption.
To be entirely exempt from coverage under section ____.2(c)(1) or
(2) of the rule, an agreement must be exclusively a loan, extension of
credit or loan commitment that meets the requirements of the relevant
exemption. The rule provides, however, that if an agreement includes a
loan, extension of credit or loan commitment that, if documented
separately, would meet the rule's requirements to be exempt and also
provides for the insured depository institution or affiliate to provide
other funds or resources, the exempt loan, extension of credit or loan
commitment may be excluded for purpose of determining whether the
agreement meets the Act's dollar thresholds or is in fulfillment of the
CRA. (See section ____.2(e).)\7\
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\7\ The agencies note, however, that if the other consideration
would reduce the effective interest rate paid on the loan or
extension of credit to a rate that is substantially below the market
rate, the loan or extension of credit would not itself be exempt
from coverage.
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3. CRA Communication
Section 48(e)(1)(B)(iii) provides a statutory exemption from the
CRA Sunshine provisions for ``any agreement entered into by an insured
depository institution or affiliate with a [NGEP] who has not commented
on, testified about, or discussed with the institution, or otherwise
contacted the institution, concerning the Community Reinvestment Act of
1977.'' This exemption for agreements with persons who have not had a
CRA contact was included in section ____.2(b)(2) of the proposed rule,
which contained an exemption that restated the statutory language in
section 48(e)(1)(B)(iii). Section ____.2(b)(2) also provided examples
of actions that would constitute a CRA contact and other examples of
actions that would not be considered a CRA contact.
The preamble invited comment on this aspect of the proposal,
including comment on whether the agencies should provide a more
detailed definition of the exemption and on several alternative
approaches to defining CRA contact. Nearly all commenters requested
that the agencies change the definition of CRA contact in the proposed
rule to explain the breadth of the exemption, to provide additional
clarity regarding what constitutes a CRA contact, or to exempt
specifically certain types of contacts. Many commenters underscored the
importance of a rule that allowed persons to determine before entering
into an agreement whether or not they have had a CRA contact and
qualify for the exemption. While many commenters expressed concern
about various aspects of the proposal on CRA contact, commenters were
divided on how to address these concerns.
A significant number of commenters argued that the agencies should
define a CRA contact to cover only providing CRA-related comments or
testimony to an agency and discussions with an insured depository
institution or affiliate about providing (or refraining from providing)
such comments or testimony. There was also significant support for an
alternative that would have excluded discussions with an insured
depository institution or affiliate concerning whether particular
loans, services, investment or community development activities are
generally eligible for consideration by an agency under the CRA
Regulations. Others argued that only conversations related specifically
to the CRA performance record of an institution should be covered.
A significant number of commenters advocated exempting contacts
that are incidental to ordinary business dealings, which were perceived
as outside the intended scope of the statute. Others advocated
exempting certain types of ``routine inquiries,'' such as inquiries
about what an institution's CRA rating is or about the CRA statute or
rule.
Some commenters, on the other hand, supported a broad
interpretation of CRA contact that would cover general discussions of
the CRA. A small number of commenters supported a broad interpretation
of CRA contact while also advocating that the agencies narrow other
aspects of the definition of a covered agreement, such as the
definition of fulfillment.
In addition to these issues regarding the scope of the exemption,
many commenters urged the agencies to
[[Page 2057]]
address other issues raised by the CRA contact definition. In
particular, a number of commenters suggested that the agencies indicate
who at the relevant institution or affiliate and who at the NGEP must
have a CRA contact or have knowledge that a CRA contact has occurred,
or require a temporal or other connection between the CRA contact and
negotiation of a CRA agreement.
As explained more fully below, the final rule incorporates changes
in three areas to address comments regarding the definition of CRA
contact. In summary, in order to identify contacts that have a
relationship to an agreement and to avoid imposing substantial burden
on parties entitled to claim the exemption, the final rule adopts a
definition of ``CRA communication'' that has three parts. First, the
rule adds clarity regarding the type of communication that is
considered to concern the CRA; second, the rule provides that the
institution and the NGEP must have knowledge of the CRA communication
and specifies who must have that knowledge; third, the rule recognizes
a temporal relationship between the communication and the agreement.
In addition, the final rule relocates and rewords the CRA
communication provision from an exemption for NGEPs that have not had a
CRA communication to a requirement in the definition of a covered
agreement that the agreement be with a NGEP that has had a CRA
communication. The final rule also refers to a CRA contact as a ``CRA
communication.'' This relocation and rewording makes the final rule
easier to read and understand and does not have any substantive effect.
a. Definition of CRA Communication. In considering the scope of the
exemption in section 48(e)(1)(B)(iii) for NGEPs that have not had a
contact concerning the CRA, the agencies have carefully considered the
words of the statute and the purpose of the exemption as well as the
comments received by the agencies. The Conference Report for the Act
indicates that this exemption was designed to provide an exemption from
the requirements of the CRA Sunshine provisions for a wide range of
organizations that solicit funds without regard to the CRA. The
Conference Report lists as examples of the types of groups that might
qualify for this exemption civil rights groups, community groups
providing housing or other services in low-income neighborhoods,
veterans groups, and community theater groups.\8\
---------------------------------------------------------------------------
\8\ See H.R. Conf. Rep. No. 106-434 at 179 (1999).
---------------------------------------------------------------------------
The final rule clarifies the definition of a CRA communication by
adding specificity that was drawn from the examples published in the
original proposal and in the preamble to the original proposal. Under
the final rule, a CRA communication is defined to include any of the
following five types of contacts:
Any written or oral comment or testimony provided to a
Federal banking agency concerning the adequacy of the performance under
the CRA of the insured depository institution, any affiliated insured
depository institution or any CRA affiliate;\9\
---------------------------------------------------------------------------
\9\ As discussed more fully below, a ``CRA affiliate'' is an
affiliate of an insured depository institution whose activities are
considered in evaluating the CRA performance of the institution.
Accordingly, it is viewed as part of the insured depository
institution for these purposes.
---------------------------------------------------------------------------
Any written comment submitted to the insured depository
institution that discusses the adequacy of the performance under the
CRA of the institution and that must be included in the institution's
CRA public file;
Any discussion or other contact with an insured depository
institution or any affiliate about providing or refraining from
providing written or oral comments or testimony to any Federal banking
agency concerning the adequacy of the performance under the CRA of the
insured depository institution, any affiliated insured depository
institution or any CRA affiliate;
Any discussion or other contact with an insured depository
institution or any affiliate about providing or refraining from
providing written comments that concern the adequacy of the
institution's CRA performance and that must be included in the
institution's CRA public file; and
Any discussion or other contact with an insured depository
institution or affiliate about the adequacy of the performance under
the CRA of the insured depository institution, any affiliated insured
depository institution, or any CRA affiliate.
The first four types of contacts include contacts with a Federal
banking agency or with an institution or affiliate about contacting a
Federal banking agency, as well as written communications that, under
existing rules, must be retained by an institution in its CRA public
file. The final rule includes a fifth type of contact that relates to
any discussion or other contact with an institution or affiliate about
the adequacy of the institution's performance under the CRA.
In adopting this fifth type of contact, the agencies have carefully
considered the suggestion of a number of commenters that CRA
communications be limited to the first four types of agency contacts or
to discussions with an institution regarding agency contacts. The
agencies note that the exemption in section 48(e) for a NGEP that has
not had a CRA communication, by its terms, is available only if the
NGEP has not ``discussed with the institution, or otherwise contacted
the institution, concerning the CRA.'' By its terms, the exemption
appears to contemplate that, in order to qualify for the exemption, the
NGEP not have had discussions or contacts ``concerning the CRA.''
Contacts ``concerning the CRA'' would cover discussions that are not
limited to discussions regarding providing testimony or comments to an
agency.
In order to explain what type of contact is covered by the words
``concerning the CRA,'' the final rule includes the fifth category for
discussions or other contacts about the ``adequacy'' of the
institution's performance under the CRA. This reference was included to
indicate that a contact that is related to how well or how poorly an
institution is fulfilling its obligation to help meet the credit needs
of the institution's community as evaluated under the CRA is one of the
types of contacts that would be most likely to influence a CRA
agreement, and, consequently, would be a CRA communication that
disqualifies a NGEP from claiming the exemption in section
48(e)(1)(B)(iii).
To help illustrate when a discussion or contact relates to the
adequacy of an institution's CRA performance, the final rule contains
several examples of contacts that would be covered and several examples
of contacts that would be exempt.\10\ These examples address only the
content of a CRA communication and assume that all other requirements
regarding the communication (and agreement) are otherwise satisfied.
---------------------------------------------------------------------------
\10\ Some commenters argued that the examples in the proposed
rule were helpful in illustrating the scope of the CRA contact
exemption and requested additional examples. Other commenters argued
that the examples would broadly discourage certain kinds of contacts
and should be eliminated. Section ____.1(d) of the final rule states
that the examples included in the rule are not exclusive, and the
agencies believe that, on this basis, the examples are a useful
illustration of the scope of the rule.
---------------------------------------------------------------------------
Three examples address contacts that are CRA communications and,
consequently, would cause a written agreement involving the NGEP to be
a covered agreement. In the first example, a NGEP files a written
comment with a Federal banking agency in response to a general agency
request for comments on an application to open a new branch.
[[Page 2058]]
The comment filed by the NGEP states that the applicant insured
depository institution has successfully addressed the credit needs of
its community. In the second example, a NGEP states to an executive
officer of an insured depository institution that the institution must
improve its CRA performance. Both of these examples illustrate a
contact in which the CRA performance record of the institution is
specifically mentioned.
The statute does not require that a specific reference to the
Community Reinvestment Act of 1977 be made in order to represent a CRA
communication, and, in fact, a number of commenters indicated that
discussions leading to agreements often do not include a specific
reference to the CRA because the context of the negotiation makes clear
that the agreement is intended to address CRA performance. To
illustrate this, an example of a CRA communication has been included
that involves an oral discussion in which the NGEP claims that the
institution needs to make more mortgage loans in low- and moderate-
income neighborhoods. The connection with the CRA is indicated by the
reference to the action requested, which involves activities that are
often the focus of CRA performance evaluations, along with a statement
indicating an obligation that the institution take this action, an
obligation that is considered to arise out of CRA evaluations.
The final rule also includes several examples of contacts that are
not considered to be CRA communications. One example involves a fund-
raising letter sent by a NGEP to an insured depository institution and
to other businesses in the community encouraging all businesses in the
community to meet their obligation to make the community a better place
to live by supporting the fund-raising efforts of the NGEP. This
example illustrates that a fund-raising letter that is widely
distributed in a way that does not imply an obligation under the CRA is
not itself considered to be a CRA communication. Similarly, a contact
by a NGEP with an insured depository institution to simply determine
what rating the institution received at its most recent CRA performance
examination would not, by itself, constitute a discussion concerning
the adequacy of the institution's performance.
A number of commenters advocated clarifying that the definition of
CRA communication would not include marketing efforts for products or
services that might relate to CRA activities. The rule contains two
examples that illustrate that general marketing efforts and general
discussions regarding the eligibility of products and services for CRA
consideration are not considered to be CRA communications unless the
communication includes a discussion concerning the adequacy of the
particular institution's CRA performance.
One example involves a discussion by a NGEP with an insured
depository institution regarding whether particular loans, services,
investments, community development activities or other activities are
generally eligible for consideration by a Federal banking agency under
the CRA, without any discussion of the adequacy of the CRA performance
of the insured depository institution or affiliate.
Another example illustrates a situation in which the NGEP combines
a general marketing discussion with a discussion of the eligibility of
particular loans for consideration under the CRA, but without any
discussion of the adequacy of the CRA performance record of the
institution or obligation of the institution to take any action related
to the CRA. In this example, the NGEP engages in the sale or purchase
of loans in the secondary market and sends a general offering circular
to financial institutions offering to sell or purchase a portfolio of
loans. The NGEP then meets with the institution and discusses whether
specific loans are generally eligible for consideration under the CRA,
including which loans are made in the institution's community, without
discussing the CRA performance or obligations of the institution. The
agencies believe that purchases and sales of loans in the secondary
market are typically done in the manner illustrated in the example and,
therefore, generally do not involve a CRA communication.
The final rule also retains two examples contained in the proposed
rule regarding other matters. One illustrates that statements made at a
widely attended conference on a general topic (but not a meeting or
hearing regarding a specific institution, affiliate or transaction) are
not considered to be CRA communications. Statements made at widely
attended conferences on general topics are not likely to be effective
in influencing CRA agreements and cannot be effectively monitored.
The other example illustrates that statements made in response to a
direct request to the specific NGEP from a Federal banking agency (but
not a general request for comment in connection with an application for
approval of a transaction or an examination) are not considered to be
CRA communications. Some commenters suggested that this example be
deleted because it suggested a preference for statements made by NGEPs
that have been directly contacted by a banking agency over NGEPs that
provide information to the agency in the course of a general
solicitation of public comment. The final rule retains the example
because the agencies believe that it is important to the agencies'
ability to meet their statutory obligations under the CRA that the
agencies obtain information regarding the credit needs of the community
from sources that include NGEPs that may enter into agreements with
insured depository institutions. In these circumstances, the contact
results due to an action by the agency, not an attempt by the NGEP to
influence the agency or obtain a CRA agreement. Imposing the rule's
requirements on the NGEP in this context might discourage cooperation
between NGEPs and the agencies and impede the ability of the agencies
to obtain useful information regarding the banking and credit needs of
communities.
b. Knowledge of CRA Communications. To define when a NGEP has had a
CRA communication with an insured depository institution for purposes
of the exemption provided in section 48(e)(1)(B)(iii), it is essential
to know when a communication is ``with the [insured depository]
institution'' and when it is by a NGEP. In other words, it is essential
to know who speaks for the institution and for the NGEP. The statute is
silent on this point.
A number of commenters suggested that the rule apply only to CRA
communications that occur with designated officers of the insured
depository institution or affiliate, such as the CRA compliance officer
or persons that negotiate covered agreements. In circumstances where
the individuals involved in or responsible for negotiating agreements
do not know that a CRA communication has occurred, commenters claimed
that it would be difficult, if not impossible, for institutions and
NGEPs to know whether they properly claimed the exemption or were, in
fact, in violation of the CRA Sunshine provisions.
For example, casual conversations between a bank teller and a
customer who is also an employee of a business consulting firm might
involve CRA activities of the bank and meet a broad reading of the
proposed definition of CRA contact. Commenters were concerned that, if
so, the contact could cause a written agreement between the institution
and business consulting firm
[[Page 2059]]
to be a covered agreement even though the conversation had no influence
over the agreement because officials of the institution and of the NGEP
responsible for negotiating the agreement were not aware of the
conversation.
To address this, a number of commenters urged the agencies to
include a requirement that officers of the institution and of the NGEP
responsible for negotiating agreements have knowledge of the CRA
communication. Others suggested that contacts include only
communications with executive officers and the CRA compliance officer
of insured institutions and with senior officers of NGEPs.
As noted above, the CRA Sunshine provisions do not indicate who a
NGEP must contact at an insured depository institution or affiliate in
order to have been considered to have made a CRA contact for purposes
of the exemption in section 48(e). The statute is also silent on who
speaks for a NGEP that is an organization or company, rather than an
individual.
The agencies believe that a CRA communication can only have an
effect on an institution's willingness to enter into an agreement or on
the terms of an agreement if the communication is with or is known to
individuals at the organization who are either involved in negotiating
the agreement or have authority or responsibility for such agreements.
These are the individuals that speak for the institution and represent
the institution in its decision making. Moreover, these are the
individuals that are the most likely to have communications regarding
the CRA that could lead to or affect the types of agreements that the
CRA Sunshine provisions are intended to cover.
There is no evidence in the terms of the CRA Sunshine provisions or
in the legislative history for those provisions that Congress intended
to deny the exemption based on CRA contacts that are not known to the
individuals that are involved with or have the authority to influence
the negotiation of CRA agreements. In fact, the example referred to in
the legislative history of the type of organization the exemption was
designed to protect is a large youth organization with national
membership.\11\ Given the size, scope and nature of the organization,
it is impossible to believe that members of that organization have
not--at some time and in some capacity--had contacts with insured
depository institutions regarding the CRA. Without a requirement in the
rule that attributes CRA communications only to members of the
organization that have authority or responsibility for negotiating
agreements on behalf of that organization, this organization identified
in the legislative history would not be able to claim the exemption.
---------------------------------------------------------------------------
\11\ See H.R. Conf. Rep. No. 106-434 at 179 (1999); 145 Cong.
Rec. S13887 (daily ed. Nov. 4, 1999).
---------------------------------------------------------------------------
Moreover, there would be significant burden imposed on both banking
organizations and NGEPs if organizations and NGEPs are not entitled to
rely on the exemption in section 48(e)(1)(B)(iii) because of a CRA
communication between any employee at the organization with any member
of a NGEP. To assure that no unauthorized contacts occur and that
agreements are properly exempt under section 48(e)(1)(B)(iii), a
banking organization and NGEP would be required to monitor all contacts
by all employees and members of the organization and NGEP. Even in
organizations of only moderate size, this could entail tracking
contacts by thousands of employees at a single banking organization.
The burden from this monitoring effort is likely to be overwhelming
with few benefits because few if any CRA communications that result in
CRA agreements are likely to occur among individuals at the
organization other than those individuals with authority and
responsibility for these agreements.
For these reasons, the final rule modifies the proposed rule to
require that, in order to be a CRA communication that disqualifies a
NGEP from the exemption in section 48(e)(1)(B)(iii), specified
individuals at the institution or affiliate and at the NGEP must have
knowledge of the communication.
Under the final rule, an insured depository institution or
affiliate is considered to have knowledge of a CRA communication with a
NGEP if any of the following representatives of the institution or
affiliate have knowledge of the contact with the NGEP:
An employee who approves, directs, authorizes or
negotiates the agreement with the NGEP;
An employee who is designated with responsibility for
compliance with the CRA and who knows that the institution or any
affiliate of the institution is negotiating, intends to negotiate, or
has been informed by the NGEP that it expects to request that the
institution or affiliate negotiate an agreement with the NGEP; or
An executive officer of the institution or affiliate and
who knows that the institution or any affiliate of the institution is
negotiating, intends to negotiate, or has been informed by the NGEP
that it expects to request that the institution or affiliate negotiate
an agreement with the NGEP.
In addition to contacts between an institution or affiliate and a
NGEP, there are several types of CRA contacts that arise in the agency
review process or the CRA examination process or that involve records
that the institution is responsible for maintaining. These contacts are
of such importance that the institution is deemed by the final rule to
have knowledge of the communication. In particular, an institution or
affiliate is deemed under the final rule to have knowledge of any
testimony provided to a Federal banking agency at a public meeting or
hearing and of any written comment submitted to the insured depository
institution that must be and has been included in the institution's CRA
public file. An institution or affiliate is also considered under the
final rule to have knowledge of any comment (written or oral) that has
been made by a NGEP to a Federal banking agency if the comment is
conveyed in writing by the agency to the insured depository institution
or affiliate.
The rule establishes a parallel knowledge requirement for a NGEP. A
NGEP is considered to have knowledge of a CRA communication if any of
the following have knowledge of the contact:
A director, employee or member of the NGEP who approves,
directs, authorizes or negotiates the agreement with the insured
depository institution of affiliate;
A person who functions as an executive officer of the NGEP
and who knows that the NGEP is negotiating or intends to negotiate an
agreement with the insured depository institution or affiliate; or
Where the NGEP is an individual, the individual.
For purposes of this requirement, an executive officer of an
institution, affiliate or NGEP is defined as provided in Regulation O
to include any person that participates or has authority to participate
in the major policymaking functions of the institution, affiliate or
NGEP, regardless of the person's title (see 12 CFR 215.2(e)). In
addition, persons who serve as counsel to or agent for an insured
depository institution or NGEP are considered to be acting for the
insured depository institution or NGEP for purposes of receiving
written comments or testimony from an agency.
Under the final rule, the designated individuals are not required
personally to have had the CRA communication. Instead, a CRA
communication is
[[Page 2060]]
covered if the communication involved or is known to one of the
designated individuals. The individuals identified in the rule at the
insured depository institution or affiliate and at the NGEP are the
individuals who either are involved in or are responsible for CRA
agreements. A CRA communication with an employee of an insured
depository institution, affiliate or NGEP that is not known to the
individuals that negotiate an agreement or to a person with authority
to intervene in the negotiation of an agreement is unlikely to
influence the agreement in any way. The knowledge requirement also
significantly reduces the burden on insured depository institutions,
affiliates and NGEPs to monitor contacts of employees or members that
play no role or have no influence in the negotiations or decisions
regarding agreements.
c. Timing of CRA Communications. A majority of commenters argued
that the final rules should require a temporal relationship between the
CRA communication and the agreement. These commenters contended that a
communication that occurs long before or anytime after an agreement has
been entered into does not influence the terms of an agreement or
encourage an institution to enter into an agreement. Consequently,
commenters argued that taking account of CRA communications that are
distant in time from the date of an agreement would be contrary to the
purpose of the exemption granted in section 48(e)(1)(B)(iii), which
they argued was to exempt any agreement with an NGEP that has not
attempted to use the CRA to negotiate the agreement. These commenters
argued that only CRA communications that occur during some period prior
to the date of the agreement be considered to be CRA contacts.
Commenters suggested periods that varied from 30 days to 2 years prior
to the agreement, with some arguing that only contacts that occur
during the public comment period for an agency's review of a
transaction or a CRA examination be considered.
Many commenters also contended that failure to adopt a temporal
connection between a CRA communication and a covered agreement would
forever disqualify a NGEP for the exemption based on one CRA
communication, regardless of when it occurred, its influence on a
written agreement or how circumstances may have changed. They argued
that this would significantly chill free speech and the right to
provide comments to a Federal agency.
On the other hand, several commenters argued that section
48(e)(1)(B)(iii) by its terms does not provide any limitation on the
timing of a CRA communication, and that the exemption is available only
to a NGEP that has not had a CRA communication with an agency or
insured depository institution at any time. These commenters believed
that the agencies have no authority to adopt a temporal requirement.
The agencies have taken particular care in considering the views
presented by commenters on this matter. A purpose of the CRA Sunshine
provisions is to provide public disclosure of agreements that are in
fulfillment of the CRA in order to allow the public and Congress to
monitor how resources paid under these agreements are used.\12\ The
exemption in section 48(e)(1)(B)(iii) was included in order to provide
relief from the reporting and disclosure provisions for agreements with
NGEPs that have not had a discussion concerning the CRA. Thus, the
agencies believe that the purposes of the exemption and of the CRA
Sunshine provisions generally assume a connection between the CRA
communication and the covered agreement.
---------------------------------------------------------------------------
\12\ See, e.g., 145 Cong. Rec. S13877-78 (daily ed. Nov. 4,
1999).
---------------------------------------------------------------------------
As a practical matter, in the case of agreements that are intended
to be covered by the CRA Sunshine provisions, CRA communications
normally occur during the period in which the agreement is discussed or
negotiated, which is a relatively short period immediately before the
agreement is reached. Indeed, it is during this negotiating period that
communications regarding the CRA have the most effect on whether a CRA
agreement will be reached and on what will be the purpose and the terms
of the agreement.
This view was supported by commenters representing insured
depository institutions as well as commenters representing NGEPs, most
of whom indicated that CRA communications occurred regularly during the
negotiation period for CRA agreements. This view is also consistent
with one of the purposes of the CRA Sunshine provisions, which was to
allow monitoring of agreements that result from contacts concerning the
CRA.
The exemption provided in section 48(e)(1)(B)(iii) would, over
time, become meaningless if the exemption is lost because of statements
concerning the CRA that are made long before or after an agreement has
been reached. Without a temporal relationship, all persons that
potentially may have agreements with insured depository institutions or
their affiliates regarding activities that receive favorable
consideration under the CRA would likely feel compelled to maintain
records that allow them to determine whether a CRA contact had ever
been made by any person in the organization in order to ensure that the
NGEP is in compliance with the exemption and the CRA Sunshine
provisions. This would represent a significant recordkeeping burden on
persons, including businesses, community organizations and individuals,
that the exemption was intended to benefit. For many of these
organizations, this would mean tracking and reviewing contacts from
numerous employees or members on a continuous and long-term basis.
This heavy burden is inconsistent with the purpose of the
exemption. It is also inconsistent with the directive in the CRA
Sunshine provision that the agencies prescribe regulations designed to
ensure and monitor compliance with the CRA Sunshine provisions without
imposing an undue burden on the parties.
The agencies believe that recognizing a temporal relationship is an
effective and objective method for identifying CRA communications that
are most likely to have influenced the shape or the existence of an
agreement. Conversely, by not covering communications made at a time
that is distant from or after the agreement, the final rule
substantially reduces the potential that communications that are
unrelated to an agreement will be covered without excluding
communications that have the most direct effect on the agreement.
Moreover, a temporal relationship focuses on the fact that in nearly
all, if not all, cases CRA communications are made during the period in
which the potential for an agreement is discussed and the agreement is
negotiated. Thus, a temporal relationship supports the purpose of the
CRA Sunshine provisions, including the exemption in section
48(e)(1)(B)(iii), of identifying and exempting NGEPs that have not made
CRA communications in an effort to obtain or negotiate a CRA agreement.
For these reasons, the final rule provides a time frame designed to
recognize the connection between the communication and the agreement.
To be deemed not to have had a CRA communication under section
48(e)(1)(B)(iii), a NGEP must not have had a CRA communication within 3
years prior to entering into the agreement in the case of oral or
written communications with a Federal banking agency. The NGEP also
must not have
[[Page 2061]]
had within the 3 years prior to the agreement any written CRA
communication with the relevant insured depository institution or any
of its affiliates. In addition, the NGEP must not have had within the 3
years prior to the agreement any oral communication with the relevant
insured depository institution or any of its affiliates about providing
(or refraining from providing) comments or testimony to a Federal
banking agency or comments to the institution's CRA public file where
such communications occur in connection with a request to, or agreement
by, the institution or affiliate to take any action that is in
fulfillment of the CRA. Finally, the NGEP must not have had any other
oral CRA communication with the relevant insured depository institution
or any of its affiliates concerning the adequacy of the institution's
CRA performance within one year prior to entering into the agreement.
The agencies selected the three year period for communications with
an agency, certain types of discussions with an institution or
affiliate about providing testimony or comments to an agency, and other
written contacts with an institution or affiliate based on several
considerations. In this regard, existing regulations generally require
an insured depository institution to maintain written comments in its
CRA public file for a period of three years.\13\ The agencies'
examination schedules also generally call for the agencies to evaluate
the CRA performance of large insured depository institutions every 3
years. Regulations issued by the Office of Management and Budget and
applicable to Federal agencies also discourage any collection of
information that would require regulated entities to retain records for
more than three years.\14\
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\13\ See 12 CFR 25.43(a)(1) (OCC); 12 CFR 228.43(a)(1) (Board);
12 CFR 345.43(a)(1) (FDIC); and 12 CFR 563e.43(a)(1)(OTS).
\14\ See 5 CFR 1320.5(d)(2)(iv).
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The agencies selected the one year period for oral communications
with an insured depository or affiliate (other than those relating to
agency comments or testimony under the circumstances described above)
based on several other considerations. One consideration was that many
commenters suggested a time period in the one year range. Also, a
shorter time period for oral communications with an insured depository
institution or affiliate recognizes that, as a practical matter, oral
communications are harder to monitor and remember than written
communications. The agencies believe, however, that insured depository
institutions and affiliates are more likely to document and remember
oral communications with a NGEP that concern providing comments or
testimony to a Federal banking agency where such communications also
involve a request to, or agreement by, the institution or affiliate to
take additional actions in fulfillment of the CRA. Accordingly, the
agencies have included such oral communications in the three year
period described above.
The agencies believe these time frames provide reasonable assurance
that the communication and the agreement are not connected and would
not impose an undue burden on the parties. Moreover, commenters
indicated that where a CRA communication occurs it is most often occurs
immediately before the parties enter into an agreement. This contact
period is well within the time periods adopted by the rule.
d. Additional Exemptions. A number of commenters requested that the
Board exercise the authority granted by the CRA Sunshine provisions to
provide exemptions for certain types of agreements that may involve a
CRA communication.\15\ In particular, commenters requested exemptions
for law firms and consulting firms, trade associations, owners of real
estate that enter into sale or lease agreements with banks, community
development financial institutions (CDFIs), and participants in the
secondary loan market such as government-sponsored enterprises.
---------------------------------------------------------------------------
\15\ See 12 U.S.C. 48(h)(3)(B).
---------------------------------------------------------------------------
The agencies believe that many of the concerns raised by these
commenters are addressed by modifications made to the fulfillment, CRA
communication and other sections of the rule. In addition, a wide range
of agreements between insured depository institutions and affiliates
and law firms will not be covered under the final rule because the
definition of ``nongovernmental entity or person'' in the final rule
excludes any person or entity that is acting as a representative of an
insured depository institution or affiliate. (See section ____.11.)
Accordingly, many agreements between law firms and insured depository
institutions and affiliates would not be considered covered agreements
because the agreement provides that the law firm will be acting as a
representative of the institution or affiliate.
In order for agreements to be covered agreements, the NGEP must
have had a CRA communication with an insured depository institution or
affiliate that is a party to the agreement or an affiliate of a party
to the agreement and the agreement must be made pursuant to, or in
connection with, the fulfillment of the CRA, as described below. The
agencies believe that most traditional consulting agreements that
insured depository institutions and affiliates enter into will not meet
both of these requirements.
CDFIs that are insured depository institutions or affiliates of
insured depository institutions are not covered by the CRA Sunshine
provisions to the extent that they have agreements with other insured
depository institutions or affiliates. CDFIs that are not insured
depository institutions or affiliates thereof are considered NGEPs
under the rule (see section ____.11.), and there appears to be no
reason to provide a special exemption for this class of NGEPs. In light
of the other changes and clarifications incorporated in the final rule,
the Board also has not adopted any additional exceptions. The Board
retains the authority to grant exemptions from the CRA communication
provisions if experience in administering these provisions demonstrate
that such action is appropriate.
4. Fulfillment of the CRA for Purposes of the CRA Sunshine Provisions
The CRA Sunshine requirements of section 48 of the FDI Act apply
only to covered agreements. To be a covered agreement, section 48(e)(1)
requires that the agreement be made pursuant to, or in connection with,
``the fulfillment of the Community Reinvestment Act.'' Section 48(e)(2)
defines ``fulfillment'' for this purpose as ``a list of factors that
the appropriate Federal banking agency determines have a material
impact on the agency's decision'' to approve or disapprove an
application for a deposit facility under section 803 of the CRA or to
assign a rating to an insured depository institution under section 807
of the CRA.
In defining fulfillment for purposes of the CRA Sunshine
provisions, the agencies proposed the lending, investment, and service
activities enumerated in the agencies' CRA Regulations as the list of
factors that have a material impact on the relevant agency
decisions.\16\ This list of factors is:
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\16\ 12 CFR 25.21-25.29 (OCC); 12 CFR 228.21-228.29 (Board); 12
CFR 345.21-345.29 (FDIC); 12 CFR 563e.21-563e.29 (OTS).
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(1) Home purchase, home improvement, small business, small farm,
community development, and consumer lending as described in the lending
test portion of the CRA
[[Page 2062]]
Regulations, including loan purchases, loan commitments and letters of
credit;
(2) Making investments, deposits, or grants, or acquiring
membership shares that have as their primary purpose community
development, as described in the investment test portion of the CRA
regulations;
(3) Delivering retail banking services, as described in the service
test portion of the CRA Regulations;
(4) Providing community development services as described in the
service test portion of the CRA Regulations;
(5) For a wholesale or limited-purpose insured depository
institution, community development lending, qualified investments, and
community development services, as described in the community
development test portion of the CRA Regulations for wholesale or
limited-purpose insured depository institutions;
(6) For a small insured depository institution, the lending and
other activities described in the small insured depository institution
performance standard of the CRA Regulations; and
(7) For an insured depository institution whose CRA performance is
evaluated on the basis of a strategic plan, any element of that plan as
described in the strategic plan portion of the CRA Regulations.
The proposed rule also provided that an agreement was in
fulfillment of the CRA if it called for any NGEP to provide or refrain
from providing written or oral comments or testimony to any Federal
banking agency concerning the performance under the CRA of an insured
depository institution or CRA affiliate that is a party to the
agreement or an affiliate of a party to the agreement, or written
comments that are required to be included in the CRA public file of any
such insured depository institution.\17\
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\17\ The CRA Regulations generally require the agencies to
consider public comments and comments included in an institution's
CRA public file when evaluating an institution's CRA performance. In
addition, the CRA Regulations require the agencies to consider
written or oral comments submitted to the agency when acting on
applications for a deposit facility.
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Some commenters suggested that this list of factors was too broad
and covered normal business arrangements that were not intended to be
covered by the CRA Sunshine provisions. In particular, commenters
suggested that, by referring to a list of factors that includes all
home mortgage loans wherever and to whomever made, the proposal could
cover activities for which no CRA performance credit would ordinarily
be granted to the lending institution.
A number of commenters also argued that the agencies should only
consider an activity to be in fulfillment of CRA if the activity is
itself ``material'' to the CRA performance rating of an insured
depository institution or to an evaluation of its CRA performance in an
application for a deposit facility. These commenters suggested, among
other options, that an agreement be considered to be in fulfillment of
CRA only if it involved loans in more than one of the assessment areas
served by the insured depository institution, loans of significant
amounts based on the size of the institution, or activities that would
change the CRA rating of the institution.
The CRA Sunshine statute specifically defines ``fulfillment'' to
mean ``a list of factors that the appropriate Federal banking agency
determines have a material impact on the agency's decision'' to act on
an application for a deposit facility or assign a CRA rating. Under the
terms of the statute, the agency must identify factors that have a
material impact. The statute determines the threshold of amounts of
resources that are sufficient to trigger the CRA Sunshine requirements.
For this reason, the agencies did not adopt the suggestion of
commenters that the agencies modify the list of factors to include a
measure of the size of an activity.
The agencies recognize, on the other hand, that the list of factors
in the original proposal was very broad and could be read to cover
activities that do not implicate the purposes of the CRA Sunshine
provisions. To address this, the final rule has been amended to provide
that performance of a listed activity, other than providing or
refraining from providing CRA-related comments to an agency or
providing comments that must be included in the institution's CRA
public file, is considered to be in fulfillment of the CRA for purposes
of the CRA Sunshine provisions only if the activity is of the type that
is likely to receive favorable consideration by a Federal banking
agency in evaluating the performance under the CRA of the insured
depository institution that is a party or an affiliate of a party to
the agreement.
This is intended as a general test that does not turn on whether or
not the activity in fact receives credit at the next CRA performance
examination or is considered as part of a review of CRA performance in
a future application for a deposit facility. Instead, an insured
depository institution or NGEP can make this judgment on the basis of
general experience with the CRA performance review process for the
particular type of insured depository institution. An insured
depository institution is likely to receive favorable consideration for
an activity if the activity (1) received favorable consideration at the
institution's previous CRA performance examination, (2) would address a
deficiency that an agency cited in the most recent public evaluation of
the CRA performance of the institution, or (3) is of the type that is
favorably considered by the agencies in reviewing the CRA performance
of comparable insured depository institutions. For example, under item
(3), an activity conducted by a small, wholesale or limited-purpose
insured depository institution (as defined in the CRA Regulations)
would likely receive favorable consideration if the agencies favorably
consider such an activity when reviewing the CRA performance of other
small, wholesale or limited-purpose institutions, respectively.
Home mortgage lending in low- and moderate-income neighborhoods in
an insured depository institution's assessment area typically is
considered favorably. On the other hand, home mortgage lending in
middle- and upper-income neighborhoods, while taken into account in
determining the size and scope of an institution's lending activities
under the CRA Regulations, generally does not receive favorable
consideration. However, the context in which the insured depository
institution operates may dictate otherwise. For example, this would be
the case if the institution operates only in middle- and upper-income
areas or makes loans only in high cost areas.
In focusing on activities that are likely to receive favorable
consideration, the agencies recognize that there is a difference
between the purpose of the CRA Regulations, which must broadly take
account of the context in which an insured depository institution
operates, and the purpose of the CRA Sunshine provisions. The agencies
do not intend the list of factors under the CRA Sunshine provisions in
any way to indicate any change in the information that the agencies
review under the CRA Regulations or to affect in any way the manner in
which examinations are conducted or CRA performance ratings given.
Accordingly, section ____.4 specifically provides that the term
``fulfillment of the CRA'' is only defined for purposes of the CRA
Sunshine regulation. In addition, as discussed above, section ____.1(c)
provides that the final rule does not affect in any way the CRA, the
CRA Regulations or any agency's interpretations or
[[Page 2063]]
administration of the CRA or CRA Regulations.
As noted above, the final rule also provides that the list of
factors representing fulfillment of the CRA for purposes of the CRA
Sunshine provisions includes providing or refraining from providing
oral or written comments or testimony to an agency concerning the
performance under the CRA of an insured depository institution that is
a party to an agreement or that is an affiliate of a party to an
agreement. Providing or refraining from providing written comments
concerning the performance under the CRA of an insured depository
institution that is a party to an agreement or that is an affiliate of
a party to an agreement where the comments must be included in the
institution's CRA public file also is always a factor that represents
fulfillment of the CRA. Providing oral or written comments or testimony
to an agency concerning the adequacy of an institution's CRA
performance or providing written comments that must be included in the
institution's CRA public file are activities that are always considered
to be in fulfillment of the CRA under the final rule, without regard to
whether the communication comments favorably or unfavorably on the CRA
performance of the institution.
The terms of a written agreement generally determine whether the
contract, arrangement or understanding is in fulfillment of the CRA.
However, the parties to a written agreement may not avoid coverage
under the Act by reaching an oral understanding, such as, for example,
an understanding that a party will submit (or refrain from submitting)
oral or written CRA-related comments or testimony to an agency or
written comments to an insured depository institution that would have
to be included in the institution's CRA public file, and excluding this
understanding from the terms of the written agreement.
Commenters generally supported the original proposal to exclude
from the list of factors activities designed to ensure compliance with
the Federal laws that prohibit discriminatory or other illegal credit
practices, such as the Equal Credit Opportunity Act (15 U.S.C. 1691 et
seq.) and the Fair Housing Act (42 U.S.C. 3601 et seq.). Commenters
generally agreed that inclusion of these activities in the list of
factors could have an unintended and detrimental impact on compliance
with and enforcement of the fair lending laws by, for example,
discouraging agreements to hire ``mystery shoppers'' to test the
institution's compliance with the fair lending laws or agreements to
settle a fair lending complaint and improve fair lending performance.
Accordingly, the list of factors has not been changed to include these
or other activities.
5. Value
An agreement is subject to the CRA Sunshine provisions only if it
calls for an insured depository institution or affiliate to provide to
one or more persons cash payments, grants, or other consideration of
more than $10,000 in any calendar year, or to make loans that have an
aggregate principal amount of more than $50,000 in any calendar year.
The statutory threshold is based on the total value of payments and
loans provided for under the agreement and does not require that these
payments or loans actually be made to a party to the agreement.\18\
---------------------------------------------------------------------------
\18\ See 12 U.S.C. 1831y(e)(1)(A)(i).
---------------------------------------------------------------------------
The final rule follows the proposed rule in providing that all cash
payments, grants, consideration or loans provided by an insured
depository institution or affiliate under the agreement, including
amounts provided to individuals or entities that are not parties to the
agreement, will be considered in determining whether an agreement meets
the rule's dollar thresholds. However, the rule provides that if an
agreement includes a loan, extension of credit or loan commitment that,
if done separately, would be exempt from coverage and also provides for
the institution or affiliate to provide other funds or resources, the
parties may exclude the exempt loan, extension of credit or loan
commitment when determining if the agreement meets the dollar
thresholds of the rule. (See section ____.2(e)(2) of the rule and the
discussion under section III.A.2.b. above concerning qualifying loans).
Under the final rule, an agreement that provides for payments to be
made in any calendar year in excess of the dollar thresholds
established by the statute is a covered agreement for its entire term.
The agencies believe that using a calendar year period for these
calculations should facilitate compliance with the rule by providing
all parties to a covered agreement a uniform basis for determining
whether the agreement is covered by the rule and because the terms of
an agreement may not coincide with the parties' fiscal years.
The final rule provides that the annual value of an agreement that
does not have a fixed schedule of payments is considered to be the
entire value of the agreement. (See section ____.2(e)(1).) Commenters
were mixed in their view of how to determine the value of a multi-year
agreement that does not specify when payments should be made. Some
commenters believed that the annual value of these agreements should be
determined by amortizing the total value over the life of the
agreement, or by reference to actual disbursements, while others
suggested that the entire value be credited to the first year of the
agreement. The final rule credits the entire value of this type of
agreement to the first year of the agreement. This approach is the
easiest to calculate and is the least likely to cause an agreement
unexpectedly to become a covered agreement.
The agencies requested comment on how to value an agreement that
does not specify the amount of payments, grants, loans or other
consideration to be provided under the agreement, such as an agreement
for an insured depository institution to open a branch or to begin
offering a new loan product. Commenters that addressed this issue
suggested allowing the parties to estimate the value of the agreement
in these cases or to assume that the agreement had no value.
In circumstances where an agreement does not specify the amount of
payments, grants, loans or other consideration to be provided under the
agreement, the agencies believe that the parties must reasonably
estimate the value of the agreement. The final rule allows insured
depository institutions that choose to report a list of covered
agreements to report the estimated value of the agreement at that time
(see section III.B.3. below).
The following are examples of the value provisions of the rule.
These examples, which are not included in the rule, illustrate only the
application of the dollar thresholds of the rule, and assume that the
agreement otherwise qualifies as a covered agreement.
Example 1: An insured depository institution enters into a
written agreement with a small business investment company pursuant
to which the institution will invest $25,000 in the company. Since
the agreement does not establish a schedule of payments, the entire
$25,000 is deemed to be provided in the first year. Accordingly, the
agreement meets the dollar threshold criterion to be a covered
agreement.
Example 2: An insured depository institution and a community
organization enter into a written agreement pursuant to which the
institution will invest $1 million in a state-sponsored investment
fund that supports affordable housing initiatives for low- and
moderate-income individuals during the next year. The community
organization will not receive any funds or other resources from the
insured depository institution or its affiliates under the
[[Page 2064]]
agreement. The agreement meets the value threshold criterion for a
covered agreement under the proposed rule because the value of the
agreement for purposes of the CRA Sunshine provisions does not
depend on who receives payments or resources under the agreement.
Example 3: An affiliate of an insured depository institution
provides a $100,000 loan to an association of small businesses
pursuant to a written agreement. The loan is on market terms and not
for purposes of re-lending. The agreement also provides for the
affiliate to make a $5,000 grant to the local chamber of commerce's
small business incubator. Because the loan is made on market terms
and not for purposes of re-lending, the loan would be an exempt
agreement under the rule if it were a separate agreement (see
section ____.2(c)(2)). Accordingly, the value of the loan may be
excluded in determining the value of the agreement. After excluding
the loan, the agreement would not meet the dollar criterion of the
rule.
Example 4: An insured depository institution and a NGEP enter
into a written agreement that requires an affiliate of the insured
depository institution to provide the organization with a grant of
$5,000 in 2001, $8,000 in 2002, and $11,000 in 2003. The agreement
exceeds the dollar threshold criterion of the rule because the
agreement provides for payments in excess of $10,000 during 2003.
Assuming the agreement meets the other requirements of the rule and
is not otherwise exempt, the agreement is a covered agreement for
its entire term.
6. Related Agreements Considered a Single Agreement
In two circumstances, section 48(e) requires that separate
agreements or contracts be aggregated for purposes of determining
whether the agreements--taken as a whole--meet the definition of a
covered agreement.\19\ The agencies received very few comments
concerning the aggregation provisions of the proposed rule. Some
commenters stated that the aggregation rules should be deleted or
should apply only when necessary to prevent circumvention of the CRA
Sunshine provisions. The agencies have retained the aggregation rules
included in the final rule because the CRA Sunshine provisions require
the aggregation of agreements in certain circumstances, and excluding
the aggregation principles from the final rule would require
institutions and NGEPs to consult both the statute and the rule to
determine compliance with those provisions.
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\19\ See 12 U.S.C.1831y(e)(1) and (2).
---------------------------------------------------------------------------
Other commenters requested clarification of certain aspects of the
aggregation rules. Those matters are addressed below.
a. Agreements entered into by the same parties. Under the final
rule, all written contracts, arrangements, or understandings that are
entered into by an insured depository institution or affiliate of an
insured depository institution will be considered to be part of a
single agreement if the contracts, arrangements, or understandings are
entered into with the same NGEP within a 12-month period and each
agreement is in fulfillment of the CRA. This aggregation rule applies
to all written agreements entered into during the 12-month period by
the same NGEP on the one hand, and any part of the same organization,
including an insured depository institution and any of its affiliates,
on the other hand. The following examples illustrate this aggregation
principle and assume that a CRA communication has occurred before each
agreement.
Example 1: In November, an insured depository institution enters
into a written agreement with Community Development Organization,
Inc. pursuant to which the institution makes an $8,000 investment in
the organization. In April of the next year, an affiliate of the
insured depository institution and Community Development
Organization, Inc. enter into a written agreement under which the
affiliate makes an additional $8,000 investment in the organization.
For purposes of this example, both investments are assumed to be
qualified investments under the CRA Regulations. The separate
agreements must be aggregated under the rule and the combined
agreement meets the $10,000 dollar threshold of the rule.
Accordingly, the agreements are jointly considered a covered
agreement.
Example 2: In September, an insured depository institution
orally agrees to donate $15,000 of computer equipment to a local
housing organization. In January of the following year, the
institution and organization enter into a written agreement for the
institution to make a $5,000 CRA qualified investment in a local
housing project that is eligible for low-income housing tax credits.
The agreements do not need to be aggregated under the rule because
the September agreement was not in writing.
Example 3: In February, an insured depository institution enters
into a written agreement with Partnership A for the institution to
make a $9,000 grant to Partnership A for the purpose of
rehabilitating affordable housing units. In August of the same year,
an affiliate of the insured depository institution enters into a
written agreement with Partnership A under which the affiliate makes
a payment of $9,000 so that its employees may have access to the
child care center operated by Partnership A. The August agreement is
not in fulfillment of the CRA. Accordingly, the two agreements would
not be aggregated under the rule.
b. Substantively Related Contracts. Section 48(e)(1)(A)(ii)
requires the aggregation of separate but ``substantively related
contracts'' even where the contracts are entered into with different
NGEPs. Unlike the aggregation rule discussed above, the rule
aggregating ``substantively related contracts'' applies only to
separate, written contracts and does not apply to other types of
written arrangements or understandings.
The rule defines written contracts entered into by an insured
depository institution or any of its affiliates as ``substantively
related'' if the contracts were negotiated in a coordinated fashion.
The rule does not require that the separate contracts each be in
fulfillment of the CRA or that the parties to the contracts (other than
the banking organization) be the same. Thus, the rule prevents parties
from avoiding the disclosure and reporting obligations of the statute
by separating out from an agreement payments or grants that may not
themselves be in fulfillment of the CRA. The following examples
illustrate this aggregation principle and assume that a CRA
communication occurred before each contract.
Example 1: Two housing organizations jointly approach an insured
depository institution to obtain funding. A representative of the
insured depository institution meets with both organizations at the
same time to discuss their funding needs. The institution enters
into a written contract with one organization to provide it with
$9,000 for the purpose of rehabilitating affordable housing units.
The institution enters into a separate written contract with the
other organization to provide the organization with an unrestricted
grant of $9,000. Because the contracts were negotiated in a
coordinated fashion, the contracts must be aggregated under the
rule. When aggregated, the contracts would meet the statute's
$10,000 dollar threshold and each contract would be a covered
agreement.
Example 2: A bank holding company announces its intention to
acquire an insured depository institution. A Florida-based group and
a California-based group independently approach the bank holding
company to seek funding for specific projects and separately
negotiate written contracts with the bank holding company. The
contracts would not be aggregated under the rule, and each contract
would be a covered agreement only if that contract on its own met
the requirements of the rule.
7. Multiparty Agreements
The agencies requested comment on how the rule should apply in
circumstances where a covered agreement involves several parties and a
CRA communication has been made by or concerning only one of the
parties. This issue arises where several NGEPs enter into a covered
agreement with an insured depository institution and only one of the
entities or persons has made a CRA communication or where a NGEP has a
CRA communication concerning one insured depository institution and
[[Page 2065]]
subsequently enters into a covered agreement jointly with the
institution and several other unaffiliated insured depository
institutions. Several commenters indicated that the disclosure and
reporting requirements of the rule should only apply to parties to a
covered agreement that have engaged in a CRA communication.
The final rule provides that a NGEP that is a party to a covered
agreement that involves multiple NGEPs is not required to comply with
the requirements of the rule if two requirements are met. (See section
____.3(d).) First, the NGEP must not have had a CRA communication
concerning any insured depository institution or affiliate that is a
party to, or an affiliate of a party to, the agreement. Second, no
officer, employee or representative of the NGEP identified in section
____.3(b)(4) of the rule may have knowledge at the time the agreement
is entered into that another NGEP that is a party to the agreement has
had a CRA communication. Similarly, an insured depository institution
or affiliate that is a party to a covered agreement that involves
multiple insured depository institutions or affiliates is not subject
to the disclosure and reporting requirements if (1) no NGEP that is a
party to the agreement has had a CRA communication with or concerning
the institution or affiliate, and (2) no officer or employee of the
institution or affiliate identified in section ----.3(b)(3)(i) has
knowledge that the NGEP has had a CRA communication with another
insured depository institution or affiliate that is a party to the
agreement. In the context of multiparty agreements, covering parties
that have knowledge of a CRA communication by other parties to the
agreement assures that parties do not avoid the requirements of the CRA
Sunshine provisions by refraining from making a CRA communication
because the party is aware that the communication has already been made
by another party.
B. Disclosure of Covered Agreements
Section 48(a) requires that each party to a covered agreement fully
disclose the agreement in its entirety and make the full text of the
agreement available to the public and the appropriate agency with
supervisory responsibility over the relevant insured depository
institution.\21\ The disclosure requirements of section 48 apply only
to covered agreements entered into after November 12, 1999.\22\
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\21\ 12 U.S.C. 1831y(a).
\22\ The rule includes special transition provisions governing
the disclosure of covered agreements entered into after November 12,
1999, but before the effective date of the rule. See section III.D
below.
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1. Disclosure to the Public
Section ____.6 of the final rule requires that each party to a
covered agreement make a complete copy of the agreement available to
any member of the public upon request. A covered agreement must be made
available during the entire term of the agreement and the 12 month
period following expiration of the agreement, without regard to whether
funds are paid or received under the agreement during the year in which
a request for the agreement is made. A party may charge the requestor
for the costs of copying and sending an agreement, so long as the fees
are reasonable.
Commenters generally supported having maximum flexibility to make
covered agreements available to the public and to charge requestors
reasonable fees to cover the costs of making covered agreements
available.\23\ Accordingly, the final rule does not prescribe any
particular method a party must employ in making a covered agreement
available to the public. The agencies expect that parties to covered
agreements will employ methods of making agreements available that will
not require requestors to go through unreasonable efforts to obtain the
agreements. For example, a party may make a covered agreement available
to any individual or entity by mailing it to the requestor. A party
also may make an agreement available to an individual or entity with
access to the Internet by posting the agreement on a publicly
accessible website or to members of the public within a local
geographic area by making the agreement available at an office within
that area. In addition, a party may choose to publish a list of its
covered agreements and provide the full text of an agreement only to
any individual or entity that requests a particular agreement
identified in the list.
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\23\ Some commenters questioned whether a party to a covered
agreement may also charge a requestor for the cost of searching its
records for covered agreements. The final rule, like the provisions
of the CFA Regulations governing the public availability of
information in an insured depository institution's CRA public file,
does not authorize the recovery of search costs. See 12 CFR 25.43
(OCC); 12 CFR 228.43 (Board); 12 CFR 345.43 (FDIC); 12 CFR 563e.43
(OTS).
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Several commenters requested clarification concerning how a party
should comply with the statute's public disclosure requirement when a
covered agreement consists of or involves multiple documents. For
example, commenters questioned whether all of the supporting
documentation relating to a loan or grant must be disclosed. The final
rule follows the statute and requires only that the written contract,
arrangement, or understanding be disclosed and does not require the
disclosure or supporting documentation. When the covered agreement
consists of a single document, that document must be disclosed. When
the covered agreement consists of or is reflected by multiple
documents, the party may disclose all of the written documentation
relating to the agreement or only those documents that set forth the
primary terms of the agreement, including (1) the names and addresses
of the parties to the agreement; (2) the amount of any payments, fees,
loans, or other consideration to be made or provided by any party to
the agreement; (3) any description of how the funds or other resources
provided under the agreement are to be used; and (4) the term of the
agreement (if the agreement establishes a term).
Several commenters requested that the rule establish a fixed period
of time, such as 30 days, within which a party must respond to a
request for a covered agreement. The final rule follows the text of
section 48 and does not specify a time period for responding to public
requests for an agreement. The agencies expect that the parties will
promptly respond to requests from the public for covered agreements.
As with the proposed rule, the final rule gives discretion to an
insured depository institution to fulfill its public disclosure
obligation by placing a copy of a covered agreement in its CRA public
file and making it available in accordance with the procedures set
forth in the CRA Regulations relating to public files. Several
commenters recommended that affiliates of insured depository
institutions that are parties to covered agreement also be permitted to
disclose a covered agreement to the public by placing it in the CRA
public file of an affiliated insured depository institution. The final
rule allows affiliates to fulfill their disclosure obligations in this
manner so long as the affiliated insured depository institution then
makes the agreement publicly available in accordance with the rules
governing public disclosure of information in the CRA public file. When
an affiliate relies on the CRA public file of an insured depository
institution affiliate to fulfill the disclosure obligations of the
rule, it must refer members of the public that
[[Page 2066]]
request a copy of the affiliate's covered agreements to the affiliated
insured depository institution.
The proposed rule provided that the parties' obligation to make a
covered agreement publicly available terminated 12 months after the end
of the term of the agreement, and the agencies requested comment on
whether this time period should be shorter or longer. Several
commenters stated that the time period proposed was reasonable, while
others advocated a shorter time period or no time period at all after
the term of an agreement. In order to fulfill the purposes of section
48, the agencies believe that the parties to a covered agreement must
make the agreement available to the public for a reasonable period of
time. After reviewing the comments received, the final rule continues
to require covered agreements to be available to the public for a
period of 12 months after the term of the agreement.
2. Treatment of Confidential and Proprietary Information
Section 48(h)(2)(A) directs the agencies to ensure that their
implementing regulations ``do not impose undue burden on the parties
[to a covered agreement] and that proprietary and confidential
information is protected.''\24\ This provision must be read in harmony
with section 48(a), which requires that a covered agreement ``shall be
in its entirety fully disclosed, and the full text thereof made
available * * * to the public.''\25\ Other provisions of section 48
require the reporting of the terms and value of covered agreements, the
identity of the parties to the agreement, and the uses of funds and
resources provided under covered agreements.
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\24\ 12 U.S.C. 1831y(h)(2)(A).
\25\ 12 U.S.C. 1831y(a).
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The proposed rule provided that a party could withhold information
contained in a covered agreement from public disclosure only if the
party received a determination from the relevant supervisory agency
that such information could be withheld by the agency under the Freedom
of Information Act (5 U.S.C. 552) (FOIA). The agencies noted, moreover,
that the Act's directive that terms of covered agreements be made
available to the public could require disclosure of some types of
information that an agency might normally be able to withhold from
disclosure under the FOIA.
The agencies requested comment on a number of issues associated
with the disclosure of potentially confidential and proprietary
information in covered agreements, including the likelihood that
covered agreements would contain confidential and proprietary
information, whether FOIA standards should be applied in determining
whether information can be withheld, and whether alternative procedures
could be adopted.
Commenters indicated that covered agreements may often contain
information they ordinarily consider to be confidential or proprietary,
such as information about new and innovative programs an insured
depository institution is offering, underwriting standards for loans,
competitive pricing information, or personal data that would otherwise
be protected under applicable privacy rules. Some commenters expressed
concern that the requirement to disclose publicly covered agreements
could harm their competitive position or dissuade insured depository
institutions and their affiliates from entering into agreements with
NGEPs that are in fulfillment of the CRA.
Many commenters indicated that requesting a determination of
whether information can be withheld from disclosure from the relevant
supervisory agencies would be burdensome and time consuming. They
suggested the agencies streamline the process for obtaining such
determinations or, alternatively, provide a list of information that a
party could withhold from disclosure without obtaining an agency
determination. Many commenters expressed support for using the FOIA as
the standard for determining whether information can be withheld from
public disclosure.
In light of the comments received, the agencies have revised the
procedures for withholding information from public disclosure to
clarify the process for determining whether information can be withheld
from public disclosure and limit the circumstances in which the
relevant supervisory agency is involved in making the determination. As
discussed above, section 48 directs that certain information in covered
agreements be disclosed. Accordingly, the final rule requires the
disclosure of the following information contained in a covered
agreement:
The names and addresses of the parties to the agreement;
The amount of any payments, fees, loans, or other
consideration to be made or provided by any party to the agreement;
Any description of how the funds or other resources
provided under the agreement are to be used;
The term of the agreement (if the agreement establishes a
term); and
Any other information that the relevant supervisory agency
determines is not properly exempt from public disclosure.
The agencies anticipate making a determination that additional
information in a covered agreement must be disclosed only in response
to a specific request for such a determination. (See section
____.6(b)(4).) Any such request must be in writing and submitted to the
relevant supervisory agency in accordance with its rules concerning the
availability of information.\26\
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\26\ See, 12 CFR Part 4 (OCC); 12 CFR Part 261 (Board); 12 CFR
Part 309 (FDIC); 12 CFR Part 505 and 31 CFR Part 1 (OTS).
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The final rule allows a party to a covered agreement to withhold
from public disclosure any information not described above if the party
believes the relevant supervisory agency could withhold that
information under The FOIA. There is no requirement that the party
obtain a determination from the relevant supervisory agency that such
information can be withheld. Standards the agencies use to determine
whether they can withhold information in their records from public
disclosure records are contained in subsection (b) of The FOIA (5
U.S.C. 552(b)).
With regard to the disclosure of information the agencies receive
under the final rule, including copies of covered agreements and annual
reports, section ____.8 provides that such information will be made
available in accordance with The FOIA and the rules regarding the
availability of information of the relevant supervisory agency.
3. Filing of Covered Agreement With Agencies
Section 48(a) also requires each party to a covered agreement to
make the agreement available to the appropriate agency. The proposed
rule required each insured depository institution or affiliate that is
a party to a covered agreement to file a complete copy of the agreement
with each relevant supervisory agency within 30 days after entering
into the agreement. NGEPs were obligated to file a covered agreement
with a relevant supervisory agency within 30 days of receiving a
request from the agency.
Some commenters requested that the agencies allow insured
depository institutions and affiliates, like NGEPs, to make a covered
agreement available to the relevant supervisory agency only upon an
agency's request. Others suggested that the rule allow insured
depository institutions and affiliates the option of filing with the
agencies either
[[Page 2067]]
copies of covered agreements or a list of their covered agreements.
Commenters also suggested that the agencies allow insured depository
institutions and affiliates to file covered agreements with the
agencies on a periodic basis, such as once each quarter or once each
year, rather than 30 days after entering into each agreement, or by
placing agreements in an institution's CRA public file.
The agencies believe that it is important for the agencies to
receive notice when parties enter into a covered agreement and to be
able to gain prompt access to the covered agreement. Such notice and
access allow the agencies to monitor compliance by the parties with the
disclosure and reporting requirements of section 48 and respond to
requests from interested members of the public for copies of, or
information related to, covered agreements. The agencies, however, have
sought to streamline the agency disclosure obligations imposed on
insured depository institutions and affiliates in a manner consistent
with these principles.
In particular, the final rule allows an insured depository
institution or affiliate to fulfill its agency disclosure obligation by
filing, within 60 days after the end of each calendar quarter, either a
complete copy of each covered agreement entered into during the
calendar quarter, or a list of all covered agreements entered into
during the calendar quarter. If the institution or affiliate elects to
file a list of agreements with the agency, the li |
