FDIC Federal Register Citations

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 25
[Docket No. 04-06]
RIN 1557-AB98

FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R-1181]

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 345
RIN 3064-AC50

DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563e
[No. 2004-04]
RIN 1550-AB48

Community Reinvestment Act Regulations

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board);
Federal Deposit Insurance Corporation (FDIC);
Office of Thrift Supervision, Treasury (OTS).

ACTION: Joint notice of proposed rulemaking.

SUMMARY: The OCC, Board, FDIC, and OTS (collectively, "we" or "the
agencies") have conducted a joint review of the CRA regulations,
fulfilling the commitment we made when we adopted the current Community
Reinvestment Act (CRA or "the Act") regulations in 1995. See 60 FR
22156, 22177 (May 4, 1995). As part of our review, we published an
advance notice of proposed rulemaking (ANPR) on July 19, 2001, seeking
public comment on a wide range of questions. 66 FR 37602 (July 19,
2001).
    This proposal was developed following the agencies' review of the
CRA regulations, which included an analysis of about four hundred
comments received on the ANPR. The comments reflected a general
consensus that fundamental elements of the regulations are sound, but
indicated a profound split over the need for, and appropriate direction
of, change. Community organizations advocated ``updating'' the
regulations with expanded requirements to match developments in the
industry and marketplace; financial institutions were concerned
principally with reducing burden consistent with maintaining or
improving the regulations' effectiveness.
    The agencies believe the regulations are essentially sound, but are
in need of some updating to keep pace with changes in the financial
services industry. Therefore, we are proposing amendments to the
regulations in two areas. First, to reduce unwarranted burden
consistent with the agencies' ongoing efforts to identify and reduce
regulatory burden where appropriate and feasible, we are proposing to
amend the definition of ``small institution'' to mean an institution
with total assets of less than $500 million, without regard to any
holding company assets. This change would take into account substantial
institutional asset growth and consolidation in the banking and thrift
industries since the definition was adopted. It also reflects the fact
that small institutions with a sizable holding company do not appear to
find addressing their CRA responsibilities any less burdensome than a
similarly-sized institution without a sizable holding company. As
described below, this proposal would increase the number of
institutions that are eligible for evaluation under the small
institution performance standards, while only slightly reducing the
portion of the nation's bank and thrift assets subject to evaluation
under the large retail institution performance standards. It would
better align the definition of small institution with agency
expectations when revising the regulations in 1995 about the scope of
coverage for small institutions.
    Second, to better address abusive lending practices \1\ in CRA
evaluations, we are proposing to amend our regulations specifically to
provide that evidence that an institution, or any of an institution's
affiliates, the loans of which have been considered pursuant to Sec. --
--.22(c), has engaged in specified discriminatory, illegal, or abusive
credit practices in connection with certain loans adversely affects the
evaluation of the institution's CRA performance.
---------------------------------------------------------------------------

    \1\ The terms ``abusive'' and ``predatory'' lending practices
are used interchangeably.
---------------------------------------------------------------------------

    Finally, as described below, we expect to address certain other
issues raised in connection with the ANPR through additional
interpretations, guidance, and examiner training. We also propose
several enhancements to the data disclosed in CRA public evaluations
and CRA disclosure statements relating to providing information on loan
originations and purchases, loans covered under the Home Ownership and
Equity Protection Act (HOEPA) and other high-cost loans, and affiliate
loans.
    We encourage comments from the public and regulated financial
institutions on all aspects of this joint notice of proposed
rulemaking, in order to ensure a full discussion of the issues.

DATES: Comments must be received by April 6, 2004.

ADDRESSES: OCC: Please direct your comments to: Docket No. 04-06,
Communications Division, Public Information Room, Mailstop 1-5, Office
of the Comptroller of the Currency, 250 E Street, SW., Washington, DC
20219. However, because paper mail in the Washington, DC, area and at
the OCC is subject to delay, please consider submitting your comments
by e-mail to regs.comments@occ.treas.gov, or by fax to (202) 874-4448.
You can make an appointment to inspect and photocopy all comments by
calling (202) 874-5043.
    Board: Comments should refer to Docket No. R-1181 and may be mailed
to Jennifer J. Johnson, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW., Washington,
DC 20551. Please consider submitting your comments through the Board's
Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm
, by e-mail to regs.comments@federalreserve.gov, or


[[Page 5730]]

by fax to the Office of the Secretary at (202) 452-3819 or (202) 452-
3102. Rules proposed by the Board and other Federal agencies may also
be viewed and commented on at http://www.regulations.gov.

    All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm
as submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (C and 20th
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: Mail: Written comments should be addressed to Robert E.
Feldman, Executive Secretary, Attention: Comments, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
    Delivery: Comments may be hand delivered to the guard station at
the rear of the 550 17th Street Building (located on F Street) on
business days between 7 a.m. and 5 p.m.
    Facsimile: Send facsimile transmissions to fax number (202) 898-
3838.
    E-mail: You may also electronically mail comments to
comments@fdic.gov.
    Public Inspection: Comments may be inspected and photocopied in the
FDICPublic Information Center, Room 100, 801 17th Street, NW.,
Washington, DC 20429, between 9 a.m. and 4:30 p.m. on business days.
    OTS: Mail: Send comments to Regulation Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention: No. 2004-04.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days,
Attention: Regulation Comments, Chief Counsel's Office, Attention: No.
2004-04.
    Facsimiles: Send facsimile transmissions to fax number (202) 906-
6518, Attention: No. 2004-04.
    E-Mail: Send e-mails to regs.comments@ots.treas.gov, Attention: No.
2004-04 and include your name and telephone number.
    Public Inspection: Comments and the related index will be posted on
the OTS Internet Site at http://www.ots.treas.gov. In addition, you may

inspect comments at the Public Reading Room, 1700 G Street, NW., by
appointment. To make an appointment for access, call (202) 906-5922,
send an e-mail to public.info@ots.treas.gov, or send a facsimile
transmission to (202) 906-7755. (Prior notice identifying the material
you will be requesting will assist us in serving you.) Appointments
will be scheduled on business days between 10 a.m. and 4 p.m. In most
cases, appointments will be available the next business day following
the date a request is received.

FOR FURTHER INFORMATION CONTACT: OCC: Michael Bylsma, Director, or
Margaret Hesse, Special Counsel, Community and Consumer Law Division,
(202) 874-5750; or Karen Tucker, National Bank Examiner, Compliance
Division, (202) 874-4428, Office of the Comptroller of the Currency,
250 E Street, SW., Washington, DC 20219.
    Board: Dan S. Sokolov, Senior Attorney, (202) 452-2412; Kathleen C.
Ryan, Counsel, (202) 452-3667; Catherine M.J. Gates, Oversight Team
Leader, (202) 452-3946; or William T. Coffey, Senior Review Examiner,
(202) 452-3946, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
    FDIC: Robert Mooney, Assistant Director, (202) 898-3911, Division
of Compliance and Consumer Affairs; Richard M. Schwartz, Counsel, Legal
Division, (202) 898-7424 or Susan van den Toorn, Counsel, Legal
Division, (202) 898-8707, Federal Deposit Insurance Corporation, 550
17th Street, NW., Washington, DC 20429.
    OTS: Celeste Anderson, Project Manager, Compliance Policy, (202)
906-7990; Theresa A. Stark, Program Manager, Compliance Policy, (202)
906-7054; or Richard Bennett, Counsel (Banking and Finance),
Regulations and Legislation Division, (202) 906-7409, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Introduction

    After considering the comments on the ANPR published on July 19,
2001 (66 FR 37602), the agencies are jointly proposing revisions to
their regulations implementing the CRA (12 U.S.C. 2901 et seq.). The
proposed regulations would revise the definition of ``small
institution'' and expand and clarify the provisions relating to the
effect of evidence of discriminatory, other illegal, and abusive credit
practices on the assignment of CRA ratings.

Background

    In 1977, Congress enacted the CRA to encourage insured banks and
thrifts to help meet the credit needs of their entire communities,
including low- and moderate-income communities, consistent with safe
and sound lending practices. In the CRA, Congress found that regulated
financial institutions are required to demonstrate that their deposit
facilities serve the convenience and needs of the communities in which
they are chartered to do business, and that the convenience and needs
of communities include the need for credit as well as deposit services.
The CRA has come to play an important role in improving access to
credit among under-served rural and urban communities.
    In 1995, when we adopted major amendments to regulations
implementing the Community Reinvestment Act, the agencies committed to
reviewing the amended regulations in 2002 for their effectiveness in
placing performance over process, promoting consistency in evaluations,
and eliminating unnecessary burden. 60 FR 22156, 22177 (May 4, 1995).
The review was initiated in July 2001 with the publication in the
Federal Register of an advance notice of proposed rulemaking (66 FR
37602 (July 19, 2001)). We indicated that we would determine whether
and, if so, how the regulations should be amended to better evaluate
financial institutions' performance under CRA, consistent with the
Act's authority, mandate, and intent. We solicited comment on the
fundamental issue of whether any change to the regulations would be
beneficial or warranted, and on eight discrete aspects of the
regulations. About 400 comment letters were received, most from banks
and thrifts of varying sizes and their trade associations (``financial
institutions'') and local and national nonprofit community advocacy and
community development organizations (``community organizations'').
    The comments reflected a general consensus that fundamental
elements of the regulations are sound, but demonstrated a disagreement
over the need and reasons for change. Community organizations advocated
``updating'' the regulations with expanded requirements to match
developments in the industry and marketplace; financial institutions
were concerned principally with reducing burden consistent with
maintaining or improving the regulations' effectiveness. In reviewing
these comments, the agencies were particularly mindful of the need to
balance the desire to make changes that ``fine tune'' and improve the
regulations, with the need to avoid unnecessary and costly disruption
to reasonable CRA policies and procedures

[[Page 5731]]

that the industry has had to put into place under the current rules.
    We believe the regulations are essentially sound, but susceptible
to improvement. Thus, we are proposing limited amendments. First, to
reduce unwarranted burden, we propose to amend the definition of
``small institution'' to mean an institution with total assets of less
than $500 million, regardless of the size of its holding company. This
would take into account significant changes in the marketplace since
1995, including substantial asset growth and consolidation. As
described below, this proposal will expand the number of institutions
that are eligible for evaluation under the streamlined small
institution test while only slightly reducing the portion of industry
assets subject to the large retail institution test. Second, to better
address abusive lending practices in CRA evaluations, we propose to
amend the regulations specifically to provide that the agencies will
take into account, in assessing an institution's overall rating,
evidence that the institution, or any affiliate the loans of which have
been included in the institution's performance evaluation, has engaged
in illegal credit practices, including unfair or deceptive practices,
or a pattern or practice of secured lending based predominantly on the
liquidation or foreclosure value of the collateral, where the borrower
cannot be expected to be able to make the payments required under the
terms of the loan. Evidence of such practices adversely affects the
agency's evaluation of the institution's CRA performance.

Review of Issues Raised in Connection With the ANPR

    We commenced our review of the regulations in July 2001 with an
ANPR soliciting comment on whether the regulations might more
effectively place performance over process, promote consistency in
evaluations, and avoid unnecessary burden. We solicited comment on the
fundamental issue of whether any change to the regulations would be
beneficial or warranted, and on eight discrete aspects of the
regulations.
    The comments we received suggest that financial institutions and
community organizations agree that the 1995 amendments have succeeded,
at least in part, in shifting the emphasis of CRA evaluations from
process to performance. The comments also appear to suggest general
agreement that:
     Lending is the most critical CRA-covered
activity, although investments and services should be considered in
some form and to some extent;
     Evaluation procedures and criteria should vary
with an institution's size and type;
     An institution's performance should be evaluated
in the area constituting its community;
     Quantitative performance measures are valuable,
though they should be interpreted in light of qualitative
considerations;
     Careful consideration of performance context is
critical; and
     Activities that promote community development,
however defined, should be evaluated as a distinct class.
    The overall content of the comments reflects support for the
general structure and features of the regulations, which we interpret
as implying a general consensus that the regulations are essentially
sound. To be sure, many comments recommended changes in the
regulations. Community organization commenters uniformly contended that
the regulations needed to be ``updated'' and ``strengthened'' to
reflect intervening changes in the marketplace that affected financial
institutions' relationships to their communities.
    Specifically, community organizations sought to extend CRA
performance measurement to include (1) evaluation of the
appropriateness of credit terms and practices; (2) scrutiny of the
performance of nondepository affiliates of depository institutions; and
(3) assessment of institutions' performance everywhere they do
business, including areas without deposit-taking facilities.
    Financial institutions, however, opposed those recommendations,
counseled generally against major change to the regulations, asked that
reforms be accomplished largely through other means (for example,
examiner training), and recommended that any change to the regulations
take into account both process costs and benefits of change. One
financial institution trade association expressed the opinion of most
financial institution commenters that no major changes should be made:
``There is general agreement among our members that we do not want to
embark on another major CRA reform process. We do not believe this
would be in the best interest of the communities or the financial
institutions, as it would entail a major and protracted distraction
from the business of serving community needs.''
    Financial institutions generally favored only those amendments
designed to reduce compliance burden, especially for large retail
institutions, while maintaining or improving the effectiveness of the
regulations. Institutions near in asset size to the small/large
institution threshold of $250 million requested that we raise the
threshold markedly to make them eligible for examination under the
small institution performance standards, and to relieve them of burdens
imposed only on large institutions, such as data reporting and the
investment test. Large institutions consistently urged the agencies to
be more flexible in the evaluation of community development investments
(called ``qualified investments'' by the regulations), including by
making qualified investments optional to one degree or another and by
treating more types of investments as ``qualified investments.''
Community organizations, however, contended that reducing the burdens
associated with the investment test and data collection and reporting
would come at the expense of meeting community credit needs.

Large Retail Institutions: Lending, Investment, and Service Tests

    An institution is deemed ``large'' in a given year if, at the end
of either of the previous two years, it had assets of $250 million or
more or if it is affiliated with a holding company with total bank or
thrift assets of $1 billion or more. An institution that meets that
definition, unless it has been designated ``limited purpose'' or
``wholesale,'' or has opted to be evaluated under an approved strategic
plan, is evaluated under a three-part large retail institution test.
The large retail institution test is comprised of the lending,
investment, and service tests. The most heavily weighted part of that
test is the lending test, under which the agencies consider the number
and amount of loans originated or purchased by the institution in its
assessment area; the geographic distribution of its lending;
characteristics, such as income level, of its borrowers; its community
development lending; and its use of innovative or flexible lending
practices to address the credit needs of low- or moderate-income
individuals or geographies in a safe and sound manner. To facilitate
the evaluation, institutions must collect and report data on small
business loans, small farm loans, and community development loans, and
may, on an optional basis, collect data on consumer loans.
    Under the investment test, the agencies consider the dollar amount
of qualified investments, their innovativeness or complexity, their
responsiveness to credit and community development needs, and the
degree to which they are not routinely provided by private investors.

[[Page 5732]]

    Under the service test, the agencies consider an institution's
branch distribution among geographies of different income levels; its
record of opening and closing branches, particularly in low- and
moderate-income geographies; the availability and effectiveness of
alternative systems for delivering retail banking services in low- and
moderate-income geographies and to low- and moderate-income
individuals; and the range of services provided in geographies of
different income levels, as well as the extent to which those services
are tailored to meet the needs of those geographies. The agencies also
consider the extent to which the institution provides community
development services and the innovativeness and responsiveness of those
services.
    The lending, investment, and service tests each include an
evaluation of community development activities. A community development
loan, community development service, or ``qualified investment'' has a
primary purpose of benefiting low- or moderate-income people with
affordable housing or community services; promoting economic
development by financing small businesses or small farms; or
revitalizing or stabilizing low- or moderate-income areas.
    The ANPR asked whether the three-part test as a whole, each of its
component tests (lending, investment, services), and its community
development component are effective in assessing large institutions'
responsiveness to community credit needs; whether the test is
appropriately balanced between lending, investments, and services; and
whether it is appropriately balanced between quantitative and
qualitative measures.

Balance Among Lending, Investments, and Services

    The three-part test places primary emphasis on lending performance,
and secondary emphasis on investment and service performance. A
majority of community organization commenters that addressed the
question believed that lending should continue to receive more weight
than investments or services. Of financial institutions that addressed
the issue, more than half agreed. The remainder of industry commenters
generally believed either that the components should be weighted
equally or that their weights should vary with performance context. As
discussed below, many financial institutions felt the investment test
is weighted too heavily, while community organizations disagreed.
    Based on our review and consideration of the matter, we are not
proposing to alter the weights of the three tests, which we continue to
believe are appropriate. We address specific concerns about each test
below.

Balance Between Quantitative and Qualitative Measures

    The component tests primarily employ quantitative measures (such as
the number and dollar amount of loans and qualified investments) but
also call for qualitative consideration of an institution's activities,
including whether, and to what extent, they are responsive to community
credit needs and demonstrate innovativeness, flexibility, or
complexity. A large number of community organizations indicated that
the weight given to quantitative factors is about right, though the
same commenters often remarked that the character of activities (for
example, the responsiveness of a loan to credit needs and the risk of
an investment) should be given more weight. A few financial
institutions agreed that quantitative factors receive appropriate
weight, but more institutions indicated that too much weight is given
to quantitative factors and not enough to contextual considerations
such as an institution's business strategy and an activity's
profitability. Some financial institutions and community organizations,
contending that ratings are not sufficiently consistent and
predictable, requested that they be tied to explicit quantitative
performance benchmarks, while others disagreed with that suggestion.
    Several community organizations and financial institutions
expressed concern about some of the qualitative factors specified in
the regulations, particularly the application of the terms
``innovative'' and ``complex.'' These commenters argued that an
evaluation should focus on an activity's contribution to meeting
community credit needs, and that its innovativeness or flexibility
should be seen as a means to that end rather than an end in itself.
They stated that financial institutions should not be downgraded for
failure to demonstrate their activities are innovative or complex.
    Based on our review and consideration of the matter, and as
explained below in the context of the investment test, we may seek to
clarify through interagency guidance how qualitative considerations
should be employed.

Loan Purchases and Loan Originations

    The regulations weigh loan purchases and loan originations equally.
The ANPR sought comment on whether loan purchases should be given less
weight than loan originations. Community organizations generally
favored giving more weight to loan originations than purchases, on the
grounds that originations take more effort and that purchases can be
generated solely to influence CRA ratings rather than for economic
reasons. Financial institutions that addressed the issue generally
stated that equal weighting of purchases and originations improves
liquidity, making credit more widely available at lower prices. The
agencies also sought comment on whether purchases of loans and
purchases of asset-backed securities should be considered under the
same test instead of separately under the lending test and the
investment test, respectively. Some community organizations raised
concerns about the treatment of some types of mortgage-backed
securities as qualified investments.
    To improve ``transparency'' in CRA evaluations, the agencies
propose to distinguish loan purchases from loan originations in a
public evaluation's display of loan data, where pertinent. We would
not, however, weigh loan purchases less than loan originations. We seek
comment on the proposed approach.

Investment Test

    Although a small number of commenters objected to any consideration
of investments under CRA, the comments reveal a general view that
community development-oriented investments (``qualified investments,''
under the regulations) should be considered to the extent they help
meet community credit needs. Commenters, nonetheless, disagreed
significantly about whether the current investment test effectively and
appropriately assesses investments and about the extent to which
assessment of investments should be mandatory or optional.
    Financial institutions commented that the investment test is not
sufficiently tailored to market reality, community needs, or
institutions' capacities. Several financial institutions said there are
insufficient equity investment opportunities, especially for smaller
institutions and those serving rural areas. Some noted that intense
competition for a limited supply of community development equity
investments has depressed yields, effectively turning many of the

[[Page 5733]]

investments into grants; some claimed that institutions had spent
resources transforming would-be loans into equity investments merely to
satisfy the investment test; and some expressed concern that
institutions were forced to worry more about making a sufficient number
and amount of investments than about the effectiveness of their
investments for their communities.
    To address these concerns, many financial institutions favored
abolishing the stand-alone investment test and making investments
optional to one degree or another. Only two financial institutions
expressly supported retaining the separate investment test. Several
financial institutions and most financial institution trade
associations endorsed one or more of the following three alternatives:
(1) Treat investments solely as ``extra credit;'' (2) make investments
count towards the lending or service test; or (3) treat investments
interchangeably with community development services and loans under a
new community development test.
    In contrast, the majority of community organization commenters
urged the agencies to retain the investment test. Many of them claimed
that the problem is more often a shortage of willing investors than an
insufficient number of investment opportunities. Community
organizations also contended that grants and equity investments are
crucial to meeting the affordable housing and economic development
needs of low- and moderate-income areas and individuals. They stated,
for example, that investments support and expand the capacity of
nonprofit community development organizations to meet credit needs. A
few community organizations acknowledged a basis for some of the
financial institutions' complaints concerning the investment test, but
most of those community organizations argued that refining, rather than
restructuring, the large retail institution test would address such
complaints.
    Commenters also split over the appropriateness of the definition of
``community development,'' which is incorporated in the definition of
``qualified investment.'' Financial institutions asked the agencies to
remove from the definition of ``community development'' the requirement
that community development activities target primarily low- or
moderate-income individuals or areas, and expand the definition to
include community-building activities that incidentally benefit low- or
moderate-income individuals or areas. For instance, several financial
institutions contended that any activity that helps ``revitalize and
stabilize'' an area (such as after a natural disaster or a steady
economic decline) should be considered community development, even if
the activity is not located in, or targeted to, low- or moderate-income
communities. Other examples of activities for which they sought
consideration included municipal bonds and grants to cultural
organizations and other charities. In contrast, community organizations
that expressed a view favored retaining the current definition of
``community development'' or narrowing it. For example, many community
organizations sought to limit the ``economic development'' component of
the definition (which consists of financing small businesses or small
farms) to financing minority-owned businesses or farms and businesses
or farms in low- or moderate-income areas.
    Apart from the larger debate about the proper role of an investment
component in the three-part test and the proper definition of qualified
investments, many commenters sought changes to the investment test.
Several financial institutions and trade associations felt that
examiners do not grant enough weight to investments on the books since
the previous examination period. They contended that this practice
creates pressure to make new investments more quickly than the market
generated new investment opportunities, and undermined the supply of
``patient capital.'' A few commenters proposed full consideration for
investments outside assessment areas to promote more efficient
allocation of community development capital. Several financial
institutions, trade associations, and community organizations contended
that insufficient consideration is given to an investment's impact on
the community, while too much weight is placed on its innovativeness or
complexity. Some suggested that the criterion of ``innovative or
complex'' be eliminated or made subservient to the criterion of
``responsiveness * * * to credit and community development needs.''
Some commenters complained of uncertainty about ``how much is enough''
and inconsistency among agencies and areas in evaluating investments. A
few financial institutions and community organizations requested that
the agencies adopt ratings benchmarks (for instance, ratios of
qualified investments to Tier I capital or total assets). Other
commenters opposed benchmarks as unnecessarily restrictive.
    The comments reflect a general consensus that qualified investments
should be considered in some fashion in CRA evaluations for their
ability to meet community credit needs. The premise of the agencies'
adoption of a separate investment test in 1995 was that, for
consideration of investments to be meaningful, they must be treated as
more than mere ``extra credit'' that assured an Outstanding rating for
an institution otherwise rated Satisfactory. Therefore, the separate
investment test embodies an expectation that an institution make such
investments, or their equivalent, where feasible and appropriate.
    The comments and other feedback suggest that the levels and kinds
of expectations under the current investment test sometimes are
unrealistic or unproductive, or at least appear that way. It is
inevitable that the supply of, demand for, and quality of investment
opportunities will vary by region and city; the performance evaluation
is supposed to take those variations into account. We are concerned
that some institutions nevertheless believe they are expected to make
equity investments that are economically unsound. We considered whether
this impression was an unavoidable result of the current structure of
the investment test or an avoidable result of the implementation of
that structure.
    Some commenters suggested that the evaluation of community
development activities under three separate component tests (lending,
investment, service) risks causing institutions to concern themselves
more with meeting perceived thresholds in each component test than with
maximizing community impact. This possibility led us to study
alternatives to the existing three-component structure of the large
retail institution test.
    One alternative we considered was a two-part large retail
institution test consisting of (1) a community development test, which
would integrate community development loans, investments, and services,
and (2) a retail test, which would include retail loans and services.
Under the community development test we considered, different community
development activities (loans, investments, and services) would, at
least in theory, be fungible and interchangeable so that an institution
would have flexibility to allocate its community development resources
among different types of community development activities; a rating on
this test would be based, in part, on some measure of the total amount
of the institution's community development activities.

[[Page 5734]]

    A different two-part large retail institution test we considered
would eliminate the separate investment test and consider investments
within the lending test, where they would be treated similarly to
community development loans.
    Changing the structure of the large retail institution test, as
entailed in those alternatives, would not necessarily yield a
substantial net benefit. Adopting a new test structure might simply
substitute one set of implementation challenges for another. The
existing regulations have been criticized by financial institutions and
community organizations alike for not being clear about ``how much is
enough'' or how much weight an activity carries relative to another. A
restructured large retail institution test would be no less vulnerable
to those criticisms. For example, it would raise the question of how to
compare investments, loans, and services.
    Moreover, the freestanding investment test has become an integral
part of CRA and the community development finance markets. We believe
that evaluation of investment performance under that test has
contributed substantially to the growth of the market for community
development-oriented investments. That market has helped institutions
to spread risk and maximize the impact of their community development
capital. Institutional risk is spread and lowered by instruments such
as securities backed by mortgages to low- and moderate-income
borrowers. The impact of community development capital is maximized by
channeling it through organizations with the knowledge and skills that
optimize its use. Thus, we believe the investment test has encouraged
community development.
    Replacing the investment test might cloud market expectations and
understandings, injecting a degree of uncertainty that could be costly,
not just for financial institutions and community organizations, but
also for local communities. Many commenters pointed out that it took
several years for them to become comfortable with the current CRA
regulations, and it could take several years again for affected parties
to adjust to a new regulatory structure. During that adjustment period,
institutions would likely incur substantial implementation costs, for
instance, to retrain personnel and, possibly, to change data collection
procedures. In weighing those factors, we are mindful of the repeated
cautions from financial institution commenters about the costs of major
changes.
    Thus, we propose to address concerns about the burdens of the
investment test by means other than replacing or restructuring it. As
explained later in this notice, we are proposing to raise the asset-
size threshold at which an institution becomes subject to the large
retail institution test and, therefore, the investment test. This would
respond to comments that smaller institutions at times have had
difficulty competing for investments. As noted earlier, the change
would not materially reduce the portion of the nation's bank and thrift
assets covered by the large retail institution test, including the
investment test.
    The criticisms the commenters made of the investment test appear to
have more to do with the implementation of the regulations than the
regulations themselves. We anticipate developing additional interagency
guidance to clarify that the investment test is not intended to be a
source of pressure on institutions to make imprudent equity
investments. Such guidance also may discuss (1) when community
development activities outside of assessment areas can be weighted as
heavily as activities inside of assessment areas; (2) that the criteria
of ``innovative'' and ``complex'' are not ends in themselves, but means
to the end of encouraging an institution to respond to community credit
needs; (3) the weight to be given to investments from past examination
periods, to commitments for future investments, and to grants; and (4)
how an institution may demonstrate that an activity's ``primary
purpose'' is to serve low- and moderate-income people. We seek comment
on the possible content of such guidance.

Service Test

Service Delivery Methods

    Many commenters addressed the evaluation of service delivery
methods under the service test. Many community organizations commented
that the test should emphasize the placement of bricks-and-mortar
branches in low- and moderate-income areas. A few financial
institutions agreed, but most institutions that addressed the issue
argued that putting less weight on branches and more on alternative
service delivery methods was necessary to adequately measure the
provision of services to low- and moderate-income individuals. Some
community organizations stated that the weight given to alternative
methods should depend on data showing their use by low- and moderate-
income individuals, and a couple of financial institutions agreed that
such data would be useful.
    The comments highlight the fact that a service delivery method's
appropriate weight will vary from examination to examination based on
performance context. Critical factors such as an institution's business
strategy naturally vary over time and from institution to institution.
Examiners can address such variations through their analysis of
performance context. To the extent guidance or examiner training needs
to be improved to ensure that such factors are appropriately addressed
through the performance context, we will do so.

Banking Services and Nontraditional Services for Low- and Moderate-
Income Individuals

    Community organizations believed the service test should show
special concern for the services available to and used by low- and
moderate-income individuals. Many community organizations said that
financial institutions should be required to report data on the
distribution of their deposits by income and other criteria. Many
organizations also said that the service test should give weight to
providing low-cost services and accounts to low- and moderate-income
individuals and areas; a few said that credit for such services and
accounts should depend on data demonstrating that they are used. Many
organizations recommended that ``payday lending'' or ``check cashing''
activities should hurt, or at least not help, an institution's service
test rating, though a few organizations qualified that check cashing
should not prejudice a rating where the fee for the service is
reasonable. Few financial institutions addressed those specific issues,
but many voiced general concerns about increasing data collection
burdens or assessing the appropriateness of a product or service.
    The service test takes into account the degree to which services
are tailored to meet the needs of low- and moderate-income geographies,
whether as ``mainstream'' retail banking services or community
development services. Indeed, an Outstanding rating on the service test
is not available unless an institution's services ``are tailored to the
convenience and needs of its assessment area(s), particularly low- or
moderate-income geographies or * * * individuals'' and the institution
is ``a leader in providing community development services.'' We believe
that those provisions properly encourage institutions to pay close
attention to services for low- and moderate-income people and areas,
and evaluations will

[[Page 5735]]

continue to reflect the effectiveness of these services as appropriate.

Community Development Services

    We also received comment on the definition and weight of community
development services. Some financial institutions asked that the
service test rating depend more on community development services and
less on other elements of the test. Community development services are
limited by the regulations to services that are financial in nature.
Some commenters contended that community development services should
include non-financial services, such as employees' participation in
volunteer home-renovation programs. Many community organizations,
however, opposed broadening the definition. We believe that the
regulations' linking of community development services to services that
are financial in nature is consistent with the purposes of CRA.
Therefore, we are not proposing to change the definition of community
development services or the weight they receive in the service test.

Assessment Areas

    An institution is evaluated primarily on its performance within one
or more assessment areas. An institution's assessment area(s) is/are
the Metropolitan Statistical Area(s) (MSA(s)) or contiguous political
subdivision(s) (such as counties, cities, or towns) that include(s) the
census tracts in which the institution has its main office, its
branches, and its deposit-taking ATMs, as well as the surrounding
census tracts in which it has originated or purchased a substantial
portion of its loans. An institution may adjust the boundaries of an
assessment area to include only those parts of a political subdivision
that it can reasonably serve. But its assessment area(s) may not
reflect illegal discrimination, arbitrarily exclude low- or moderate-
income geographies, extend substantially beyond designated boundaries,
or consist of partial census tracts. Special rules apply to wholesale
and limited-purpose institutions and to institutions that serve
military personnel.
    The ANPR asked whether it was reasonable to continue to anchor the
regulations' definition of ``assessment area'' in deposit-taking
facilities. Community organizations contended that substantial portions
of lending by institutions covered by CRA are nonetheless not subject
to CRA evaluation because of institutions' increasing use of nonbranch
channels (including agencies, the Internet, and telephone) to provide
credit outside of their branch-based assessment areas. They further
commented that an institution's assessment area must include all
commercial channels, not just branches and deposit-taking ATMs. Thus,
many commenters proposed that an institution's assessment areas include
all areas in which the institution has more than a specified share
(many suggested 0.5 percent) of the lending market or deposit market.
    The majority of financial institutions and trade associations that
expressed an opinion about assessment areas endorsed continuing to keep
the assessment areas linked to deposit-taking facilities. Those
commenters opposed mandatory evaluation outside of the communities
served by deposit-taking facilities. Some questioned whether such an
expansion would be consistent with the Act. Others argued that an
institution needs a substantial local presence to understand a
community's needs and to develop and exploit opportunities to serve
those needs, but requested credit for activities they might willingly
conduct outside their assessment areas.
    Few financial institutions suggested that an expansion of the
assessment area definition was necessary to accommodate their choice of
business strategy. To address the challenge of nonbranch institutions,
several commenters recommended subjecting them, like wholesale and
limited-purpose institutions, to a community development test while
continuing to draw assessment areas around their main offices. Several
financial institutions suggested narrowing the current definition by
removing the requirement that assessment areas be delineated around
deposit-taking ATMs because banks do not originate deposit
relationships through ATMs. Others argued that the requirement should
be removed in special circumstances--for example, when ATMs are on the
property of an organization closed to nonemployees.
    No definition of ``assessment area'' will foresee every conceivable
bank or thrift business model. We considered whether the current
definition is suitable to most financial institutions. To a large
extent, nontraditional channels in the market today seem to be used as
complements to, rather than substitutes for, branches and deposit-
taking ATMs. Even with widespread access to the Internet by bank and
thrift customers, few banks or thrifts are Internet-only, without
branches. In fact, it has been reported that some institutions created
with an Internet-only strategy later added branches or deposit-taking
ATMs. The number of branchless banks and thrifts that conduct business
through other channels, such as independent agents, though growing, is
also small. To be sure, traditional retail institutions increasingly
rely on nontraditional channels to take deposits and make loans--
including nonbranch or agency offices, mail, telephone, on-line
computer networks, and agents or employees of affiliated nonbank
companies. Many of those institutions still originate a substantial
portion of their CRA-relevant loans (including the vast majority of
their small business loans) in their branch-based assessment areas,
whether through branches or other means. In short, the definition of
``assessment area'' appears adequate to delineate the relevant
communities of the overwhelming majority of financial institutions.
    Moreover, for institutions that do a substantial portion of their
lending outside branch areas, the agencies have interpreted the
regulations as giving examiners flexibility to address, on a case-by-
case basis, institutions that conduct a substantial part of their
business through nontraditional channels. For instance, an
institution's loans to low- and moderate-income persons and small
business and small farm loans outside of its assessment area(s) will be
considered if it has adequately addressed the needs of borrowers within
its assessment area(s), although such loans will not compensate for
poor lending performance inside the assessment area(s). An institution
with poor retail lending performance inside the assessment area may,
however, compensate with exceptionally strong performance in community
development lending in its assessment area or a broader statewide or
regional area that includes the assessment area. The regulations also
permit an institution to propose a strategic plan tailored to its
unique circumstances.
    Although limitations in the current definition of ``assessment
area'' might grow in significance as the market evolves, we believe any
limitations are not now so significant or pervasive that the current
definition is fundamentally ineffective. Moreover, none of the
alternatives we studied seemed to improve the existing definition
sufficiently to justify the costs of regulatory change. Many of the
alternative definitional changes to assessment area we reviewed were
not feasible to implement, and some of them raised fundamental
questions about the scope and purpose of CRA and entail political
judgments that may be better

[[Page 5736]]

left to elected officials in the first instance.
    For example, we considered community organizations' proposal to
expand an assessment area to include all areas where an institution
does a significant level of business. The implementation questions
raised by the proposal are many and complex, including the following:
Is the relevant type of business deposit-taking, lending, investing, or
two or all three of those types? What is the relevant measure of the
amount of business? Is it the share of the market? If so, how is the
market defined and where are data obtained? Is it the share of the
institution's business? Would an institution, its examiners, and
interested community organizations know sufficiently early where the
institution's business would reach significant levels to adjust their
CRA planning and resource commitments accordingly? How would
institutions, examiners, and community organizations cope with the
possibility that an institution's assessment areas could change
substantially from one examination period to the next? Could
institutions be expected to have enough knowledge, expertise, and
ability in areas where they do not have branches to make informed
decisions about meeting community credit needs and effectively execute
them?
    The agencies also considered comments advocating elimination of the
requirement to delineate assessment areas around deposit-taking ATMs.
ATMs can generate substantial deposits and provide a wide range of
services, often substituting for branches with respect to many
functions.
    For these reasons, the agencies will continue to address
nontraditional institutions flexibly, using such measures as strategic
plans, existing agency interpretations mentioned above and new guidance
as appropriate.

Wholesale and Limited Purpose Institutions

    An institution is a limited-purpose institution if it offers only a
narrow product line, such as credit card or motor vehicle loans, to a
regional or broader market. An institution is a wholesale institution
if it is not in the business of extending home mortgage, small
business, small farm, or consumer loans to retail customers. Both
limited purpose and wholesale institutions are evaluated under a
community development test. Under this test, the agencies consider the
number and amount of community development loans, qualified
investments, or community development services; the extent to which
such activities are innovative, complex, and, in the case of qualified
investments, not routinely provided by private investors; and the
institution's responsiveness to credit and community development needs.
    Most financial institutions that addressed the appropriateness of
the definitions of ``wholesale'' or ``limited purpose'' institution
suggested that the definition of ``limited purpose institution'' should
be expanded. Some said it should not be restricted to institutions with
certain product lines, such as credit cards and auto loans, but should
include any institution, regardless of its product line, that serves a
narrow customer base. A couple of financial institution commenters also
sought expansion of the category of wholesale institutions. Community
organizations, in contrast, contended that these definitions are not
sufficiently restrictive and that the agencies have incorrectly
designated some large retail institutions as wholesale or limited
purpose institutions.
    Commenters also disagreed about extending the community development
test now reserved for limited purpose and wholesale institutions to
additional categories of institutions. Several financial institutions
suggested that non-branch institutions and other nontraditional
institutions be treated as limited purpose institutions eligible for
evaluation under a community development test. Many, but not all,
community organizations opposed extending the test to other types of
institutions.
    Based on our review and consideration of the matter, we are not
proposing any changes to the regulations concerning the definitions of
wholesale and limited purpose institutions or expansion of the
community development test to additional types of institutions.

Strategic Plan

    Every institution has the option to develop a strategic plan with
measurable goals for meeting the credit needs of its assessment
area(s). An institution must informally solicit suggestions from the
public while developing its plan, solicit formal public comments on its
plan, and submit the plan to its supervisory agency for approval with
any written comments from the public and an explanation of how, if at
all, those comments are reflected in the plan.
    Relatively few comments addressed the strategic plan provision.
Most of the financial institutions that addressed the issue said the
option should be retained though modified; a few community
organizations agreed, while a few others said the strategic plan option
should be eliminated. A principal concern of financial institutions was
a perceived lack of flexibility, for instance, to modify their goals as
the economy or their business changes. Of equal concern to them were
the requirements of the plan approval process to solicit public comment
and disclose information they regard as proprietary.
    Based on our review and consideration of the matter, we are not
proposing any changes to the regulations concerning strategic plans.

Performance Context

    Regardless of type, an institution is always evaluated in light of
its performance context, including information about the institution,
its community, its competitors, and its peers. Relevant information
includes assessment area demographics; product offerings and business
strategy; lending, investment, and service opportunities in the
assessment area; institutional capacity and constraints; and
information about the institution's past performance and that of
similarly situated lenders.
    Many commenters from various viewpoints emphasized the importance
of considering performance context in CRA evaluations, but were
critical of how the agencies have developed and used performance
context. Some commented that examiners do not adequately solicit and
incorporate input from community organizations and financial
institutions in the development of performance context, participants do
not have sufficient guidance about what information to present to
examiners to aid in the development of the performance context, and the
guidelines examiners use to determine performance context (such as
selecting an institution's peers) are not transparent. Some commented
that performance evaluations do not adequately tie performance context
to evaluations and that examiners do not give sufficiently nuanced
consideration to an institution's business strategy or local needs.
    Based on our review and consideration of the matter, we believe
that the current regulations provide sufficient flexibility to address
the concerns that have been raised, and that performance context issues
can be addressed adequately through examiner guidance and training.

Data Collection and Reporting

    Large institutions are required to collect and report data on small
business, small farm and community development loans, and to supplement

[[Page 5737]]

Home Mortgage Disclosure Act (HMDA) data with property locations for
loans made outside MSAs. In the ANPR we asked whether these data
reporting requirements are effective and efficient in assessing CRA
performance while avoiding undue burden.
    Most community organizations believed that the data collection and
reporting requirements could be more effective in assessing an
institution's CRA performance. Many of them stated that more detailed
data should be collected on small business and small farm lending,
including race, sex, loan cost, purpose of loan, action taken, and
reasons for denial. Many organizations also asked that the agencies
disaggregate small business and small farm loan data to the census
tract level, and that we identify the census tract and purpose for each
community development loan.
    Many financial institutions commented that the regulations' data
collection and reporting provisions are a significant burden. Some also
said that the data are not useful and fails to accurately represent a
financial institution's efforts to meet credit needs; a few questioned
the agencies' authority to require data collection and reporting. They
suggested that data collection and reporting be eliminated or made
optional. However, other financial institutions commented that no
changes to the regulations' data provisions are necessary.
    We believe existing reporting requirements correctly balance burden
and benefit for the institutions that would remain subject to those
requirements were the definition of ``small institution'' to be amended
as proposed and discussed in detail below.
    The agencies intend to revise the regulations, however, to enhance
the data disclosed to the public. The regulations do not now provide
for disclosure of business and farm loans by geography (census tract)
in the CRA Disclosure Statement the agencies prepare for every
institution's public file. Rather, the regulations provide for
aggregation of that data across tracts within tract-income categories.
As we intend to revise the regulations, they will provide that the
Disclosure Statement would contain the number and amount of the
institution's small business and small farm loans by census tract.
During the 1994-95 CRA rulemaking, we received comments expressing
concern that disclosing loan data at the census tract level might
reveal private information about small-business and small-farm
borrowers. We believe that the risk of revealing such information is
likely very small, and that the benefit to the public of having data at
the census tract level is substantial.
    We seek comment on whether the revision properly balances the
benefits of public disclosure against any risk of unwarranted
disclosure of otherwise private information. We also invite any
specific suggestions for display of the data.

Public File Requirements

    Most community organizations commenting on the public file
requirements believed that the current regulations should be
maintained. A few asked that public files be made available on the
Internet.
    Most financial institutions addressing the issue commented that the
current public file requirement is burdensome and should be revised or
eliminated, though some said no change in the regulations should be
made. Commenters seeking change stated that requests for public files
are rarely presented to branches but, rather, are usually presented to
CRA officers; they suggested that a hard copy of the public files be
maintained at the main office only, and be available elsewhere upon
request. Others suggested streamlining the public file by removing all
but the most essential information (such as an institution's assessment
areas, primary delivery channels, products, services, and last
performance evaluation).
    Based on our review and consideration of the matter, we are not
proposing any changes to the regulations concerning public file
requirements.

Small Institutions

    In connection with the interagency rulemaking that culminated in
the revised CRA regulations adopted in 1995, the agencies received a
large number of comments from small institutions seeking regulatory
relief. These commenters stated that they incurred significant
regulatory burdens and costs from having to document CRA performance,
and that these burdens and costs impeded their ability to improve their
CRA performance. The regulations reflect the agencies' objectives that
the CRA regulations provide for performance-based assessment standards
that minimize compliance burden while stimulating improved performance.
    An institution is considered small under the regulations if, at the
end of either of the two previous years, it had less than $250 million
in assets and was independent or affiliated with a holding company with
total bank and thrift assets of less than $1 billion. Under the
regulations, small institutions' CRA performance is evaluated under a
streamlined test that focuses primarily on lending. The test considers
the institution's loan-to-deposit ratio; the percentage of loans in its
assessment areas; its record of lending to borrowers of different
income levels and businesses and farms of different sizes; the
geographic distribution of its loans; and its record of taking action,
if warranted, in response to written complaints about its performance
in helping to meet credit needs in its assessment areas.
    Most small institutions commented that they were satisfied that the
streamlined test adopted in 1995 substantially reduced their CRA
compliance burden, though many stated that it was too difficult for a
small institution to achieve an Outstanding rating. Some of those
commenters sought a way to receive consideration for their service and
investment activities without undergoing the evaluation of such
activities imposed on large retail institutions. In contrast, community
organizations generally believed the performance standards for small
institutions did not effectively measure the institutions'
contributions to meeting community credit needs.
    Many other commenters stated that the small institution performance
standards should be available to a larger number of institutions.
Generally, these commenters raised many of the same concerns as those
that had been raised in connection with the 1995 rulemaking, primarily
that the regulatory burden of the CRA rules impedes smaller banks from
improving their CRA performance. Many financial institutions suggested
that, to reduce undue burden, the agencies raise significantly the
small institution asset threshold and either raise significantly or
eliminate the holding company limitation. These commenters supported
these suggestions by citing burdens on retail institutions that are
subject to the ``large institution'' CRA tests because they slightly
exceed the asset threshold for small institutions. Financial
institutions singled out two aspects of the large retail institution
test as particularly burdensome for institutions just above the
threshold. First, they asserted that those institutions have difficulty
achieving a Low Satisfactory or better rating on the investment test,
and, as a result, have difficulty achieving an Outstanding rating
overall. Those institutions are said to encounter serious challenges
competing with larger institutions for suitable investments and, as a
result, to sometimes invest in activities inconsistent with their
business

[[Page 5738]]

strategy, their own best financial interests, or community needs.
    Second, financial institutions asserted that data collection and
reporting are proportionally more burdensome for institutions just
above the threshold than for institutions far above the threshold. Some
commenters asserted that institutions that exceed the $250 million
threshold face a threefold increase in compliance costs for CRA due to
the need for new personnel, data collection and reporting costs, and
the particular burdens imposed by the investment test applicable to
large retail institutions. They asserted that raising the asset
threshold for small institutions would be consistent with the agencies'
belief in 1995 that the CRA rules should not impose such regulatory
burden. They also questioned the benefit of reporting small business
and small farm loan data, especially by institutions that serve limited
geographic areas. Some commenters suggested that banks be relieved of
reporting such data and that examiners instead sample files or review
only the data gathered and maintained by banks pursuant to other laws
or procedures (for example, the Call Report or Thrift Financial
Report).
    Financial institutions also commented that changes in the industry
had rendered the threshold out-of-date. They pointed to the
consolidation in the banking and thrift industries through mergers and
acquisitions, and the growing gap between ``mega-institutions'' and
those under $1 billion in assets. They noted that the number of
institutions considered small, and the percentage of overall bank and
thrift assets held by those institutions, has decreased significantly
since the 1995 revisions.
    Financial institutions suggested raising the small institution
asset-size threshold from $250 million to amounts ranging from $500
million to as much as $2 billion. They also generally suggested
eliminating or raising the $1 billion holding company threshold. They
contended that affiliation with a large holding company does not enable
an otherwise small institution to perform any better under the large
retail institution test than a small institution without such an
affiliation.
    Community organizations that commented on the issue opposed
changing the definition of ``small institution.'' These commenters were
primarily concerned that reducing the number of institutions subject to
the large retail institution test--and, therefore, the investment test-
-would reduce the level of investment in low- and moderate-income urban
and rural communities. Community organizations also expressed concerns
about the reduction in publicly available small business and small farm
loan data that would follow a reduction in the number of large retail
institutions.
    The regulations distinguish between small and large institutions
for several important reasons. Institutions' capacities to undertake
certain activities, and the burdens of those activities, vary by asset
size, sometimes disproportionately. Examples of such activities include
identifying, underwriting, and funding qualified equity investments,
and collecting and reporting loan data. The case for imposing certain
burdens is sometimes more compelling with larger institutions than with
smaller ones. For instance, the number and volume of loans and services
generally tend to increase with asset size, as do the number of people
and areas served, although the amount and quality of an institution's
service to its community certainly is not always directly related to
its size. Furthermore, evaluation methods appropriately differ
depending on institution size. For example, the volume of originations
of loans other than home mortgage loans in the smallest institutions
will generally be small enough that an examiner can view a substantial
sampling of loans without advance collection and reporting of data by
the institution. Commenters from various viewpoints tended to agree
that the regulations should draw a line between small and large
institutions for at least some purposes. They differed, however, on
where the line should be drawn.
    The agencies considered the institution asset-size and holding
company asset-size thresholds in light of these comments. When we
adopted the definition in 1995, we indicated that we included a holding
company limitation to reflect the ability of a holding company of a
certain size (over $1 billion) to support a bank or thrift subsidiary's
compliance activities. Anecdotal evidence, however, suggests that a
relatively small institution with a sizable holding company often finds
addressing its CRA responsibilities no less burdensome than does a
similarly-sized institution without a sizable holding company. Thus, we
are proposing to eliminate the holding company limitation on small
institution eligibility.
    Several factors led us to propose raising the asset threshold.
First, with the increase in consolidation at the large end of the asset
size spectrum, the gap in assets between the smallest and largest
institutions has grown substantially since the line was drawn at $250
million in 1995. The compliance burden on institutions just above any
threshold, measured as the cost of compliance relative to asset size,
generally will be proportionally higher than the burden on institutions
far above the same threshold, because some compliance costs are fixed.
But, the growing asset gap between the smallest above-the-threshold
institutions and the largest institutions has meant that the
disproportion in compliance burden has grown on average. Second, the
number of institutions defined as small has declined by over 2,000
since the threshold was set in 1995, and their percentage of industry
assets has declined substantially. Third, some asset growth since 1995
has been due to inflation, not real growth. Fourth, the agencies are
committed to reducing burden where feasible and appropriate.
    For these reasons, we propose to raise the small institution asset
threshold to $500 million, without reference to holding company assets.
Raising the asset threshold to $500 million and eliminating the holding
company limitation would approximately halve the number of institutions
subject to the large retail institution test (to roughly 11% of all
insured depository institutions), but the percentage of industry assets
subject to the large retail institution test would decline only
slightly, from a little more than 90% to a little less than 90%. That
decline, though slight, would more closely align the current
distribution of assets between small and large banks with the
distribution that was anticipated when the agencies adopted the
definition of ``small institution.''
    The proposed changes would not diminish in any way the obligation
of all insured depository institutions subject to CRA to help meet the
credit needs of their communities. Instead, the changes are meant only
to address the regulatory burden associated with evaluating
institutions under CRA. We seek comment on whether the proposal
improves the effectiveness of CRA evaluations, while reducing
unwarranted burden.

Credit Terms and Practices

    The regulations provide that ``evidence of discriminatory or other
illegal credit practices adversely affects'' an agency's evaluation of
an institution's CRA performance and may affect the rating, depending
upon consideration of factors specified in the regulations. Interagency
guidance explains that this provision applies when there is evidence of
certain violations of laws including certain violations of the Equal
Credit Opportunity Act (ECOA), Fair Housing

[[Page 5739]]

Act, Home Ownership and Equity Protection Act (HOEPA), Real Estate
Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), and
Federal Trade Commission Act (FTC Act).\2\ The guidance further
explains that violations of other provisions of consumer protection
laws generally will not adversely affect an institution's CRA rating,
although the violations may be noted in a CRA performance evaluation.
---------------------------------------------------------------------------

    \2\ See ``Interagency Questions and Answers Regarding Community
Reinvestment,'' 66 FR 36620, 36640 (July 12, 2001).
---------------------------------------------------------------------------

    The ANPR noted that some parties have maintained that the CRA
regulations should take more account of whether loans contain abusive
terms or reflect abusive practices, prompting comments supporting and
opposing that view.
    Community organizations uniformly urged expanding CRA's role in
detecting and penalizing credit practices deemed predatory or abusive.
Commenters suggested that the agencies give ``negative'' credit for
loans evidencing unlawful or otherwise abusive practices, exclude such
loans from evaluation, or automatically rate an institution making such
loans lower than Satisfactory.
    Commenters recommended that the regulations themselves specify the
practices that will adversely affect a CRA evaluation, using the list
in the interagency guidance, to include, but not be limited to,
evidence of particular violations of the Equal Credit Opportunity Act,
Fair Housing Act, Home Ownership and Equity Protection Act, Real Estate
Settlement Procedures Act, Truth in Lending Act, and Federal Trade
Commission Act.
    Commenters also recommended the regulations clarify that a number
of particular loan terms or characteristics, whether or not
specifically prohibited by law, that have been associated with
predatory lending practices should adversely affect an institution's
CRA evaluation. These include high fees, prepayment penalties, single-
premium credit insurance, mandatory arbitration clauses, frequent
refinancing (``flipping''), lending without regard to repayment
ability, equity ``stripping,'' targeting low- or moderate-income
neighborhoods for subprime loans, and failing to refer qualifying
borrowers to prime financial products. Commenters also suggested that
certain types of loans, such as payday loans, be categorically treated
as inappropriate and lead to a rating reduction.
    Financial institutions generally opposed determining under the CRA
whether activities beyond those identified in the regulations are
predatory or abusive. They noted that the regulations already expressly
provide that violations of certain laws can adversely affect a rating.
They contended that abusive credit terms and practices generally should
not be regulated through CRA because Congress enacted other laws for
that purpose, and expressed doubt that a workable regulatory definition
of ``predatory lending'' could be developed. They also contended that
the increased compliance costs caused by using CRA examinations to
detect and deter abusive practices would not be justified because
regulated financial institutions are not responsible for the bulk of
abuses. They urged instead that the agencies continue to rely on fair
lending and compliance examinations to detect and deter abuses.
    As concern about lending practices has often focused on
nondepository affiliates, the agencies also solicited and received
comment on the role of affiliate loans in an institution's CRA
evaluation. Nondepository institutions are not covered by the Act, but
the regulations permit an institution to elect, at its option, to have
loans of a nondepository affiliate considered as part of the
institution's own record of performance. An institution must elect
consideration of affiliate loans by assessment area and lending
category. For example, if an institution elects for examiners to
consider residential mortgage loans of a particular affiliate,
examiners will evaluate all residential mortgage loans made in the same
assessment area by any of its affiliates. There can be an ``upside'' to
including an affiliate's activities in an institution's CRA lending
evaluation because affiliate loans are considered favorably in an
institution's lending evaluation, particularly if they increase the
number and amount of lending in low- and moderate-income areas.
    Many community organizations contended that the problem of
predatory lending lies as much or more in nondepository affiliates as
in institutions subject to CRA. They generally urged mandating the
inclusion of affiliate loans in an institution's CRA evaluation,
instead of letting the institution decide whether to include them.
Finally, a few commenters recommended directly subjecting nonbank
affiliates to CRA evaluations and ratings. Financial institutions
opposed those suggestions.
    The agencies believe that predatory and abusive lending practices
are inconsistent with important national objectives, including the
goals of fair access to credit, community development, and stable home
ownership by the broadest spectrum of Americans, and are inconsistent
with the purposes of the CRA. We have acted to attack abusive practices
through rulemakings under various statutes, supervisory policies,
financial literacy education, and community development support.
    The CRA regulations can play a role in promoting responsible
lending practices and discouraging abusive practices, where feasible.
The regulations give the agencies considerable discretion to determine
whether lending activities help to meet the credit needs of the
community consistent with safe and sound practices. The regulations
reward with special consideration efforts to insulate borrowers from
abusive practices.\3\ And, as noted above, evidence of certain illegal
credit practices adversely affects the agency's evaluation of an
institution's CRA performance.
---------------------------------------------------------------------------

    \3\ For example, the agencies look favorably on loan programs
that feature financial education to help borrowers avoid unsuitable
loans; promote subprime borrowers to prime terms when appropriate;
report to consumer reporting agencies; and provide small unsecured
consumer loans in a safe and sound manner, based on borrowers'
ability to repay, on reasonable terms. Credit for ``community
development'' activities also is available under the service and
investment tests for providing or supporting financial education or
affordable loans to low- and moderate-income individuals, the
population most vulnerable to inappropriate practices.
---------------------------------------------------------------------------

    The agencies believe that it is appropriate to enhance how the CRA
regulations address credit practices that may be discriminatory,
illegal, or otherwise predatory and abusive, and that are inconsistent
with helping to meet community credit needs in a safe and sound manner.
Therefore, in response to commenters' recommendations that the
agencies' CRA regulations address predatory lending, whether by
regulated financial institutions or an affiliate, the agencies are
proposing to revise and clarify the regulations in several respects.
    First, the agencies plan to specify in the regulations examples of
certain violations of law that will adversely affect an agency's
evaluation of an institution's CRA performance. The regulations would
specify, in an illustrative list, that evidence of the following
practices adversely affects an agency's evaluation of an institution's
CRA performance: discrimination against applicants on a prohibited
basis in violation of, for example, the Equal Credit Opportunity or
Fair Housing Acts; evidence of illegal referral practices in violation
of section 8 of the Real Estate Settlement Procedures Act; evidence of
violations of the Truth in

[[Page 5740]]

Lending Act concerning a consumer's right to rescind a credit
transaction secured by a principal residence; evidence of violations of
the Home Ownership and Equity Protection Act; and evidence of unfair or
deceptive credit practices in violation of section 5 of the Federal
Trade Commission Act. These laws are listed to give an indication of
the types of illegal and discriminatory credit practices that the
agency may consider. Evidence of violations of other applicable
consumer protection laws affecting credit practices, including State
laws if applicable, may also adversely affect the institution's CRA
evaluation. While no substantive change will result from listing these
examples, specifying in the regulation examples of violations that give
rise to adverse CRA consequences should improve the usefulness of the
regulations by providing critical information in primary compliance
source material.
    The agencies also propose to clarify that an institution's
evaluation will be adversely affected by practices described above in
connection with any type of lending activity described in ----.22(a)
(home mortgage, small business, small farm, consumer, and community
development loans). This would also clarify that the agencies may
consider such practices in connection with consumer loans, even if the
institution did not elect to have such loans included in its
evaluation.
    Second, the agencies propose to explicitly address equity stripping
by revising the regulations to provide that evidence of a pattern or
practice of extending home mortgage or consumer loans based
predominantly on the foreclosure or liquidation value of the collateral
by the institution, where the borrower cannot be expected to be able to
make the payments required under the terms of the loan,\4\ also
adversely affects an institution's overall rating. An institution may
determine that a borrower can be expected to be able to make the
payments required under the terms of the loan based, for example, on
information about the borrower's credit history, current or expected
income, other resources, and debts; preexisting customer relationships
(such as accommodation lending); or other information ordinarily
considered by the institution (or affiliate, as applicable) and as
documented and verified, stated, or otherwise ordinarily determined by
the institution (or affiliate, as applicable).
---------------------------------------------------------------------------

    \4\ Note that other Federal law, such as HOEPA and OCC
regulations (see 12 CFR parts 7 and 34) contain similar, but not
identically worded, prohibitions on such lending practices in
certain circumstances.
---------------------------------------------------------------------------

    This element of the agencies' proposal addresses one of the central
characteristics of predatory lending, and describes a practice clearly
not consistent with helping to meet the credit needs of the community.
For example, home-secured loans made without regard to borrowers'
ability to repay can lead to unwarranted foreclosures, which, in turn,
undermine the entire community. To be sure, equity stripping is not the
only potential lending abuse in home mortgage and consumer loans, but
it is more readily susceptible to clear definition in a regulation than
many other abuses. The agencies believe that other abuses not expressly
prohibited by HOEPA, TILA, RESPA, or ECOA, may be better addressed on a
case-by-case basis under the unfair-or-deceptive standard of the FTC
Act, rather than by regulatory definitions. The FTC Act is particularly
well suited to addressing evidence of predatory lending practices that
are not otherwise prohibited by Federal law. For example, many
practices that have been criticized as predatory and abusive, such as
loan flipping, the refinancing of special subsidized mortgage loans,
other forms of equity stripping, and fee packing, can entail unfair or
deceptive practices that violate the FTC Act.\5\
---------------------------------------------------------------------------

    \5\ See OCC Advisory Letter 2003-2, ``Guidelines for National
Banks to Guard Against Predatory and Abusive Lending Practices,''
February 21, 2003.
---------------------------------------------------------------------------

    As noted above, this aspect of the proposal is limited to home
mortgage loans and consumer loans. It does not cover loans to
businesses. Further, the proposal is not intended to cover loans such
as reverse mortgages that, by their terms, will be paid from
liquidation of the collateral.
    In addition, under the proposed standard, an institution would
determine that a borrower may be expected to be able to make the
payments required under the terms of the loan by considering
information it ordinarily considers in connection with the type of
loan. Depending upon the institution's normal procedures in the
circumstances and consistent with safe and sound underwriting, such
information may or may not be documented and verified. For example,
many institutions ordinarily do not verify or even consider income of
people with high net worth or exemplary records of paying credit
obligations. Note, however, that HOEPA requires lenders to document the
borrower's ability to repay a loan subject to HOEPA, and that HOEPA
violations adversely affect an institution's CRA evaluation.
    The agencies seek comment on whether the inclusion in the
regulations of a provision to address the pattern or practice of making
home mortgage and consumer loans based predominantly on the foreclosure
or liquidation value of the collateral by the institution, where the
borrower cannot be expected to be able to make the payments required
under the terms of the loan, is sufficient or whether a different
formulation of that provision would better discourage abusive lending
practices without risking curtailment of consumers' access to credit.
We also seek comment on whether it is feasible to define any other
specific abuses by regulation in a way that both shields consumers from
the costs of the abuse and avoids inadvertently curtailing the
availability of credit to consumers.
    Third, the agencies propose to clarify that an institution's
evaluation will be adversely affected by discriminatory, other illegal,
or abusive credit practices described in the regulations regardless of
whether the practices involve loans in the institution's assessment
area(s) or in any other location or geography. The regulations
currently provide that evidence of discriminatory or other illegal
credit practices by an institution can adversely affect the
institution's rating, and they do not limit the agencies' consideration
of such evidence to lending within an assessment area.
    Fourth, the proposed revisions would clarify that an institution's
CRA evaluation also can be adversely affected by evidence of
discriminatory, other illegal, and abusive credit practices by any
affiliate,\6\ if any loans of that affiliate have been considered in
the CRA evaluation pursuant to ----.22(c)(1) and (2). Loans by an
affiliate currently are permitted to be included in an institution's
evaluation of an assessment area only, and the proposal would be
similarly limited to affiliate lending practices within any assessment
area. We seek comment on whether the agencies should provide in the
regulation that evidence of discriminatory, other illegal, or abusive
credit practices by an affiliate whose loans have been considered in an
institution's evaluation will adversely affect the institution's rating
whether or

[[Page 5741]]

not the activities were inside any of the institution's assessment
areas.
---------------------------------------------------------------------------

    \6\ An affiliate means any company that controls, is controlled
by, or is under common control with another company. Generally, for
CRA purposes, this includes companies engaged in lending that are
owned and controlled by bank holding companies or thrift holding
companies, as well as companies engaged in lending that are direct
operating subsidiaries of an insured bank or thrift.
---------------------------------------------------------------------------

    The agencies will consider all credible evidence of discriminatory,
other illegal, or abusive credit practices that comes to their
attention. Such information could be obtained from supervisory
examinations (including safety and soundness examinations and
compliance examinations), CRA comments in connection with applications
for deposit facilities, and public sources. However, CRA examinations
themselves generally will not entail specific evaluation of individual
complaints or specific evaluation of individual loans for illegal
credit practices or otherwise abusive lending practices.
    With these proposed changes to the CRA regulations, the agencies
seek to ensure that evidence of predatory and abusive lending practices
are appropriately considered in an institution's CRA evaluation. We
considered suggestions for adopting a more categorical response to
evidence of an illegal credit practice, such as rating the institution
no higher than Needs to Improve. We continue to believe an institution
should be evaluated based on all relevant ratings factors without
mandating a particular rating result. Further, it may be impractical
for the agencies to try to exclude from CRA consideration all loans
originated in connection with an illegal or abusive credit practice
because it could require examiners to identify and segregate each such
loan, and we invite comment on this issue.
    We invite comment on all aspects of the proposed revisions to
section ----28.(c), including the extent to which the proposed
revisions would make CRA evaluations more effective in measuring an
institution's contribution to community credit needs without imposing
undue burden.

Enhancement of Public Performance Evaluations

    A public performance evaluation is a written description of an
institution's record of helping to meet community credit needs, and
includes a rating of that record. An evaluation is prepared at the
conclusion of every CRA examination and made available to the public.
The agencies intend to use publicly available HMDA and CRA data to
disclose the following information in CRA performance evaluations by
assessment area:
    (1) The number, type, and amount of purchased loans;
    (2) The number, type, and amount of loans of HOEPA loans and of
loans for which rate spread information is reported under HMDA (data
that will be available in mid-2005); and
    (3) The number, type, and amount of loans that were originated or
purchased by an affiliate and included in the institution's evaluation,
and the identity of such affiliate.
    These changes should make it easier for the public to evaluate the
lending by individual institutions according to particular factors that
many commenters suggested. They should not impose any burden on
institutions, as it does not call for any change to data collection or
reporting procedures. The agencies seek comment on the extent to which
the enhancements of public CRA performance evaluations described above
will make the evaluations more effective in communicating to the public
an institution's contribution to meeting community credit needs.

Regulatory Analysis

Paperwork Reduction Act

Request for Comment on Proposed Information Collection
    In accordance with the requirements of the Paperwork Reduction Act
of 1995, the Agencies may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number (OCC, 1557-0160; Board, 7100-0197; FDIC, 3064-0092; and
OTS, 1550-0012). The Agencies also give notice that, at the end of the
comment period, the proposed collections of information, along with an
analysis of the comments, and recommendations received, will be
submitted to OMB for review and approval.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the
proper performance of the Agencys' functions, including whether the
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
    (c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
    (d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
    (e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
    At the end of the comment period, the comments and recommendations
received will be analyzed to determine the extent to which the
information collections should be modified prior to submission to OMB
for review and approval. The comments will also be summarized or
included in the Agencies' requests to OMB for approval of the
collections. All comments will become a matter of public record.
    Comments should be addressed to:
    OCC: Public Information Room, Office of the Comptroller of the
Currency, 250 E Street, SW., Mail stop 1-5, Attention: Docket 04-06,
Washington, DC 20219; fax number (202) 874-4448; Internet address:
regs.comments@occ.treas.gov. Due to delays in paper mail delivery in
the Washington area, commenters are encouraged to submit their comments
by fax or e-mail. You can make an appointment to inspect the comments
at the Public Information Room by calling (202) 874-5043.
    Board: Comments should refer to Docket No. R-1181 and may be mailed
to Jennifer J. Johnson, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW., Washington,
DC 20551. Please consider submitting your comments through the Board's
Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm
, by e-mail to regs.comments@federalreserve.gov, or by

fax to the Office of the Secretary at (202) 452-3819 or (202) 452-3102.
Rules proposed by the Board and other Federal agencies may also be
viewed and commented on at http://www.regulations.gov.

    All public comments are available from the Board's Web site at
http://www.federalreserve.gov. gov/generalinfo/foia/ProposedRegs.cfm as

submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (C and 20th
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: Leneta G. Gregorie, Legal Division, Room MB-3082, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429. All comments should refer to the title of the proposed
collection. Comments may be hand-delivered to the guard station at the
rear of the 17th Street Building (located on F Street), on business
days between 7 a.m. and 5 p.m., Attention: Comments/Executive
Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.

[[Page 5742]]

    OTS: Information Collection Comments, Chief Counsel's Office,
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552;
send a facsimile transmission to (202) 906-6518; or send an e-mail to
information collection.comments@ots.treas.gov. OTS will post comments
and the related index on the OTS Internet site at http://www.ots.treas.gov.
 In addition, interested persons may inspect the
comments at the Public Reading Room, 1700 G Street, NW., by
appointment. To make an appointment, call (202) 906-5922, send an e-
mail to publicinfo@ots.treas.gov, or send a facsimile transmission to
(202) 906-7755.
    Title of Information Collection:
    OCC: Community Reinvestment Act Regulation--12 CFR 25.
    Board: Recordkeeping, Reporting, and Disclosure Requirements in
Connection with Regulation BB (Community Reinvestment Act).
    FDIC: Community Reinvestment--12 CFR 345.
    OTS: Community Reinvestment--12 CFR 563e.
    Frequency of Response: Annual.
    Affected Public:
    OCC: National banks.
    Board: State member banks.
    FDIC: Insured nonmember banks.
    OTS: Savings associations.
    Abstract: This Paperwork Reduction Act section estimates the burden
that would be associated with the regulations were the agencies to
change the definition of ``small institution'' as proposed, that is,
increase the asset threshold from $250 million to $500 million and
eliminate any consideration of holding-company size. The two proposed
changes, if adopted, would make ``small'' approximately 1,350 insured
depository institutions that do not now have that status. That estimate
is based on data for all FDIC-insured institutions that filed Call or
Thrift Financial Reports on March 31, 2003. Those data also underlie
the estimated paperwork burden that would be associated with the
regulations if the proposals were adopted by the agencies.
    Estimated Paperwork Burden under the Proposal:
OCC
    Number of Respondents: 2,066.
    Estimated Time Per Response: Small business and small farm loan
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25
hours; Assessment area delineation, 2 hours; Small business and small
farm loan data, 8 hours; Community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium
or third party, 17 hours; Affiliated lending data, 38 hours; Request
for designation as a wholesale or limited purpose bank, 4 hours;
Strategic Plan, 275 hours; and Public file, 10 hours.
    Total Estimated Annual Burden: 223,062 hours.
Board
    Number of Respondents: 950.
    Estimated Time Per Response: Small business and small farm loan
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25
hours; Assessment area delineation, 2 hours; Small business and small
farm loan data, 8 hours; Community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium
or third party, 17 hours; Affiliated lending data, 38 hours; Request
for designation as a wholesale or limited purpose bank, 4 hours; and
Public file, 10 hours.
    Total Estimated Annual Burden: 114,350 hours.
FDIC
    Number of Respondents: 5,341.
    Estimated Time Per Response: Small business and small farm loan
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25
hours; Assessment area delineation, 2 hours; Small business and small
farm loan data, 8 hours; Community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium
or third party, 17 hours; Affiliated lending data, 38 hours; Request
for designation as a wholesale or limited purpose bank, 4 hours; and
Public file, 10 hours.
    Total Estimated Annual Burden: 331,358 hours.
OTS
    Number of Respondents: 958.
    Estimated Time Per Response: Small business and small farm loan
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25
hours; Assessment area delineation, 2 hours; Small business and small
farm loan data, 8 hours; Community development loan data, 13 hours;
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium
or third party, 17 hours; Affiliated lending data, 38 hours; Request
for designation as a wholesale or limited purpose bank, 4 hours; and
Public file, 10 hours.
    Estimated Total Annual Burden: 116,493 hours.

Regulatory Flexibility Act

    OCC: Pursuant to section 605(b) of the Regulatory Flexibility Act,
the OCC certifies that since the proposal would reduce burden and would
not raise costs for small institutions, this proposal will not have a
significant economic impact on a substantial number of small entities.
This proposal does not impose any additional paperwork or regulatory
reporting requirements. The proposal would increase the overall number
of small banks that are permitted to avoid data collection requirements
in 12 CFR part 25. Accordingly, a regulatory flexibility analysis is
not required.
    Board: Pursuant to section 605(b) of the Regulatory Flexibility
Act, the Board certifies that since the proposal would reduce burden
and would not raise costs for small institutions, this proposal will
not have a significant economic impact on a substantial number of small
entities. This proposal does not impose any additional paperwork or
regulatory reporting requirements. The proposal would increase the
overall number of small banks that are permitted to avoid data
collection requirements in 12 CFR part 228. Accordingly, a regulatory
flexibility analysis is not required.
    FDIC: Pursuant to section 605(b) of the Regulatory Flexibility Act,
the FDIC certifies that since the proposal would reduce burden and
would not raise costs for small institutions, this proposal will not
have a significant economic impact on a substantial number of small
entities. This proposal does not impose any additional paperwork or
regulatory reporting requirements. The proposal would increase the
overall number of small banks that are permitted to avoid data
collection requirements in 12 CFR part 345. Accordingly, a regulatory
flexibility analysis is not required.
    OTS: Pursuant to section 605(b) of the Regulatory Flexibility Act,
the OTS certifies that since the proposal would reduce burden and would
not raise costs for small institutions, this proposal will not have a
significant economic impact on a substantial number of small entities.
This proposal does not impose any additional paperwork or regulatory
reporting requirements. The proposal would increase the overall number
of small savings associations that are permitted to avoid data
collection requirements in 12 CFR part 563e. Accordingly, a regulatory
flexibility analysis is not required.

OCC and OTS Executive Order 12866 Determination

    The OCC and OTS have determined that their portion of the proposed
rulemaking is not a significant regulatory action under Executive Order
12866.

[[Page 5743]]

OCC and OTS Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act) requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The OCC and OTS have
determined that this final rule will not result in expenditures by
State, local, and tribal governments, or by the private sector, of $100
million or more. Accordingly, neither agency has prepared a budgetary
impact statement or specifically addressed the regulatory alternatives
considered.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681.

Board, FDIC, and OTS Solicitation of Comments Regarding the Use of
``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board, the FDIC, and the OTS to use ``plain language'' in all proposed
and final rules published after January 1, 2000. The Board, the FDIC,
and the OTS invite comments on whether the proposed rules are clearly
stated and effectively organized, and how the Board, the FDIC, and the
OTS might make the proposed text easier to understand.

OCC Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking
agencies to use plain language in all proposed and final rules
published after January 1, 2000. The OCC invites your comments on how
to make this proposal easier to understand. For example:
     Have we organized the material to suit your
needs? If not, how could this material be better organized?
     Are the requirements in the proposed regulation
clearly stated? If not, how could the regulation be more clearly
stated?
     Does the proposed regulation contain language or
jargon that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of
sections, use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
     What else could we do to make the regulation
easier to understand?

OCC Executive Order 13132 Determination

    The Comptroller of the Currency has determined that this final rule
does not have any Federalism implications, as required by Executive
Order 13132.
OCC Community Bank Comment Request
    The OCC invites your comments on the impact of this proposal on
community banks. The OCC recognizes that community banks operate with
more limited resources than larger institutions and may present a
different risk profile. Thus, the OCC specifically requests comments on
the impact of this proposal on community banks' current resources and
available personnel with the requisite expertise, and whether the goals
of the proposed regulation could be achieved, for community banks,
through an alternative approach.

List of Subjects

12 CFR Part 25

    Community development, Credit, Investments, National banks,
Reporting and recordkeeping requirements.

12 CFR Part 228

    Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.

12 CFR Part 345

    Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.

12 CFR Part 563e

    Community development, Credit, Investments, Reporting and
recordkeeping requirements, Savings associations.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR CHAPTER I

Authority and Issuance

    For the reasons set forth in the joint preamble, the Office of the
Comptroller of the Currency proposes to amend part 25 of chapter I of
title 12 of the Code of Federal Regulations as follows:

PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT
PRODUCTION REGULATIONS

    1. The authority citation for part 25 continues to read as follows:

    Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215,
215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101
through 3111.

    2. Revise Sec. 25.12(t) to read as follows:


Sec. 25.12  Definitions.

* * * * *
    (t) Small bank means a bank that, as of December 31 of either of
the prior two calendar years, had total assets of less than $500
million.
* * * * *
    3. Revise Sec. 25.28, paragraph (c) to read as follows:


Sec. 25.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory, other illegal, and
abusive credit practices.
    (1) The OCC's evaluation of a bank's CRA performance is adversely
affected by evidence of the following in any geography by the bank or
in any assessment area by any affiliate whose loans have been
considered pursuant to Sec. 25.22(c):
    (i) In connection with any type of lending activity described in
Sec. 25.22(a), discriminatory or other illegal credit practices
including, but not limited to:
    (A) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
    (B) Violations of the Home Ownership and Equity Protection Act;
    (C) Violations of section 5 of the Federal Trade Commission Act;
    (D) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
    (E) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
    (ii) In connection with home mortgage and secured consumer loans, a
pattern or practice of lending based

[[Page 5744]]

predominantly on the foreclosure or liquidation value of the collateral
by the bank (or affiliate, as applicable), where the borrower cannot be
expected to be able to make the payments required under the terms of
the loan.\1\
---------------------------------------------------------------------------

    \1\ A bank (or affiliate, as applicable) may determine that a
borrower can be expected to be able to make the payments required
under the terms of the loan based, for example, on information about
the borrower's credit history, current or expected income, other
resources, and debts; preexisting customer relationships; or other
information ordinarily considered, and as documented and verified,
stated, or otherwise ordinarily determined, by the bank (or
affiliate, as applicable) in connection with the type of lending.
---------------------------------------------------------------------------

    (2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the OCC
considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.
    4. Revise Sec. 25.42(h) to read as follows:


Sec. 25.42  Data collection, reporting, and disclosure.

* * * * *
    (h) CRA Disclosure Statement. The OCC prepares annually for each
bank that reports data pursuant to this section a CRA disclosure
statement that contains, on a State-by-State basis:
    (1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased by geography, grouped according to
whether the geography is low-, moderate-, middle-, or upper-income;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased in each geography, grouped
according to median income of the geography relative to the area median
income, as follows: less than 10 percent, 10 or more but less than 20
percent, 20 or more but less than 30 percent, 30 or more but less than
40 percent, 40 or more but less than 50 percent, 50 or more but less
than 60 percent, 60 or more but less than 70 percent, 70 or more but
less than 80 percent, 80 or more but less than 90 percent, 90 or more
but less than 100 percent, 100 or more but less than 110 percent, 110
or more but less than 120 percent, and 120 percent or more;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank and the number
and amount of small business and small farm loans located outside
assessment areas reported by the bank; and
    (4) The number and amount of community development loans reported
as originated or purchased.
* * * * *

    Dated: January 28, 2004.
John D. Hawke, Jr.,
Comptroller of the Currency.

Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of
Governors of the Federal Reserve System proposes to amend part 228 of
chapter II of title 12 of the Code of Federal Regulations as follows:

PART 228--COMMUNITY REINVESTMENT (REGULATION BB)

    1. The authority citation for part 228 continues to read as
follows:

    Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and
2901 et seq.

    2. Revise Sec. 228.12(t) to read as follows:


Sec. 228.12  Definitions.

* * * * *
    (t) Small bank means a bank that, as of December 31 of either of
the prior two calendar years, had total assets of less than $500
million.
* * * * *
    3. Revise Sec. 228.28(c) to read as follows:


Sec. 228.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory, other illegal, and
abusive credit practices. (1) The Board's evaluation of a bank's CRA
performance is adversely affected by evidence of the following in any
geography by the bank or in any assessment area by any affiliate whose
loans have been considered pursuant to Sec. 228.22(c):
    (i) In connection with any type of lending activity described in
Sec. 228.22(a), discriminatory or other illegal practices including,
but not limited to:
    (A) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
    (B) Violations of the Home Ownership and Equity Protection Act;
    (C) Violations of section 5 of the Federal Trade Commission Act;
    (D) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
    (E) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
    (ii) In connection with home mortgage and secured consumer loans, a
pattern or practice of lending based predominantly on the foreclosure
or liquidation value of the collateral by the bank, where the borrower
cannot be expected to be able to make the payments required under the
terms of the loan.\1\
---------------------------------------------------------------------------

    \1\ A bank (or affiliate, as applicable) may determine that a
borrower can be expected to be able to make the payments required
under the terms of the loan based, for example, on information about
the borrower's credit history, current or expected income, other
resources, and debts; preexisting customer relationships; or other
information ordinarily considered, and as documented and verified,
stated, or otherwise ordinarily determined, by the bank (or
affiliate, as applicable) in connection with the type of lending.
---------------------------------------------------------------------------

    (2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
Board considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.
    4. Revise Sec. 228.42(h) to read as follows:


Sec. 228.42  Data collection, reporting, and disclosure.

* * * * *
    (h) CRA Disclosure Statement. The Board prepares annually for each
bank

[[Page 5745]]

that reports data pursuant to this section a CRA disclosure statement
that contains, on a State-by-State basis:
    (1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased by geography, grouped according to
whether the geography is low-, moderate-, middle-, or upper-income;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased in each geography, grouped
according to median income of the geography relative to the area median
income, as follows: Less than 10 percent, 10 or more but less than 20
percent, 20 or more but less than 30 percent, 30 or more but less than
40 percent, 40 or more but less than 50 percent, 50 or more but less
than 60 percent, 60 or more but less than 70 percent, 70 or more but
less than 80 percent, 80 or more but less than 90 percent, 90 or more
but less than 100 percent, 100 or more but less than 110 percent, 110
or more but less than 120 percent, and 120 percent or more;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank and the number
and amount of small business and small farm loans located outside
assessment areas reported by the bank; and
    (4) the number and amount of community development loans reported
as originated or purchased.
* * * * *

    By order of the Board of Governors of the Federal Reserve
System.

    Dated: January 29, 2004.
Jennifer J. Johnson,
Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of
Directors of the Federal Deposit Insurance Corporation proposes to
amend part 345 of chapter III of title 12 of the Code of Federal
Regulations to read as follows:

PART 345--COMMUNITY REINVESTMENT

    1. The authority citation for part 345 continues to read as
follows:

    Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).

    2. Revise Sec. 345.12(t) to read as follows:


Sec. 345.12  Definitions.

* * * * *
    (t) Small bank means a bank that, as of December 31 of either of
the prior two calendar years, had total assets of less than $500
million.
* * * * *
    3. Revise Sec. 345.28(c) to read as follows:


Sec. 345.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory, other illegal, and
abusive credit practices. (1) The FDIC's evaluation of a bank's CRA
performance is adversely affected by evidence of the following in any
geography by the bank or in any assessment area by any affiliate whose
loans have been considered pursuant to Sec. 345.22(c):
    (i) In connection with any type of lending activity described in
Sec. 345.22(a), discriminatory or other illegal practices including,
but not limited to:
    (A) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
    (B) Violations of the Home Ownership and Equity Protection Act;
    (C) Violations of section 5 of the Federal Trade Commission Act;
    (D) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
    (E) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
    (ii) In connection with home mortgage and secured consumer loans, a
pattern or practice of lending based predominantly on the foreclosure
or liquidation value of the collateral by the bank, where the borrower
cannot be expected to be able to make the payments required under the
terms of the loan.\1\
---------------------------------------------------------------------------

    \1\ A bank (or affiliate, as applicable) may determine that a
borrower can be expected to be able to make the payments required
under the terms of the loan based, for example, on information about
the borrower's credit history, current or expected income, other
resources, and debts; preexisting customer relationships; or other
information ordinarily considered, and as documented and verified,
stated, or otherwise ordinarily determined by the bank (or
affiliate, as applicable) in connection with the type of lending.
---------------------------------------------------------------------------

    (2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
FDIC considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.
* * * * *
    4. Revise Sec. 345.42(h) to read as follows:


Sec. 345.42  Data Collection, Reporting, and Disclosure

* * * * *
    (h) CRA Disclosure Statement. The FDIC prepares annually for each
bank that reports data pursuant to this section a CRA disclosure
statement that contains, on a State-by-State basis:
    (1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased by geography, grouped according to
whether the geography is low-, moderate-, middle-, or upper-income;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased in each geography, grouped
according to

[[Page 5746]]

median income of the geography relative to the area median income, as
follows: less than 10 percent, 10 or more but less than 20 percent, 20
or more but less than 30 percent, 30 or more but less than 40 percent,
40 or more but less than 50 percent, 50 or more but less than 60
percent, 60 or more but less than 70 percent, 70 or more but less than
80 percent, 80 or more but less than 90 percent, 90 or more but less
than 100 percent, 100 or more but less than 110 percent, 110 or more
but less than 120 percent, and 120 percent or more;
    (ii) A list showing each geography in which the bank reported a
small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank and the number
and amount of small business and small farm loans located outside
assessment areas reported by the bank; and
    (4) The number and amount of community development loans reported
as originated or purchased.
* * * * *

    Dated at Washington, DC, this 20th day of January, 2004.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

Office of Thrift Supervisiion

12 CFR CHAPTER V

    For the reasons outlined in the joint preamble, the Office of
Thrift Supervision proposes to amend part 563e of chapter V of title 12
of the Code of Federal Regulations as set forth below:

PART 563e--COMMUNITY REINVESTMENT

    1. The authority citation for part 563e continues to read as
follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816,
1828(c), and 2901 through 2907.

    2. Revise Sec. 563e.12(s) to read as follows:


Sec. 563e.12  Definitions.

* * * * *
    (s) Small savings association means a savings association that, as
of December 31 of either of the prior two calendar years, had total
assets of less than $500 million.
* * * * *
    3. Revise Sec. 563e.28(c) to read as follows:


Sec. 563e.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory, other illegal, and
abusive credit practices. (1) The OTS's evaluation of a savings
association's CRA performance is adversely affected by evidence of the
following in any geography by the savings association or in any
assessment area by any affiliate whose loans have been considered
pursuant to Sec. 563e.22(c):
    (i) In connection with any type of lending activity described in
Sec. 563e.22(a), discriminatory or other illegal practices including,
but not limited to:
    (A) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
    (B) Violations of the Home Ownership and Equity Protection Act;
    (C) Violations of section 5 of the Federal Trade Commission Act;
    (D) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
    (E) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
    (ii) In connection with home mortgage and secured consumer loans, a
pattern or practice of lending based predominantly on the foreclosure
or liquidation value of the collateral by the savings association,
where the borrower cannot be expected to be able to make the payments
required under the terms of the loan.\1\
---------------------------------------------------------------------------

    \1\ A savings association (or affiliate, as applicable) may
determine that a borrower can be expected to be able to make the
payments required under the terms of the loan based, for example, on
information about the borrower's credit history, current or expected
income, other resources, and debts; preexisting customer
relationships; or other information ordinarily considered, and as
documented and verified, stated, or otherwise ordinarily determined
by the savings association (or affiliate, as applicable).
---------------------------------------------------------------------------

    (2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the savings association's assigned
rating, the OTS considers the nature, extent, and strength of the
evidence of the practices; the policies and procedures that the savings
association (or affiliate, as applicable) has in place to prevent the
practices; any corrective action that the savings association (or
affiliate, as applicable) has taken or has committed to take, including
voluntary corrective action resulting from self-assessment; and any
other relevant information.
    4. Revise Sec. 563e.42(h) to read as follows:


Sec. 563e.42  Data collection, reporting, and disclosure.

* * * * *
    (h) CRA Disclosure Statement. The OTS prepares annually for each
savings association that reports data pursuant to this section a CRA
disclosure statement that contains, on a State-by-State basis:
    (1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the
savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased by geography, grouped according to
whether the geography is low-, moderate-, middle-, or upper-income;
    (ii) A list showing each geography in which the savings association
reported a small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans
reported as originated or purchased in each geography, grouped
according to median income of the geography relative to the area median
income, as follows: Less than 10 percent, 10 or more but less than 20
percent, 20 or more but less than 30 percent, 30 or more but less than
40 percent, 40 or more but less than 50 percent, 50 or more but less
than 60 percent, 60 or more but less than 70 percent, 70 or more but
less than 80 percent, 80 or more but less than 90 percent, 90 or more
but less than 100 percent, 100 or more but less than 110 percent, 110
or more but less than 120 percent, and 120 percent or more;
    (ii) A list showing each geography in which the savings association
reported a small business or small farm loan; and
    (iii) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
    (3) The number and amount of small business and small farm loans
located inside each assessment area reported by the savings association
and the number and amount of small business and small farm loans
located outside assessment areas reported by the savings association;
and

[[Page 5747]]

    (4) The number and amount of community development loans reported
as originated or purchased.
* * * * *

    Dated: January 22, 2004.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 04-2354 Filed 2-5-04; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P