[Federal Register: February 6, 2004 (Volume 69, Number 25)]
[Proposed Rules]               
[Page 5729-5747]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe04-13]                        

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Proposed Rules
                                               Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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[[Page 5729]]

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.

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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.
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   \1\ The terms ``abusive'' and ``predatory'' lending practices 
are used interchangeably.
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   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 
FDIC Public 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/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