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.

Proposed Rules Federal Register

5729

Vol. 69, No. 25

Friday, February 6, 2004

1The terms ‘‘abusive’’ and ‘‘predatory’’ lending 

practices are used interchangeably.

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 25

[Docket No. 04–06] 

RIN 1557–AB98

FEDERAL RESERVE SYSTEM 

12 CFR Part 228

[Regulation BB; Docket No. R–1181] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 345

RIN 3064–AC50

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

12 CFR Part 563e 

[No. 2004–04] 

RIN 1550–AB48

Community Reinvestment Act 

Regulations

AGENCIES: Office of the Comptroller of 

the Currency, Treasury (OCC); Board of 

Governors of the Federal Reserve 

System (Board); Federal Deposit 

Insurance Corporation (FDIC); Office of 

Thrift Supervision, Treasury (OTS).

ACTION: Joint notice of proposed 

rulemaking. 

SUMMARY: The OCC, Board, FDIC, and 

OTS (collectively, ‘‘we’’ or ‘‘the 

agencies’’) have conducted a joint 

review of the CRA regulations, fulfilling 

the commitment we made when we 

adopted the current Community 

Reinvestment Act (CRA or ‘‘the Act’’) 

regulations in 1995. See 60 FR 22156, 

22177 (May 4, 1995). As part of our 

review, we published an advance notice 

of proposed rulemaking (ANPR) on July 

19, 2001, seeking public comment on a 

wide range of questions. 66 FR 37602 

(July 19, 2001). 

This proposal was developed 

following the agencies’ review of the 

CRA regulations, which included an 

analysis of about four hundred 

comments received on the ANPR. The 

comments reflected a general consensus 

that fundamental elements of the 

regulations are sound, but indicated a 

profound split over the need for, and 

appropriate direction of, change. 

Community organizations advocated 

‘‘updating’’ the regulations with 

expanded requirements to match 

developments in the industry and 

marketplace; financial institutions were 

concerned principally with reducing 

burden consistent with maintaining or 

improving the regulations’ effectiveness. 

The agencies believe the regulations 

are essentially sound, but are in need of 

some updating to keep pace with 

changes in the financial services 

industry. Therefore, we are proposing 

amendments to the regulations in two 

areas. First, to reduce unwarranted 

burden consistent with the agencies’ 

ongoing efforts to identify and reduce 

regulatory burden where appropriate 

and feasible, we are proposing to amend 

the definition of ‘‘small institution’’ to 

mean an institution with total assets of 

less than $500 million, without regard 

to any holding company assets. This 

change would take into account 

substantial institutional asset growth 

and consolidation in the banking and 

thrift industries since the definition was 

adopted. It also reflects the fact that 

small institutions with a sizable holding 

company do not appear to find 

addressing their CRA responsibilities 

any less burdensome than a similarlysized 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 

§ll.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.

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 

5730 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 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 CRAcovered 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. 

5732 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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 moderateincome 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 moderateincome 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 threepart 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 mortgagebacked 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 developmentoriented 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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 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 threecomponent 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. 

5734 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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 lowand 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 moderateincome 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 moderateincome 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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 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 lowor 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 deposittaking facilities. Those commenters 

opposed mandatory evaluation outside 

of the communities served by deposittaking 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 limitedpurpose 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 deposittaking 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 Internetonly 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 

5736 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 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 smallbusiness 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 

5738 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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 ‘‘megainstitutions’’ 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 lowand 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 similarlysized 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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 5739

2See ‘‘Interagency Questions and Answers 

Regarding Community Reinvestment,’’ 66 FR 36620, 

36640 (July 12, 2001).

3For 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.

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.

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.

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 

5740 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

4Note 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.

5See OCC Advisory Letter 2003–2, ‘‘Guidelines 

for National Banks to Guard Against Predatory and 

Abusive Lending Practices,’’ February 21, 2003.

6An 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.

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 

ll.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).

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

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 

ll.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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 5741

not the activities were inside any of the 

institution’s assessment areas.

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 

ll28.(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. 

5742 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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. 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 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-LeachBliley 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-LeachBliley 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 § 25.12(t) to read as follows:

§ 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 § 25.28, paragraph (c) to read 

as follows:

§ 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 

§ 25.22(c): 

(i) In connection with any type of 

lending activity described in § 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 

5744 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

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.

1A 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.

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

(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 selfassessment; and any other relevant 

information. 

4. Revise § 25.42(h) to read as follows:

§ 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 § 228.12(t) to read as 

follows:

§ 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 § 228.28(c) to read as 

follows:

§ 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 § 228.22(c): 

(i) In connection with any type of 

lending activity described in § 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

(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 selfassessment; and any other relevant 

information. 

4. Revise § 228.42(h) to read as 

follows:

§ 228.42 Data collection, reporting, and 

disclosure.

* * * * *

(h) CRA Disclosure Statement. The 

Board prepares annually for each bank 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 5745

1A 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.

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 § 345.12(t) to read as 

follows:

§ 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 § 345.28(c) to read as 

follows:

§ 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 § 345.22(c): 

(i) In connection with any type of 

lending activity described in § 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

(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 selfassessment; and any other relevant 

information.

* * * * *

4. Revise § 345.42(h) to read as 

follows:

§ 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 

5746 Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 

1A 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).

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 § 563e.12(s) to read as 

follows:

§ 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 § 563e.28(c) to read as 

follows:

§ 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 § 563e.22(c): 

(i) In connection with any type of 

lending activity described in 

§ 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

(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 § 563e.42(h) to read as 

follows:

§ 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 

Federal Register / Vol. 69, No. 25 / Friday, February 6, 2004 / Proposed Rules 5747

(4) The number and amount of 

community development loans reported 

as originated or purchased.

* * * * *

Dated: January 22, 2004.

By the Office of Thrift Supervision. 

James E. Gilleran, 

Director.

[FR Doc. 04–2354 Filed 2–5–04; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. NM273; Notice No. 25–04–01–

SC] 

Special Conditions: Boeing Model 777 

Series Airplanes; Overhead Crew Rest 

Compartment Occupiable During Taxi, 

Take-off, and Landing

AGENCY: Federal Aviation 

Administration (FAA), DOT.

ACTION: Notice of proposed special 

conditions. 

SUMMARY: This action proposes special 

conditions for Boeing Model 777 series 

airplanes. These airplanes will have 

novel or unusual design features 

because of the installation of an 

overhead crew rest (OHCR) 

compartment which is proposed to be 

occupiable during taxi, take-off, and 

landing (TT&L). The applicable 

airworthiness regulations do not contain 

adequate or appropriate safety standards 

for these design features. These 

proposed special conditions contain the 

additional safety standards that the 

Administrator considers necessary to 

establish a level of safety equivalent to 

that established by the existing 

airworthiness standards.

DATES: Comments must be received on 

or before March 8, 2004.

ADDRESSES: Comments on this proposal 

may be mailed in duplicate to: Federal 

Aviation Administration, Transport 

Airplane Directorate, Attention: Rules 

Docket (ANM–113), Docket No. NM273, 

1601 Lind Avenue SW., Renton, 

Washington, 98055–4056; or delivered 

in duplicate to the Transport Airplane 

Directorate at the above address. 

Comments must be marked: Docket No. 

NM273. Comments may be inspected in 

the Rules Docket weekdays, except 

Federal holidays, between 7:30 a.m. and 

4 p.m.

FOR FURTHER INFORMATION CONTACT:

Mike Thompson, FAA, Airframe/Cabin 

Safety Branch, ANM–115, Transport 

Standards Staff, Transport Airplane 

Directorate, Aircraft Certification 

Service, 1601 Lind Avenue SW., 

Renton, Washington, 98055–4056; 

telephone (425) 227–1157; facsimile 

(425) 227–1100.

SUPPLEMENTARY INFORMATION:

Comments Invited 

The FAA invites interested persons to 

participate in this rulemaking by 

submitting written comments. The most 

helpful comments reference a specific 

portion of the special conditions, 

explain the reason for any 

recommended change, and include 

supporting data. We ask that you send 

us two copies of written comments. 

We will file in the docket all 

comments we receive, as well as a 

report summarizing each substantive 

public contact with FAA personnel 

concerning these special conditions. 

The docket is available for public 

inspection before and after the comment 

closing date. If you wish to review the 

docket in person, go to the address in 

the ADDRESSES section of this preamble 

between 7:30 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

If you want the FAA to acknowledge 

receipt of your comments on this 

proposal, include with your comments 

a pre-addressed, stamped postcard on 

which the docket number appears. We 

will stamp the date on the postcard and 

mail it back to you. 

Background 

On June 25, 2002, the Boeing 

Commercial Airplane Group (BCAG), 

P.O. Box 3707, Seattle, Washington, 

98124, applied for a change to Type 

Certificate No. T00001SE for a design 

change to install an OHCR, which is 

proposed to be occupiable during TT&L, 

in Boeing Model 777 series airplanes. 

The Boeing Model 777 series airplanes 

are large twin-engine airplanes with 

various passenger capacities and ranges 

depending upon airplane configuration. 

The OHCR compartment is located in 

the overhead space above the main 

passenger cabin immediately aft of the 

first pair of main deck emergency exits 

(Door 1) and will include a maximum of 

two private berths and two seats. 

Occupancy of the OHCR compartment 

will be limited to a maximum of four 

crewmembers during flight and two 

flightcrew members, one in each seat, 

during TT&L. 

The OHCR compartment will be 

accessed from the main deck by stairs 

through a vestibule. In addition, an 

emergency hatch, which opens directly 

into the main passenger seating area, 

will be provided for the OHCR 

compartment as an alternate route for 

evacuating occupants of the OHCR 

compartment in an emergency. A smoke 

detection system and an oxygen system 

will be provided in the compartment. 

Other optional features, such as a 

kitchenette and lavatory, may be 

provided as well. 

While the installation of an OHCR 

compartment is not a new concept for 

large transport category airplanes, each 

OHCR compartment has unique features 

based on design, location, and use on 

the airplane. Previously, OHCR 

compartments have been installed and 

certified in Boeing 777 series airplanes 

in the main passenger seating area, in 

the overhead compartment above the 

main passenger seating area, and below 

the passenger seating area within the 

cargo compartment. On April 9, 2003, 

the FAA issued Special Conditions No. 

25–230-SC for an OHCR compartment 

immediately aft of the Door 1 exits and 

an overhead flight attendant rest 

compartment adjacent to Door 3 in 

Boeing 777 series airplanes. These new 

special conditions address an OHCR 

compartment at the same location aft of 

Door 1 as in the April 2003 special 

conditions, except that they address 

occupancy of trained flightcrew during 

TT&L.

Type Certification Basis 

Under the provisions of § 21.101, 

Amendment 21–69, effective September 

16, 1991, Boeing Commercial Airplane 

Group must show that Model 777 series 

airplanes, as changed, continue to meet 

the applicable provisions of the 

regulations incorporated by reference in 

Type Certificate Data Sheet No. 

T00001SE or the applicable regulations 

in effect on the date of application for 

the change. Subsequent changes have 

been made to § 21.101 as part of 

Amendment 21–77, but those changes 

did not become effective until June 10, 

2003, which is after the application date 

for this type design change. The 

regulations incorporated by reference in 

the type certificate are commonly 

referred to as the ‘‘original type 

certification basis.’’ The U.S. type 

certification basis for Boeing Model 777 

series airplanes is established in 

accordance with 14 CFR 21.17 and 

21.29 and the type certificate 

application date. The type certification 

basis is listed in Type Certificate Data 

Sheet No. T00001SE. 

If the Administrator finds that the 

applicable airworthiness regulations 

(i.e., 14 CFR part 25) do not contain 

adequate or appropriate safety standards 

for Boeing Model 777 series airplanes 

because of a novel or unusual design 

feature, special conditions are