Source: https://www.federalregister.gov/documents/2010/10/04/2010-24737/community-reinvestment-act-regulations
Timestamp: 2019-06-26 05:49:58
Document Index: 389362526

Matched Legal Cases: ['§\u20091031', '§\u200925', '§\u200925', 'art 228', '§\u2009228', '§\u2009228', '§\u2009345', '§\u2009345', '§\u2009345', '§\u2009563', '§\u2009563', '§\u2009563']

A Rule by the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Thrift Supervision Office on 10/04/2010
61035-61046 (12 pages)
Docket ID OCC-2010-0014
Docket ID OTS-2010-0023
3064-AD45
https://www.federalregister.gov/d/2010-24737 https://www.federalregister.gov/d/2010-24737
Start Preamble Start Printed Page 61035
The Community Reinvestment Act (CRA) requires the federal banking and thrift regulatory agencies to assess the record of each insured depository institution (hereinafter, “institution”) in meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution, and to take that record into account when the agency evaluates an application by the institution for a deposit facility.[1] The Agencies have promulgated substantially similar regulations to implement the requirements of the CRA.[2]
On June 30, 2009, the Agencies published a joint notice of proposed rulemaking that would incorporate two statutory requirements into the CRA regulations.[3] The first revision would implement section 1031 of the Higher Education Opportunity Act, Public Law 110-315, 122 Stat. 3078 (August 14, 2008) (the “HEOA”), which amended the CRA. This provision requires the Agencies to consider low-cost education loans provided by the institution to low-income borrowers as a factor when evaluating an institution's record of meeting community credit needs. 12 U.S.C. 2903(d). The second revision would incorporate 12 U.S.C. 2903(b), which allows the Agencies to consider and take into account nonminority- and nonwomen-owned financial institutions' activities in connection with minority- and women-owned financial institutions and low-income credit unions.
Under existing CRA regulations, education loans are evaluated as consumer loans.[4] An institution's consumer lending must be evaluated if consumer lending makes up a substantial majority of an institution's business. Institutions that do not meet Start Printed Page 61036this criterion may choose to have consumer loans evaluated when the institution's CRA record is being examined. Institutions must collect and maintain data about consumer loans if they choose to have those loans evaluated.[5] Like other consumer loans, institutions' education loans are generally evaluated by total number and amount; borrower characteristics (i.e., distribution among borrowers of different income levels); geographic distribution (i.e., distribution among borrowers in geographies with different income levels and whether the loans are made to borrowers in the institution's assessment areas); and, for large retail institutions, whether the education loan program is innovative or flexible in addressing the credit needs of low- or moderate-income individuals or geographies.[6] This revised rule does not change the eligibility of education loans to be treated as consumer loans. Rather, the revised rule amends the general performance rules in 12 CFR 25.21, 228.21, 345.21, and 563e.21 to implement the requirements of section 1031 of the HEOA. If an institution's education loans do not qualify for CRA consideration under section 1031 of the HEOA and this implementing rule, the institution continues to be able to receive consideration under existing standards applicable to consumer loans.
Section 1031 of the HEOA revised the CRA to require the Agencies to consider low-cost education loans provided by the institution to low-income borrowers as a factor when evaluating an institution's record of meeting community credit needs.[7] The legislative history indicates that the provision was intended to provide incentives for lenders to provide low-cost education loans to low-income borrowers.[8]
Consistent with the supplemental information accompanying the proposed rule, under the final rule as implemented by the Agencies, institutions will receive favorable qualitative consideration for originating “low-cost education loans to low-income borrowers” as a factor in the institutions' overall CRA rating. Such loans would be considered responsive to the credit needs of the institutions' communities.[9]
The HEOA amendment to the CRA specifies that the Agencies must consider low-cost “education loans” to low-income borrowers.[10] The Agencies proposed to define education loans as including loans originated by financial institutions through a program of the U.S. Department of Education. The Agencies also proposed to define education loans to include low-cost private education loans, including loans under State or local education loan programs.
(B) Does not include an extension of credit under an open end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling.[11]
In turn, the HEOA defines a “private educational lender” to include, among others, any financial institution that solicits, makes, or extends private education loans.[12]
The HEOA defines “postsecondary educational expenses” to mean any of the expenses that are included as part of the cost of attendance of a student, as defined under section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll). That definition includes tuition and fees, books, supplies, miscellaneous personal expenses, room and board, and Start Printed Page 61037an allowance for any loan fee, origination fee, or insurance premium charged to a student or parent for a loan incurred to cover the cost of the student's attendance.[13]
As discussed above, the Agencies proposed to define education loans as including loans originated by financial institutions through a program of the U.S. Department of Education, such as the Federal Family Education Loan (FFEL) Program. As of July 1, 2010, no new loans may be made or insured under the FFEL program, and no new funds may be appropriated or expended to make or insure such loans.[14] Thus, the final rule does not include in the definition of education loans any reference to the FFEL program.
The proposed definition of “private education loan” included only loans made for post-secondary (beyond high school) educational expenses, not for primary or elementary education. The Agencies sought comment on whether coverage should be limited in this manner. Most commenters who addressed the issue, including financial institutions, trade associations, and community groups, supported the Agencies' proposal to limit the definition of private education loans to loans made for post-secondary education expenses. These commenters agreed that the amendment to the CRA statute should be viewed in light of the HEOA's overall purpose of promoting post-secondary education affordability. One trade association supported the proposal, but encouraged the Agencies to consider expanding the scope at a later time to include vocational and career training.[15] One financial institution suggested that coverage should be as broad as possible and should include all types of education, including primary and secondary education.
The final rule covers only loans made for higher education expenses, not for primary or secondary education expenses. As the preamble to the proposed rule explained, the statutory requirement to consider education loans under the CRA was adopted as a part of the HEOA, which specifically addresses higher education reform. The purpose of H.R. 4137, which introduced the incentive of CRA consideration for low-cost education loans was “to make college more affordable and accessible;” to “expand college access and support for low-income and minority students;” and to provide incentives for lenders to provide “low-cost private student loans to low-income borrowers.” [16]
In defining the types of higher education institutions covered, the Agencies proposed to include “institutions of higher education” as defined in sections 101 and 102 of the HEA, 20 U.S.C. 1001-1002. The Agencies requested comment on whether the scope of the definition should be narrowed to encompass only loans made for education expenses at an “institution of higher education” as that term is defined for general purposes in section 101 of the HEA, 20 U.S.C. 1001, which is limited generally to accredited public and nonprofit colleges, universities, and employment training schools in the United States.[17] The Agencies also requested comment on whether, alternatively, the scope of the educational institutions covered should be expanded to include unaccredited institutions that would not meet the definition of “institution of higher education” under the HEA but would be covered by the definition of “covered educational institution” under TILA section 140(a)(1).
Community group commenters opposed expanding coverage to include unaccredited institutions, citing a concern about providing CRA credit for student loans to finance inadequate, unaccredited training programs. Financial institution and trade group commenters were split. Those who supported the proposal expressed similar concerns that degrees from unaccredited institutions may not be acceptable for certain positions such as federal or state civil service positions or other employment. One commenter did, however, request that the Agencies publish a list of accredited programs.[18] By contrast, commenters who supported expanding coverage to include Start Printed Page 61038unaccredited institutions encouraged the Agencies to provide maximum flexibility to financial institutions to provide a wide range of education loans.
Although one commenter stated that private education loans should not be considered because a private loan to a student may not guarantee that the funds are used for education, many commenters strongly believed that private loans should be considered. In fact, several commenters noted that if then pending legislation in Congress were passed, private lenders would no longer be involved in Department of Education loan programs.[19]
The Agencies also considered whether CRA consideration is necessary for loans made by financial institutions under the Federal education programs. Federal program education loans generally subjected an institution to little or no risk and, therefore, already provided an incentive to lenders. However, because as of July 1, 2010, financial institutions may no longer originate education loans under the Federal program,[20] the final rule does not provide for CRA consideration of such loans under § 1031 of HEOA. However, if an institution has made education loans under the Federal program, it would be able to receive consideration for those loans under existing standards applicable to consumer loans.
Some community group commenters suggested that the Agencies place further conditions on the types of loans that could be eligible for CRA consideration. For example, Start Printed Page 61039commenters suggested that the Agencies provide consideration only for loans that meet a standard of affordability and provide certain consumer protections such as income-based repayment plans, fixed interest rates, and no prepayment penalties.
The final rule does not impose additional restrictions on education loans for purposes of CRA consideration because the Agencies have limited the types of loans eligible for CRA consideration to those covered under the new TILA protections in the HEOA. For example, the HEOA requires that consumers receive disclosures regarding private education loans that explain the terms and costs of those loans on or with an application, after the consumer is approved for the loan, and before funds are disbursed. The disclosures also provide consumers with information about federal student loan alternatives where applicable. Consumers are provided 30 days after a private education loan is approved in which to accept the offer and the lender is prohibited, with few exceptions, from making changes to the rate or terms of the loan during that time. Consumers are also provided with three days in which to cancel a loan after receiving the final TILA disclosure.[21] In addition, the HEOA places restrictions on private education loan terms and on private educational lenders. For example, the HEOA specifically prohibits prepayment penalties for private education loans. The HEOA also amended TILA to prohibit practices such as revenue sharing and co-branding between private educational lenders and educational institutions.[22]
After consideration of the comments and recent changes in the law described above, the Agencies have revised the rule to refer solely to the Federal direct loan program of the U.S. Department of Start Printed Page 61040Education as the benchmark for “low cost” education loans.
The direct loan program formally called the William D. Ford Federal Direct Loan Program is the program against which the rates and fees of private education loans must be compared.[23] The rates and fees that have been allowed under the FFEL program, which the preamble of the proposal explained was a “comparable U.S. Department of Education program,” are statutorily specified and are very similar to the rates and fees charged to borrowers under the William D. Ford Direct Loan Program, which are also statutorily prescribed. The fixed rates under the Federal direct loan program that the agencies will use as benchmarks are the rates for unsubsidized direct Stafford loans for students and direct PLUS loans for parents.[24]
Although variable-rate loans are no longer available under the Department of Education programs, the Department of Education publishes rates annually for those variable-rate education loans that remain outstanding. The rate is based on 91-day Treasury bills plus a statutory percentage margin.[25]
Under the proposed regulation, the term “low-income” had the same meaning as that term is defined in the existing CRA rule: An individual income less than 50 percent of area median income. In the preamble to the proposed regulation, the Agencies clarified that, if an institution considers the income of more than one person in connection with an education loan, the gross annual incomes of all primary obligors on the loan, including co-borrowers and co-signers, would be combined to determine whether the borrowers are “low-income.” [26] The Agencies further noted that various education programs offered by the U.S. Department of Education are targeted to individuals who have financial needs and the criteria for the programs vary. The Agencies requested comment on whether low-income should be defined differently than the term is already defined in the CRA regulation. The Agencies also sought comment on how they should treat the income of a student's family or other expected family contributions to ensure that the CRA consideration provided is consistent with HEOA's focus on low-income borrowers.
A nonprofit organization commented that, in cases where a student is the borrower but is claimed as a dependent, the household income of the taxpayer claiming the student should be used to determine whether the loan qualifies for CRA consideration. A trade association also suggested that if a student has applied for financial aid and has been identified as eligible, that should qualify the student as “low-income” for purposes of the test. A financial institution commented that, in addition to consideration of income, the CRA evaluation of education lending should also consider how many individuals are enrolled in or will be enrolled in an Start Printed Page 61041institution of higher education and whether such individuals had unmet financial needs that could be addressed by a private education loan. Another financial institution commented that the differences between the U.S. Department of Education loan qualification standards, which are generally based on need, and the private education loan qualification standards, which are generally based on credit score and income, should preclude treating Federal program loans and private education loans the same for purposes of the “low-income” analysis.
One commenter suggested that low-cost education loans to low-income borrowers should be considered as community development loans. The primary reason for this suggestion was based on the more expansive consideration of loans that are considered under the community development test—not only in an institution's assessment area(s), as proposed, but also in the broader statewide or regional area that includes its assessment area(s). The Agencies decline to adopt this change as suggested. The Agencies note that the legislative history of the Act indicates that the Agencies are to consider “low-cost education loans provided by a financial institution to low-income borrowers in assessing and taking into account the record of a financial institution in meeting the credit needs of its local community.” [27] The proposed rule restricted favorable consideration for low-cost education loans to low-income borrowers to the institution's Start Printed Page 61042assessment area(s). After careful consideration of the comments received, the Agencies have decided to apply the same rule that applies to the consideration of loans made to low- and moderate-income borrowers.[28] Thus, the final rule provides that the Agencies will consider low-cost education loans originated by a financial institution to low-income borrowers “particularly in its assessment area(s).” Similar to the analysis for loans to low- and moderate-income individuals generally, the Agencies will consider first whether a financial institution has adequately addressed the low-cost education loan needs of low-income borrowers in its assessment area(s) and, if so, will also consider such loans outside of its assessment area(s).[29] The Agencies believe that the final rule may provide greater flexibility and additional incentives for financial institutions to provide low-cost education loan programs for low-income borrowers.
One commenter suggested that financial institutions should be able to receive CRA consideration for loans to students who reside in their assessment area(s) and also for loans to students who attend schools in the institutions' assessment area(s). The Agencies decline to adopt this suggestion. As with other consumer lending, a financial institution would look to the “loan location” to determine whether the loan meets the geographical requirements for loan consideration. “A consumer loan is located in the geography where the borrower resides * * *. ”[30] Therefore, the lender should rely on the address on the education loan application or otherwise provided by the borrower or school to determine the loan location.
Section 804(b) of the Community Reinvestment Act (CRA) provides that the Agencies may consider as a factor capital investment, loan participation, and other ventures undertaken by the institution in cooperation with minority- and women-owned financial institutions and low-income credit unions in assessing the CRA record of nonminority- and nonwomen-owned financial institutions. These activities, however, must help meet the credit needs of the local communities in which such institutions and credit unions are chartered.[31] The Agencies proposed to incorporate this statutory language into their regulations and to clarify that such activities need not also benefit the assessment area or the broader statewide or regional area that includes the assessment area of the nonminority- and nonwomen-owned institution. The preamble of the proposed rule indicated that activities undertaken to assist minority- and women-owned financial institutions and low-income credit unions would be considered as part of the overall assessment of the nonminority- and nonwomen-owned institution's CRA performance.[32]
The preamble further explained that the proposed revision to the rule would reinforce to examiners, financial institutions, and the public that the Agencies may consider and take into account nonminority- and nonwomen-owned financial institutions' activities in connection with minority- and women-owned financial institutions and low-income credit unions.[33] The Agencies noted that their 2009 revisions to the “Interagency Questions and Answers Regarding Community Reinvestment” clarified this point [34] and indicated the proposal was intended to codify this clarification in the rule.
As the Agencies explained in the preamble to their 2009 Interagency Questions and Answers Regarding Community Reinvestment, the Agencies do not currently interpret section 804(b) of the CRA to impose such limitations.[35] However, as indicated in the question and answer guidance, the impact of such activities on majority-owned institution's CRA rating is determined in conjunction with its overall performance in its assessment area(s).[36] The Agencies note that activities outside of the majority-owned institution's assessment area will not compensate for poor lending performance within its assessment area and intend to add this clarification to the Interagency Questions and Answers Regarding Community Reinvestment.
One financial institution trade association urged the Agencies to treat all capital investments, loan participations, and other ventures undertaken by a majority-owned institution in cooperation with minority- and women-owned financial Start Printed Page 61043institutions and low-income credit unions as community development activities. The statute does not specify how the Agencies must evaluate these activities, some of which may not qualify as community development activities under the existing rules. Therefore, the Agencies have not adopted this suggestion.
However, the Agencies note that nothing in today's final rule affects the ability of any institution to receive community development consideration for activities undertaken in cooperation with minority- and women-owned financial institutions, low-income credit unions, and other financial intermediaries in those limited circumstances where such activities meet all of the rule's requirements for community development consideration. These requirements include having a primary purpose of community development (as defined in 12 CFR 25.12(g), 228.12(g), 345.12(g), or 563e.12(g), as applicable) and meeting the applicable geographic restrictions for community development activities. The Agencies' Interagency Questions and Answers Regarding Community Reinvestment provide as an example of “qualified investments,” investments, grants, deposits, or shares in or to financial intermediaries, including minority- and women-owned financial institutions, that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development.[37] Similarly, the Interagency Questions and Answers provide as an example of “community development loans,” loans to financial intermediaries, including minority- and women-owned financial institutions, which primarily lend or facilitate lending to promote community development.[38] The Agencies are not changing the availability of community development consideration for these activities. Today's final rule allows capital investments, loan participations, and other ventures undertaken by a majority-owned institution in cooperation with minority- and women-owned financial institutions and low-income credit unions to be considered as a factor when assigning a rating; it applies to a broader range of activities than may qualify for community development consideration.
Several consumer and community organizations urged the Agencies to conduct an analysis of the impact of the 2009 guidance on minority- and women-owned institutions (Q&A § _.12(g)-4) before codifying the question and answer into the CRA rule. They urged the Agencies to evaluate the types of investments, loans, and services that have been leveraged to see whether they have disproportionately benefited predominantly white middle- and upper-income communities. They also urged the Agencies to ascertain whether bank financing of low-income credit unions and minority- and women-owned financial institutions has also benefited minorities and communities of color. The Agencies note that they are generally incorporating into the CRA regulations the statutory provision adopted by Congress.
The Agencies intend to issue for comment interagency CRA guidance addressing primarily the new provision addressing low-cost education loans made to low-income borrowers in the near future. The guidance, in the form of new interagency questions and answers, will include relevant explanatory discussion in the supplementary information accompanying this final rule. As noted above, the Agencies will also revise existing guidance to reflect the regulatory provisions [39] on activities in cooperation with minority- and women-owned financial institutions and low-income credit unions and to indicate that such activities outside of the majority-owned institution's assessment area(s) will not compensate for poor lending performance within its assessment area(s).
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act) (2 U.S.C. 1532) requires that covered agencies prepare a budgetary impact statement before promulgating a rule that includes any Federal mandate that may result in the 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 covered agencies to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC and the OTS have determined that this joint final rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million Start Printed Page 61044or more in any one year. Accordingly, neither agency has prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered.
Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRIA), Public Law 103-325, authorizes a banking agency to issue a rule that contains additional reporting, disclosure, or other requirements to be effective before the first day of the calendar quarter that begins on or after the date on which the regulations are published in final form if the agency finds good cause for an earlier effective date. 12 U.S.C. 4802(b)(1). Section 302 of CDRIA does not apply because this final rule imposes no additional requirements. Rather, it reduces burden by expanding the ways institutions may receive CRA consideration.
2. In § 25.21, add new paragraphs (e) and (f) to read as follows:
Performance tests, standards, and ratings, in general.
(1) In assigning a rating, the OCC evaluates a bank's performance under the applicable performance criteria in this part, in accordance with §§ 25.21 and 25.28. This includes consideration of low-cost education loans provided to low-income borrowers and activities in cooperation with minority- or women-owned financial institutions and low-income credit unions, as well as adjustments on the basis of evidence of discriminatory or other illegal credit practices.
1. The authority citation for part 228 is revised as proposed to read as follows:
2. In § 228.21, add new paragraphs (e) and (f) to read as follows:
(e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a Start Printed Page 61045bank under this part, the Board considers, as a factor, low-cost education loans originated by the bank to borrowers, particularly in its assessment area(s), who have an individual income that is less than 50 percent of the area median income. For purposes of this paragraph, “low-cost education loans” means any education loan, as defined in section 140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state or local education loan program), originated by the bank for a student at an “institution of higher education,” as that term is generally defined in sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations published by the U.S. Department of Education, with interest rates and fees no greater than those of comparable education loans offered directly by the U.S. Department of Education. Such rates and fees are specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
(1) In assigning a rating, the Board evaluates a bank's performance under the applicable performance criteria in this part, in accordance with §§ 228.21 and 228.28. This includes consideration of low-cost education loans provided to low-income borrowers and activities in cooperation with minority- or women-owned financial institutions and low-income credit unions, as well as adjustments on the basis of evidence of discriminatory or other illegal credit practices.
2. In § 345.21, add new paragraphs (e) and (f) to read as follows:
§ 345.21
(1) In assigning a rating, the FDIC evaluates a bank's performance under the applicable performance criteria in this part, in accordance with §§ 345.21 and 345.28. This includes consideration of low-cost education loans provided to low-income borrowers and activities in cooperation with minority- or women-owned financial institutions and low-income credit unions, as well as adjustments on the basis of evidence of discriminatory or other illegal credit practices.
2. In § 563e.21, add new paragraphs (e) and (f) to read as follows:
§ 563e.21
(e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a savings association under this part, the OTS considers, as a factor, low-cost education loans originated by the savings association to borrowers, particularly in its assessment area(s), who have an individual income that is less than 50 percent of the area median income. For purposes of this paragraph, “low-cost education loans” means any education loan, as defined in section 140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state or local education loan program), originated by the savings Start Printed Page 61046association for a student at an “institution of higher education,” as that term is generally defined in sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations published by the U.S. Department of Education, with interest rates and fees no greater than those of comparable education loans offered directly by the U.S. Department of Education. Such rates and fees are specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
(1) In assigning a rating, the OTS evaluates a savings association's performance under the applicable performance criteria in this part, in accordance with §§ 563e.21 and 563e.28. This includes consideration of low-cost education loans provided to low-income borrowers and activities in cooperation with minority- or women-owned financial institutions and low-income credit unions, as well as adjustments on the basis of evidence of discriminatory or other illegal credit practices.
18. The Agencies note that the U.S. Department of Education provides a database of post-secondary educational institutions and programs that are, or were, accredited by an accrediting agency or state approval agency recognized by the Secretary of Education as a “reliable authority as to the quality of postsecondary education” within the meaning of the HEA at http://ope.ed.gov/​accreditation. The Department of Education recommends that the database be used as one source of qualitative information and that additional sources of qualitative information be consulted.
24. See http://studentaid.ed.gov/​PORTALSWebApp/​students/​english/​studentloans.jsp;​ http://studentaid.ed.gov/​PORTALSWebApp/​students/​english/​parentloans.jsp.
25. 20 U.S.C. 1087e(b)(6). See also U.S. Department of Education, “FFEL and Direct Loan Interest Rates Effective July 1, 2009,” available at http://studentaid.ed.gov/​PORTALSWebApp/​students/​english/​FFEL_​DL_​InterestRates.jsp.
26. This is consistent with guidance issued by the Agencies in the Interagency Questions and Answers Regarding Community Reinvestment, 75 FR 11642, 11671 (Mar. 11, 2010) (Q&A § __.42(c)(1)(iv)-4).
29. See Interagency Questions and Answers Regarding Community Reinvestment, 75 FR at 11656-57 (Q&A § __.22(b)(2) & (3)-4).
34. 74 FR 498, 507 (Jan. 6, 2009) (Q&A § __.12(g)-4).
36. 74 FR at 507 (Q&A § _.12(g)-4); 75 FR at 11645 (same).
37. 75 FR at 11652 (Q&A § _.12(t)-4).
38. 75 FR at 11648 (Q&A § _.12(h)-1).