Comptroller Otting Testifies before Congress, Shares Priorities
Comptroller Joseph Otting today on Wednesday, June 13, 2018, before the House Financial Services Committee to discuss his agenda at the Office of the Comptroller of Currency and other financial industry regulatory matters.
Otting outlined the priorities for his time at the OCC, including:
- Modernizing the Community Reinvestment Act;
- Expanding short-term, small-dollar lending;
- Adjusted bank capital requirements;
- Recalibrating the Volcker rule; and,
- Improving the functionality of the Bank Secrecy Act.
Otting also noted he would supervise institutions by the intent of the law.
Several members asked Otting about the agency’s horizontal review on cross-selling and unauthorized account openings. Otting said the review, which covered 40 banks and spanned about 18 months, found no system or pervasive problems. He did note, however, the need for banks to improve policies, procedures and controls for account openings.
In addition to the horizontal review, Otting addressed the following issues of note to CBA members during his responses to Members of the Committee:
Community Reinvestment Act:
The OCC has been ready since March to issue an advanced notice of proposed rulemaking on CRA but hopes to make it a joint announcement – issued in the next few weeks. Otting said 100 percent of the necessary action could be accomplished through the regulatory agencies alone. The OCC will work to address three problems: (1) Create a more objective test to measure CRA; (2) Expand the definition of what qualifies as CRA activity and readdress assessment areas; and (3) Make the exam process more efficient. On the role of fair lending in determining CRA grades, Otting said it should have some impact but not solely determine a CRA grade.
Small-Dollar Lending:
Otting noted the small dollar bulletin recently issued was meant to encourage banks to offer short-term loans. He clarified that banks should not have to adhere to each individual state usury laws and instead should comply with the state’s interest rate caps in which the bank is headquartered. The OCC does not have plans to issue additional guidance, stating he is concerned guidance would be too restrictive. Rather, the OCC will determine whether the products are safe and fair through the examination process. The OCC hopes the BCFP rule will encourage banks to re-enter the short-term, less than 45 day, small dollar loan space.
Fintech Charter:
On the topic of fintech charters, Otting said the OCC will determine in July 2018 whether it will begin to accept fintech applications for special purpose charters, noting that they will be subject to the same supervision as national banks. He noted most fintechs are finding they do not want a charter after learning the capital requirements and commitment to communities they will have to adhere to like banks. Rather, most fintechs would like to serve as bank vendors.
Bank Secrecy Act:
The BSA should be open to review and Otting noted that the $10,000 suspicious activity report level might be too low, catching too many legal transactions. Otting said beneficial ownership information has its merits but having that information readily available is problematic for the banking industry. Additional technology like artificial intelligence should be used to share information including bank SAR reports. There are three core problems: (1) The number of Currency Transaction Reports (CTRs) that need to be filed; (2) The number of Suspicious Activity Reports (SARs) that need to be filed; and (3) The lack of risk-based examination process.
Guidance:
The OCC issued a memo to examiners reminding them “rules are rules and guidance is guidance.”
Postal Banking:
Otting said he thought it was a “creative idea” and while he did not generally support government lending, he supported increasing supply.
Lending Discrimination:
While he had never experienced it, Otting said he believes the people who have told him that it does exist.
- Small business loans, not just those to businesses with revenue under $1 million, should count toward CRA credits if they are in a “heavily blighted area;”
- Church-affiliated community centers, where many people receive financial advice, should count for CRA purposes;
- Assessment areas have restricted CRA activity by focusing so heavily on physical branch locations; and
- The “packaging up” of single family mortgages in low to moderate income areas, which are then sold among institutions for CRA credit, should not be counted as a new incremental dollar is not created.