Alert October 05, 2010

Federal Banking Agencies Adopt Interagency Final Rule under the Community Reinvestment Act Implementing Provisions of the Higher Education Opportunity Act

The FDIC, FRB, OCC and OTS (collectively, the “Agencies”) announced an interagency final rule (the “Rule”) promulgated under the Community Reinvestment Act (the “CRA”).  The Rule, which implements a provision of the Higher Education Opportunity Act, requires the Agencies to consider low-cost higher education loans made to low-income borrowers as a positive factor when assigning a financial institution’s rating for meeting community credit needs under the CRA.  The Rule specifies that “low-cost education loans” are education loans originated by financial institutions with interest rates and fees no greater than comparable education loans offered directly by the U.S. Department of Education.  The Rule applies only to education loans made to borrowers with an individual income that is less than 50 percent of the area median income for expenses incurred in connection with post-secondary education.

The Rule also implements a statutory provision permitting the Agencies to consider capital investment, loan participation and other ventures with minority-owned, women-owned and low-income credit unions when assessing the CRA rating for non-minority and non-women owned financial institutions.  To be eligible, such activities must help meet the credit needs of the local communities in which the minority-owned and women-owned financial institutions are chartered.

In a separate development concerning the CRA, the Democratic leaders of the House Financial Services Committee introduced a bill imposing more demanding requirements for financial institutions to receive an “outstanding” rating on exams conducted under the CRA, as well as adding a new “sufficient” rating and requiring bank affiliates and subsidiaries to be included in CRA evaluations.