[Federal Register Volume 71, Number 226 (Friday, November 24, 2006)]
[Proposed Rules]
[Pages 67826-67831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19915]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563e

[No. 2006-44]
RIN 1550-AC08


Community Reinvestment Act--Interagency Uniformity

AGENCY: Office of Thrift Supervision, Treasury (OTS).

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this notice of proposed rulemaking (proposal), OTS is 
proposing changes to its Community Reinvestment Act (CRA) regulations 
in four areas to reestablish uniformity between its regulations and 
those of the other Federal banking agencies. OTS is proposing revisions 
to its CRA rule to promote consistency and help facilitate objective 
evaluations of CRA performance across the banking and thrift 
industries. Consistent standards could allow the public to make more 
effective comparisons of bank and thrift CRA performance.
    To advance these objectives OTS is proposing to align its CRA rule 
with the rule adopted by the banking agencies by: (1) Eliminating the 
option of alternative weights for lending, investment, and service 
under the large, retail savings association test; (2) defining small 
savings associations with between $250 million and $1 billion in assets 
as ``intermediate small savings associations'' and establishing a new

[[Page 67827]]

community development test for them; (3) indexing the asset threshold 
for small and intermediate small savings associations annually based on 
changes to the Consumer Price Index (CPI); and (4) clarifying the 
impact on a savings association's CRA rating if OTS finds evidence of 
discrimination or other illegal credit practices.

DATES: Comments must be received by January 23, 2007.

ADDRESSES: You may submit comments, identified by No. 2006-44, by any 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail address: [email protected]. Please 
include No. 2006-44 in the subject line of the message and include your 
name and telephone number in the message.
     Fax: (202) 906-6518.
     Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: No. 2006-44.
     Hand Delivery/Courier: 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. 2006-44.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted without change to the 
OTS Internet Site at http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1, including any personal information 
provided.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1.
    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">public.info@ots.treas.gov, or 
send a facsimile transmission to (202) 906-7755. (Prior notice 
identifying the materials you will be requesting will assist us in 
serving you.) We schedule appointments 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 we receive a request.

FOR FURTHER INFORMATION CONTACT: Celeste Anderson, Senior Project 
Manager, Compliance and Consumer Protection, (202) 906-7990; Richard 
Bennett, Counsel, Regulations and Legislation Division, (202) 906-7409, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

    The CRA requires the Federal banking and thrift agencies to assess 
the record of each insured depository institution of 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 they evaluate an 
application by the institution for a deposit facility. 12 U.S.C. 2903. 
In 1995, when OTS, the Office of the Comptroller of the Currency (OCC), 
the Board of Governors of the Federal Reserve System (Board), and the 
Federal Deposit Insurance Corporation (FDIC) (collectively, the four 
agencies) adopted major amendments to regulations implementing the CRA, 
they 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 four agencies indicated that they would 
determine whether and, if so, how the regulations should be amended to 
better evaluate financial institutions' performance under the CRA, 
consistent with the Act's authority, mandate, and intent.
    The four agencies initiated their public review in July 2001 with 
publication in the Federal Register of an advance notice of proposed 
rulemaking. 66 FR 37602 (July 19, 2001). It requested comment on 
whether the regulations were effective in meeting the stated goals of 
the 1995 rulemaking and whether any changes should be made to the 
rules. It solicited comment on a wide variety of issues including the 
large retail institution test, the small institution test, the 
community development test for limited purpose and wholesale 
institutions, strategic plans, the performance context, assessment 
areas, affiliate activities, and data collection and maintenance of 
public files.
    After nearly three years of discussions, in February 2004, the four 
agencies published a notice of proposed rulemaking. 69 FR 5729 (Feb. 6, 
2004). Through it, the Agencies proposed to raise the small institution 
asset threshold to $500 million without regard to holding company 
affiliation; to amend the regulations to provide that certain 
discriminatory, illegal, or abusive credit practices would adversely 
affect the evaluation of the institution's CRA performance; and to 
enhance the data disclosed in CRA public evaluations and CRA disclosure 
statements.
    On July 16, 2004, the OCC and the Board announced that they would 
not proceed with their respective February 2004 proposals. The OCC did 
not formally withdraw the proposal, but did not adopt it. The Board 
formally withdrew its proposal.
    On August 18, 2004, OTS published a final rule that raised the 
small savings association asset threshold to $1 billion without regard 
to holding company affiliation effective October 1, 2004. 69 FR 51155 
(Aug. 18, 2004).
    On August 20, 2004, the FDIC issued another proposed rule. 69 FR 
51611 (Aug. 20, 2004). The FDIC proposed to raise the small institution 
asset threshold to $1 billion, while adding a community development 
activity criterion to the small institution test for banks with assets 
greater than $250 million up to $1 billion. It also proposed to expand 
the definition of ``community development'' to encompass a broader 
range of activities in rural areas.
    On November 24, 2004, OTS proposed further CRA regulatory reforms. 
69 FR 68257 (Nov. 24, 2004). Like the FDIC, it proposed to expand the 
definition of ``community development'' to encompass certain community 
development activities in underserved nonmetropolitan areas. OTS also 
solicited comment on expanding the definition of ``community 
development'' to encompass certain community development activities in 
areas affected by natural or other disasters or other major community 
disruptions without regard to whether those areas or the individuals 
served were low- or moderate-income. Further, OTS solicited comment on 
providing additional flexibility in the CRA examinations of large 
retail institutions.
    On March 2, 2005, OTS adopted a final rule effective April 1, 2005, 
that provided additional flexibility under the large retail savings 
association test whereby the weight given to the three components of 
the test does not uniformly apply approximately 50 percent weight to 
lending, 25 percent weight to services, and 25 percent weight to 
investments. 70 FR 10023 (Mar. 2, 2005).
    After OTS adopted final rules on CRA regulatory reform, the other 
agencies also amended their CRA rules. On August 2, 2005, following 
their publication of a notice of proposed rulemaking (70 FR 12148, 
12149 (Mar. 11, 2005)), the OCC, the Board, and the

[[Page 67828]]

FDIC (collectively, the three agencies) issued a joint final rule 
amending their CRA regulations. 70 FR 44256 (Aug. 2, 2005). The three 
agencies' August 2005 final rule extended eligibility for streamlined 
lending evaluations and the exemption from data reporting to banks 
under $1 billion, without regard to holding company assets. The three 
agencies' final rule expanded the definition of ``community 
development'' to include certain activities in underserved rural areas 
and disaster areas.
    The three agencies' final rule contained some differences from 
provisions OTS had proposed or finalized. It provided that the three 
agencies would separately evaluate and rate the community development 
records of institutions between $250 million and $1 billion (termed 
``intermediate small banks'' by the three agencies), but under a new, 
more streamlined basis than under the large retail institution test. 
Under this new test, the three agencies no longer require an 
intermediate small bank to collect and report data on small business or 
small farm loans or on the location of certain nonmetropolitan mortgage 
loans. However, the new test contains two components, a lending test 
and a community development test.
    It also refined one aspect of the February 2004 joint proposal to 
provide that evidence of discrimination or evidence of credit practices 
that violate an applicable law, rule, or regulation could adversely 
affect an agency's evaluation of a bank's CRA performance. The final 
rule included an illustrative list of such practices. Further, it 
provided that the asset thresholds would be adjusted annually for 
inflation, based on changes to the Consumer Price Index.
    On April 12, 2006, OTS adopted a further final rule revising the 
definition of ``community development'' to reduce burden and provide 
greater flexibility to meet community needs. The revised definition is 
the same as the definition that the Board, OCC, and FDIC adopted in 
their August 2, 2005 final rule.

Today's Proposal

    OTS believes that its rule achieved regulatory burden reduction. 
All four agencies have reduced the regulatory burden associated with 
the CRA regulations through steps such as amending the definition of 
small bank. However, OTS believes consistent standards applied equally 
across the banking and thrift industries could facilitate objective 
evaluations of CRA performance and ensure accurate assessments of 
institutions that operate in the same market. As a result, OTS is 
proposing to align its CRA regulation with those of the other Federal 
banking agencies to best serve the interests of insured depository 
institutions and their communities by providing for consistency in 
regulation and compliance.
    In issuing this proposal, OTS notes that savings associations have 
an excellent record in the provision of credit, investments, and 
services in their markets, particularly in low- to moderate-income 
communities. It is OTS's experience that, as a percentage of their 
total assets, savings associations far outdistance banks and other 
lenders in originating multi-family housing loans, a vehicle frequently 
utilized to provide affordable housing.\1\ OTS believes savings 
associations will continue to serve their markets, including low- and 
moderate-income communities, regardless of the applicable CRA rules.
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    \1\ OTS calculates that as of June 30, 2006, savings 
associations had 4.41% of their assets in multifamily loans whereas 
commercial banks had only 1.03% of their assets in multifamily 
loans.
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    Accordingly, OTS is proposing changes to its CRA regulations in 
four areas. While the preamble addresses each area in turn, the 
overriding question OTS poses to commenters with respect to each area 
is whether the benefits of greater regulatory uniformity and any other 
benefits outweigh any potential disadvantages. OTS also invites comment 
on all aspects of the proposal, including whether OTS should make any 
variations to the approach adopted by the other Federal banking 
agencies in any of these areas.

1. Alternative Weights

    OTS's March 2005 final rule provided additional flexibility for the 
weights given to lending, services, and investments for each 
examination under the large retail savings association test. OTS issued 
guidance on April 7, 2005, explaining the methodology it would apply 
through Thrift Bulletin 85 (April 7, 2005). The other three agencies 
have not adopted this approach.
    OTS is proposing to eliminate alternative weights to facilitate 
uniformity in the assessment of CRA performance between banks and 
thrifts. Most large institutions elected to continue to allocate 
weights under the three performance categories of lending, investments, 
and services.
Retaining Flexibility
    OTS notes that if the agency eliminates the alternative weight 
option for large savings associations, large savings associations would 
retain flexibility to focus their CRA efforts with emphasis on lending, 
just as they have in the past. For example, a savings association with 
outstanding performance in lending and services would still receive an 
``outstanding'' CRA rating overall, even if it makes few or no 
qualified investments. Additionally, a savings association with a poor 
record on the service test and few or no qualified investments would 
still receive a ``satisfactory'' CRA rating overall if its lending is 
at least highly satisfactory.
    As explained in the preamble to OTS's March 2005 final rule, a 
savings association with a strong lending record has always been able 
to receive at least a ``low satisfactory'' rating on the investment 
test while making few or no qualified investments due to limits on 
savings associations' investment authority. 70 FR at 10025. This policy 
originated in the preamble to 1995 CRA rule. The preamble explained 
that because of differences between savings associations and other 
financial institutions (e.g., the qualified thrift lender test and 
lending and investment limits on commercial loans and community 
development investments) a savings association could receive at least a 
``low satisfactory'' rating on the investment test without making 
qualified investments depending upon its lending performance. 60 FR at 
22163. Similarly, the 2001 Interagency Q&A Regarding Community 
Reinvestment indicate that a savings association that has made few or 
no qualified investments due to its limited investment authority may 
still receive a satisfactory rating under the investment test if it has 
a strong lending record. Q&A 21(b)(4), 66 FR 36620, 36631 (July 12, 
2001). If OTS eliminates the alternative weight option, these 
principles would continue to apply.
    Further, a savings association that would like OTS to evaluate its 
performance based on even more flexible criteria could opt for a 
strategic plan. While a strategic plan for a large retail savings 
association should generally address all three performance categories 
(lending, service, and investment), a different emphasis, including a 
focus on one or more performance categories, may be appropriate. The 
CRA rule specifically provides--and would continue to provide--that 
such a focus may be appropriate if responsive to the characteristics 
and credit needs of its assessment area, considering public comment and 
the savings association's capacity and constraints, product offerings, 
and business strategy. 12 CFR 563e.27(f)(ii).

[[Page 67829]]

    OTS solicits comment. Should OTS eliminate or retain the 
alternative weight option? Do the benefits of greater uniformity and 
any other benefits associated with eliminating the alternative weight 
option outweigh any potential disadvantages? If OTS eliminates the 
alternative weight option, what transition period, if any, should OTS 
provide for savings associations that have already begun adjusting 
their CRA-related programs in anticipation of having this flexibility 
on their next examination?

2. Community Development Test

    OTS's August 2004 final rule raised the small savings association 
asset threshold from $250 million to $1 billion and eliminated 
consideration of holding company affiliation. This change enabled OTS 
to evaluate the CRA performance of savings associations with $250 
million or more, but less than $1 billion, in assets under the small 
savings association test. In contrast to OTS, the other three agencies 
imposed a different community development test for institutions with 
$250 million or more, but less than $1 billion, in assets, which they 
call ``intermediate small banks.'' Under their test, the three agencies 
evaluate an intermediate small bank's lending performance under the 
small bank lending criteria, but they also evaluate the bank's 
community development performance under the following criteria:
     The number and amount of community development loans;
     The number and amount of qualified investments;
     The extent to which the bank provides community 
development services; and
     The bank's responsiveness through such activities to 
community development lending, investment, and services needs.
    OTS is proposing to adopt the intermediate small institution test. 
OTS believes that intermediate small savings associations are 
responsive to the community development needs within the communities 
they serve. The adoption of the intermediate small institution test 
will provide a more comprehensive framework for assessing the community 
development performance of intermediate small savings associations than 
the small savings association performance criteria. In addition, 
adopting the intermediate small institution test will assist the public 
in making a reasonable comparison of community development performance 
between banks and savings associations operating in the same market.
    OTS anticipates that if it adopts this test, it would allow 
flexibility. This proposal does not prescribe a required threshold for 
community development loans, qualified investments, and community 
development services. Instead, based on the savings association's 
assessment of community development needs in its assessment area(s), it 
would be able to engage in those categories of community development 
activities that are responsive to observed needs and consistent with 
the savings association's capacity. Savings associations that have been 
providing community development loans and services would find that OTS 
continues to give those activities credit when OTS evaluates compliance 
under the new test.
    Further, as under the large retail institution test, examiners 
would take into account statutory and supervisory limitations on a 
savings association's ability to engage in any lending, investment, and 
service activities. For example, OTS could still deem a savings 
association that has made few or no qualified investments due to limits 
on investment authority to have satisfied the criterion in the 
community development component of the test regarding ``the number and 
amount of qualified investments'' if the institution has a strong 
lending record.
    OTS solicits comment. Should it adopt the intermediate small bank 
test or continue to examine savings associations with up to $1 billion 
in assets under the small institution performance standards? Do the 
benefits of greater uniformity and any other benefits associated with 
adopting the intermediate small bank test outweigh any potential 
disadvantages? If OTS adopts the intermediate small bank test, what 
sunset period, if any, should OTS provide for savings associations that 
have already begun adjusting their CRA-related programs in anticipation 
of being examined under the small institution performance standards on 
their next examination? Is there a need to clarify any aspects of the 
intermediate small bank test and, if so, how?

3. Indexing Asset Thresholds

    OTS has not previously proposed to index the relevant asset 
thresholds for purposes of determining whether an institution is small 
or large. In contrast, the three agencies' final rule provides that 
they annually adjust the asset thresholds for small and intermediate 
small banks based on changes to the Consumer Price Index (CPI). 
Therefore, to ensure consistency in the standards for evaluating small 
and intermediate savings associations, OTS is proposing to index the 
asset threshold consistent with the approach adopted by the other 
Federal banking agencies.
    As the three agencies explained in the preamble to their March 11, 
2005 proposed rule (70 FR at 12151), there is precedent for indexing 
asset thresholds to the CPI. Under the Home Mortgage Disclosure Act, 12 
U.S.C. 2801 et seq., institutions under a certain asset threshold are 
exempt from HMDA requirements, with the threshold adjusted annually to 
the CPI and rounded to the nearest multiple of $1 million. 12 U.S.C. 
2808.
    OTS solicits comment. Should it adopt the same indexing for the 
asset size for small and intermediate small savings associations as the 
other three agencies or should it not index? Do the benefits of greater 
uniformity and any other benefits associated with adopting the same 
indexing outweigh any potential disadvantages?

4. Discriminatory or Other Illegal Credit Practices

    The preamble to OTS's August 2004 final rule explained why OTS was 
withdrawing one part of its portion of the February 2004 joint proposed 
rule. The withdrawn language would have added regulatory text providing 
that evidence that an institution or affiliate engages in 
discriminatory, illegal, or abusive credit practices would adversely 
affect the evaluation of the institution's CRA performance. Opposition 
came from financial institutions and consumer groups. OTS indicated 
that it would continue to rely on the more general provision in its 
rule that evidence of discriminatory or other illegal credit practices 
adversely affects the performance evaluation as interpreted in 
interagency Q&A 28(c)-1, 66 FR at 36640.
    The language adopted by the other three agencies in their August 
2005 final rule stated that with respect to discrimination in affiliate 
lending, the three agencies would reduce a rating based on 
discrimination in an affiliate's loans made inside the institution's 
assessment area where the loans have been considered as part of the 
institution's lending performance. The three agencies explained in the 
preamble to their August 2, 2005 final rule (70 FR at 44263) that a 
bank may not elect to include as part of its CRA evaluation affiliate 
loans outside the bank's assessment area. OTS is proposing to amend its 
CRA rule to reflect this approach.
    OTS solicits comment. Should it adopt the same language on

[[Page 67830]]

discriminatory or other illegal credit practices or adopt no new 
language? Do the benefits of greater uniformity and any other benefits 
associated with adopting the same approach to discriminatory or other 
illegal credit practices outweigh any potential disadvantages?

Regulatory Analysis

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, OTS may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
This collection of information is currently approved under OMB Control 
Number 1550-0012. This proposal would not change the collection of 
information.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS 
certifies that the proposal would not have a significant economic 
impact on a substantial number of small entities. None of the 
provisions would impose any additional paperwork or regulatory 
reporting requirements. Eliminating the option of alternative weights 
would only affect savings associations with assets of $1 billion or 
more. Imposing a community development test for intermediate small 
savings associations would only affect savings associations with assets 
of $250 million up to $1 billion. Likewise, indexing the asset 
thresholds would only affect savings associations with assets around 
$250 million or more. In contrast, the Small Business Administration 
(SBA) has defined ``small entities'' for banking purposes as those with 
assets of $165 million or less. 13 CFR 121.201.
    Incorporating language into the rule regarding discriminatory or 
illegal credit practices has no impact whatsoever. It does not change 
the laws or regulations applicable to savings associations that 
prohibit discriminatory or illegal conduct. It simply affects the way 
OTS considers noncompliance with these laws and regulations as part of 
the CRA performance evaluation.

Executive Order 12866 Determination

    OTS has determined that this proposal is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
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. OTS has determined that this 
rule would not result in expenditures by State, local, and tribal 
governments, or by the private sector, of $100 million or more. 
Accordingly, OTS has not prepared a budgetary impact statement nor 
specifically addressed the regulatory alternatives considered.

List of Subjects in 12 CFR Part 563e

    Community development, Credit, Investments, Reporting and 
recordkeeping requirements, Savings associations.

Office Of Thrift Supervision

12 CFR Chapter V

    For the reasons outlined in the 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. In Sec.  563e.12 revise paragraph (u), to read as follows:


Sec.  563e.12  Definitions.

* * * * *
    (u) Small savings associations--(1) Definition. Small savings 
association means a savings association that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1 
billion. Intermediate small savings association means a small savings 
association with assets of at least $250 million as of December 31 of 
both of the prior two calendar years and less than $1 billion as of 
December 31 of either of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OTS, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
* * * * *
    3. Amend Sec.  563e.21(a)(1) by removing ``, and to the extent 
consistent with Sec.  563e.28(d)''.
    4. Revise Sec.  563e.26 to read as follows:


Sec.  563e.26  Small savings association performance standards.

    (a) Performance criteria--(1) Small savings associations with 
assets of less than $250 million. The OTS evaluates the record of a 
small savings association that is not, or that was not during the prior 
calendar year, an intermediate small savings association, of helping to 
meet the credit needs of its assessment area(s) pursuant to the 
criteria set forth in paragraph (b) of this section.
    (2) Intermediate small savings associations. The OTS evaluates the 
record of a small savings association that is, or that was during the 
prior calendar year, an intermediate small savings association, of 
helping to meet the credit needs of its assessment area(s) pursuant to 
the criteria set forth in paragraphs (b) and (c) of this section.
    (b) Lending test. A small savings association's lending performance 
is evaluated pursuant to the following criteria:
    (1) The savings association's loan-to-deposit ratio, adjusted for 
seasonal variation, and, as appropriate, other lending-related 
activities, such as loan originations for sale to the secondary 
markets, community development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the savings association's assessment 
area(s);
    (3) The savings association's record of lending to and, as 
appropriate, engaging in other lending-related activities for borrowers 
of different income levels and businesses and farms of different sizes;
    (4) The geographic distribution of the savings association's loans; 
and
    (5) The savings association's record of taking action, if 
warranted, in response to written complaints about its performance in 
helping to meet credit needs in its assessment area(s).
    (c) Community development test. An intermediate small savings 
association's community development performance also is evaluated 
pursuant to the following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the savings association provides community 
development services; and

[[Page 67831]]

    (4) The savings association's responsiveness through such 
activities to community development lending, investment, and services 
needs.
    (d) Small savings association performance rating. The OTS rates the 
performance of a savings association evaluated under this section as 
provided in Appendix A of this part.
    5. Amend Sec.  563e.28 by:
    a. Removing ``paragraphs (b), (c), and (d) of this section'' in 
paragraph (a) and by adding in lieu thereof ``paragraphs (b) and (c) of 
this section'';
    b. Removing paragraph (d);
    c. Revising paragraph (c) to read as follows:


Sec.  563e.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The OTS's evaluation of a savings association's CRA 
performance is adversely affected by evidence of discriminatory or 
other illegal credit practices in any geography by the savings 
association or any affiliate whose loans have been considered as part 
of the savings association's lending performance. In connection with 
any type of lending activity described in Sec.  563e.22(a), evidence of 
discriminatory or other credit practices that violate an applicable 
law, rule, or regulation includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (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.
    5. In Appendix A to part 563e, revise paragraph (d) to read as 
follows:

Appendix A to Part 563e--Ratings

* * * * *
    (d) Savings associations evaluated under the small savings 
association performance standards--(1) Lending test ratings--(i) 
Eligibility for a satisfactory lending test rating. The OTS rates a 
small savings association's lending performance ``satisfactory'' if, 
in general, the savings association demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the savings association's size, financial 
condition, the credit needs of its assessment area(s), and taking 
into account, as appropriate, other lending-related activities such 
as loan originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the savings association's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the savings 
association's performance in helping to meet the credit needs of its 
assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
savings association's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small savings association that meets each of the standards for a 
``satisfactory'' rating under this paragraph and exceeds some or all 
of those standards may warrant consideration for a lending test 
rating of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small savings association may also receive a lending test rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standard 
for a ``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
savings associations--
    (i) Eligibility for a satisfactory community development test 
rating. The OTS rates an intermediate small savings association's 
community development performance ``satisfactory'' if the savings 
association demonstrates adequate responsiveness to the community 
development needs of its assessment area(s) through community 
development loans, qualified investments, and community development 
services. The adequacy of the savings association's response will 
depend on its capacity for such community development activities, 
its assessment area's need for such community development 
activities, and the availability of such opportunities for community 
development in the savings association's assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The OTS rates an intermediate small savings association's 
community development performance ``outstanding'' if the savings 
association demonstrates excellent responsiveness to community 
development needs in its assessment area(s) through community 
development loans, qualified investments, and community development 
services, as appropriate, considering the savings association's 
capacity and the need and availability of such opportunities for 
community development in the savings association's assessment 
area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small savings association may also receive a community 
development test rating of ``needs to improve'' or ``substantial 
noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small savings association may receive an 
assigned overall rating of ``satisfactory'' unless it receives a 
rating of at least ``satisfactory'' on both the lending test and the 
community development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small savings association that receives an 
``outstanding'' rating on one test and at least ``satisfactory'' on 
the other test may receive an assigned overall rating of 
``outstanding.''
    (B) A small savings association that is not an intermediate 
small savings association that meets each of the standards for a 
``satisfactory'' rating under the lending test and exceeds some or 
all of those standards may warrant consideration for an overall 
rating of ``outstanding.'' In assessing whether a bank's performance 
is ``outstanding,'' the OTS considers the extent to which the 
savings association exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other 
services and delivery systems that enhance credit availability in 
its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small savings association may also receive a rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standards 
for a ``satisfactory'' rating.
* * * * *

    Dated: November 20, 2006.

    By the Office of Thrift Supervision.
John M. Reich,
Director.

 [FR Doc. E6-19915 Filed 11-22-06; 8:45 am]
BILLING CODE 6720-01-P