Community Reinvestment Act Regulations, 61035-61046 [2010-24737]

Download as PDF 61035 Rules and Regulations Federal Register Vol. 75, No. 191 Monday, October 4, 2010 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new books are listed in the first FEDERAL REGISTER issue of each week. DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 25 [Docket ID OCC–2010–0014] RIN 1557–AD24 FEDERAL RESERVE SYSTEM 12 CFR Part 228 [Docket No. R–1360] FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 345 RIN 3064–AD45 DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 563e [Docket ID OTS–2010–0023] RIN 1550–AC35 Community Reinvestment Act Regulations 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 final rule. AGENCIES: The OCC, Board, FDIC, and OTS (collectively, ‘‘the Agencies’’) are issuing this joint final rule, which revises our rules implementing the Community Reinvestment Act (CRA). The rule implements the statutory requirement that the Agencies consider low-cost education loans provided by the financial institution to low-income borrowers as a factor when assessing an erowe on DSK5CLS3C1PROD with RULES SUMMARY: VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 institution’s record of meeting community credit needs. The final rule also incorporates the statutory provision that allows the Agencies to consider capital investment, loan participation, and other ventures undertaken by nonminority-owned and nonwomenowned financial institutions in cooperation with minority- and womenowned financial institutions and lowincome credit unions as a factor when assessing an institution’s CRA record. DATES: Effective Date: November 3, 2010. FOR FURTHER INFORMATION CONTACT: OCC: Margaret Hesse, Special Counsel, Community and Consumer Law Division, (202) 874–5750; or Gregory Nagel, National Bank Examiner, Compliance Policy, (202) 874–4428, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. Board: Rebecca Lassman, Supervisory Consumer Financial Services Analyst, (202) 452–2080; or Brent Lattin, Senior Attorney, (202) 452–3667, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. FDIC: Janet R. Gordon, Senior Policy Analyst, Division of Supervision and Consumer Protection, Compliance Policy Branch, (202) 898–3850; or Susan van den Toorn, Counsel, Legal Division, (202) 898–8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. OTS: Stephanie M. Caputo, Senior Compliance Program Analyst, Compliance and Consumer Protection, (202) 906–6549; or Richard Bennett, Senior Compliance Counsel, Regulations and Legislation Division, (202) 906–7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. SUPPLEMENTARY INFORMATION: Background 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 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 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 Notice of Proposed Rulemaking 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 lowincome 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. Twenty-four different commenters provided their views to the Agencies on the proposed revisions. The commenters represented financial institutions, financial institution trade organizations, community or consumer organizations, and others. Low-Cost Education Loans to LowIncome Borrowers Background and General Comments 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 1 12 U.S.C. 2903. 12 CFR parts 25 (OCC), 228 (Board), 345 (FDIC), and 563e (OTS). 3 74 FR 31209 (Jun. 30, 2009). 4 ‘‘Consumer loan’’ is defined in the CRA regulations as a loan to one or more individuals for household, family, or other personal expenditures. Consumer loans include the following categories of loans: motor vehicle loans, credit card loans, home equity loans, other secured consumer loans, and other unsecured consumer loans. 12 CFR 25.12(j), 228.12(j), 345.12(j), and 563e.12(j). 2 See E:\FR\FM\04OCR1.SGM 04OCR1 61036 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations erowe on DSK5CLS3C1PROD with RULES this 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 lowcost 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 low5 See 12 CFR 25.22(a)(1) and 25.42(c); 12 CFR 228.22(a)(1) and 228.42(c); 12 CFR 345.12(a)(1) and 345.42(c); and 12 CFR 563e.22(a)(1) and 563e.42(c). 6 See, e.g., 12 CFR 25.22 and 25.26; 228.22 and 228.26, 345.22 and 345.26, and 563e.22 and 563.26. 7 12 U.S.C. 2903(d). 8 H.R. Rep. No. 110–500 at 297 (2007). See also Private Student Lending: Hearing before the Senate Comm. on Banking, Housing, and Urban Affairs, 110th Cong. (2007) (comment by Sen. Dodd: ‘‘It strikes me that we should be promoting, of course, incentives for lenders to provide the neediest students with good loans, loans, in my mind, that are similar in rate and fee structure to those under the federal loan program.’’) (transcript available through CQ Congressional Transcripts, Congressional Hearings, Jun. 6, 2007). VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 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 agree that the intent of the revision is to encourage, but not to require, financial institutions to make low-cost education loans to low-income borrowers and provide an incentive to do so. The Proposal The Agencies proposed to consider low-cost education loans provided by the institution to borrowers in its assessment area(s) who have an individual income that is less than 50 percent of the area median income. Further, the Agencies proposed to define ‘‘low-cost education loans’’ to mean (1) education loans originated by an institution through a U.S. Department of Education loan program; or (2) any private education loan as defined in the Truth in Lending Act, including loans under a state or local education loan program, originated by an institution for a student at an ‘‘institution of higher education,’’ with interest rates and fees no greater than those of comparable education loans offered through loan programs of the U.S. Department of Education. Under the first prong of the proposed definition, any loans that institutions make through a Department of Education loan program, such as the Federal Family Education Loan (FFEL) Program, would be considered ‘‘low-cost education loans.’’ Under the second prong of the proposed definition, ‘‘private education loans’’ that institutions make would be considered ‘‘low-cost education loans,’’ provided that the interest rates and fees are no greater than those of comparable education loans offered through loan programs of the U.S. Department of Education. The Agencies also proposed a conforming amendment to Appendix A of the regulations to include consideration of a financial institution’s low-cost education loans to low-income borrowers as a factor when assigning a rating to the institution. The Agencies asked for comment on a number of areas related to the proposed definition. Scope of ‘‘Education Loans’’ General Comment About Education Lending by Financial Institutions Several commenters noted that education lending, particularly private education lending, is a specialized type of lending engaged in by only a few financial institutions. These commenters requested that the Agencies expressly state that the final rule does not require institutions to make low-cost education loans, or, for that matter, education loans generally. The Agencies 9 74 PO 00000 FR at 31214. Frm 00002 Fmt 4700 Sfmt 4700 Education Loans—The Proposal 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. As discussed in the preamble to the proposed rule, in defining private education loans, the Agencies proposed to adopt the terms ‘‘private education loan,’’ ‘‘private educational lender,’’ and ‘‘postsecondary educational expenses,’’ each of which is defined in the HEOA in the context of the Truth in Lending Act (TILA). Section 1011 of the HEOA added section 140 of TILA to provide the following definition: [T]he term ‘‘private education loan’’— (A) Means a loan provided by a private educational lender that— (i) Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and (ii) Is issued expressly for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the subject student attends or directly to the borrower from the private educational lender; and (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 10 12 U.S.C. 2903(d) (as added by section 1031 of the HEOA). 11 Section 140(a)(7) of the Truth in Lending Act, as added by section 1011 of the HEOA. 12 Section 140(a)(6)(A) of the Truth in Lending Act, as added by section 1011 of the HEOA. E:\FR\FM\04OCR1.SGM 04OCR1 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations an 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 Although section 1031 of the HEOA is not expressly limited to loans for higher education, the Agencies proposed to include this limitation in the definition of low-cost private education loans. Thus, the Agencies proposed that the private education loan definition would encompass loans made for expenses incurred at any ‘‘institution of higher education’’ as that term is generally defined in sections 101 and 102 of the Higher Education Act of 1965 (HEA), 20 U.S.C. 1001 and 1002. Such institutions generally include accredited public or nonprofit colleges and vocational schools, accredited private colleges and vocational schools, and certain foreign institutions offering postsecondary education that are comparable to institutions of higher education in the United States based on standards approved by the U.S. Department of Education. The Agencies did not propose to cover unaccredited colleges, universities, or vocational schools because they lacked sufficient information regarding these institutions, but solicited comment on this issue. Based on these definitions and considerations, under the proposed rule, financial institutions would receive CRA consideration for making private (non-Federal) closed-end education loans, not secured by real property or a dwelling, for post-secondary educational expenses at an institution of higher education. They would also receive consideration for making education loans through a program of the U.S. Department of Education. erowe on DSK5CLS3C1PROD with RULES Comments and Final Rule 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 13 See 20 U.S.C. 1087ll (definition of ‘‘cost of attendance’’). 14 Health Care and Education Reconciliation Act of 2010, Public Law 111–152 (2010). VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 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 lowcost 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 Higher Education Institutions—The Proposal 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 15 The Agencies note, however, that many such institutions are covered under the definition of ‘‘institution of higher education’’ discussed below, and loans to their students could qualify for CRA consideration under this provision if other applicable criteria are met. 16 H.R. Rep. No. 110–500 at 203, 297 (2007) (emphasis added). PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 61037 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). Comments and Final Rule Commenters generally opposed using the narrower definition of ‘‘institution of higher education’’ found in section 101 of the HEA because it would exclude some institutions providing vocational and career training. The Agencies agree that, consistent with the HEOA’s purpose, eligible schools should include the broad range of accredited institutions under the definition of ‘‘institution of higher education,’’ including accredited vocational institutions that provide educational programs that prepare students for gainful employment in a recognized profession. 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 17 If the Agencies were to restrict the definition of ‘‘institution of higher education’’ to only those institutions defined in section 101 of the HEA, loans to cover educational expenses at for-profit institutions of higher education, some postsecondary vocational institutions that provide training to prepare students for employment in a recognized occupation, and some U.S. Department of Education-approved institutions located outside the United States would not qualify for consideration. 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 https://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. E:\FR\FM\04OCR1.SGM 04OCR1 61038 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations unaccredited institutions encouraged the Agencies to provide maximum flexibility to financial institutions to provide a wide range of education loans. The Agencies are adopting the scope of higher education institutions as proposed. As noted above, the Agencies believe that the broader definition of ‘‘institution of higher education,’’ including accredited vocational institutions, provides flexibility to financial institutions, while limiting the definition to accredited institutions will help ensure that such programs benefit students. The Agencies will consider, as a factor, low-cost education loans to low-income borrowers to attend institutions of higher education, as defined in sections 101 and 102 of the HEA, 20 U.S.C. 1001–1002, when evaluating a financial institution under the CRA. erowe on DSK5CLS3C1PROD with RULES Private Education Loans—The Proposal As discussed above, the Agencies proposed to consider low-cost private education loans made to low-income borrowers, as well as loans provided to low-income borrowers by a financial institution under a Federal education program. The Agencies requested comment on whether private education loans not made, insured, or guaranteed under a Federal, state, or local education program should be considered for CRA purposes. Comments and Final Rule 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 These commenters noted that many students and families are unable to cover the full cost of an education relying only on government programs and may need to pursue other types of funding to complete their education. Consequently, these commenters encouraged the Agencies to allow CRA consideration for non-governmental low-cost private education loans. The Agencies note that the HEOA’s purpose was, in significant part, to provide an incentive to financial institutions to provide low-cost private education loans to low-income borrowers not currently served by education loan programs. 19 H.R. 3221, 111th Cong., 1st Sess. (2009). VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 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. State or Local Government-Sponsored Education Loans—The Proposal The Agencies proposed to treat education loans offered to low-income borrowers under state or local government education programs the same as all other private education loans, consistent with the definition of ‘‘private education loans’’ in section 140(a)(7) of the Truth in Lending Act, which includes education loans made by financial institutions under local and state education loan programs. The Agencies asked whether all education loans offered to low-income borrowers under state or local education programs, regardless of whether the fees and rates are greater than those under comparable Department of Education programs, should be eligible for CRA consideration. Comments and Final Rule Only three commenters addressed this question. One commenter advised that the Agencies should use consistent measures among all private education loan programs, without favoring state and local programs. A second commenter believed that rates and fees on loans made by an institution under state or local education programs would not have to be exactly the same, but should be reasonably comparable to rates and fees on loans made under the Department of Education programs. The third commenter believed that all education loans offered to low-income borrowers and families under state or local programs, regardless of whether the rates and fees are comparable to those under Department of Education programs, should be eligible for CRA consideration. 20 Title II, Health Care and Education Reconciliation Act of 2010, Public Law 111–152 (2010). PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 After a review of the comments, the Agencies have adopted the language in the provision regarding state or local education programs as proposed. The Agencies are not aware of any state or local education loan programs that are targeted or available to low-income students in which costs are limited in a manner similar to the Federal direct loan program, and for which an alternative definition of ‘‘low-cost’’ might be appropriate. Types of Loans—The Proposal The proposed definition of a private education loan was limited to closedend loans not secured by real property or a dwelling originated by a financial institution. Comments and Final Rule Community group commenters supported limiting coverage in this manner noting a concern about using a home as collateral for an education loan. One financial institution commenter also supported the proposed limitation, noting that there may be operational difficulties determining whether a dwelling-secured loan was used for educational expenses. By contrast, other financial institution and trade group commenters encouraged the Agencies to broaden the scope of the private education loan definition to include open-end or dwelling-secured credit, noting that consumers use these types of credit to fund educational expenses. These commenters requested that the Agencies provide flexibility to financial institutions by including such types of credit. The definition of education loan in the final rule incorporates the TILA definition of that term, which excludes open-end credit and credit secured by real property or a dwelling. As discussed more fully below, the HEOA amended both the CRA to provide an incentive for financial institutions to make low-cost education loans and TILA to provide for new disclosures and additional consumer protections for private education loans. The Agencies believe that in order for financial institutions to receive consideration under the CRA for an education loan, it is appropriate that such loans also be covered by the new disclosures and other substantive restrictions added to TILA by the HEOA. Therefore the Agencies are adopting the definition of private education loan as used in section 140(a)(7) of TILA. 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, E:\FR\FM\04OCR1.SGM 04OCR1 erowe on DSK5CLS3C1PROD with RULES Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations commenters 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 cobranding between private educational lenders and educational institutions.22 The Agencies also requested comment on whether to limit consideration to loans originated by the financial institution, as proposed, or to consider loans purchased by the institution. Community group commenters opposed providing consideration for purchased loans, stating a concern that purchasing loans does not significantly expand the capacity of financial institutions to offer additional loans. By contrast, financial institution commenters supported allowing consideration for purchased loans, consistent with other types of CRA-eligible loans. The final rule limits consideration to low-cost education loans originated by the financial institution, and not to purchased loans. As discussed above, the Agencies believe that the intent of the HEOA amendment to the CRA was 21 Section 128(e) of the Truth in Lending Act, as added by section 1021 of the HEOA. 22 Section 140(e) of the Truth in Lending Act, as added by section 1011 of the HEOA. VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 to provide an incentive to financial institutions to originate loans to lowincome borrowers currently not reached by most private loan programs. The Agencies believe that providing consideration only for loans originated by the financial institution provides an incentive to financial institutions to develop education loan programs that are tailored to the specific need targeted by the statutory amendment. ‘‘Low-Cost Education Loans’’ The Proposal The Agencies proposed to define ‘‘low-cost education loans’’ as education loans that are originated by financial institutions through a program of the U.S. Department of Education; or any private education loans, including loans under state or local education loan programs, originated by financial institutions with interest rates and fees no greater than those of comparable education loan programs offered by the U.S. Department of Education. The proposal would have looked to guaranteed education loans provided by financial institutions through the U.S. Department of Education’s Federal Family Education Loan Program (FFEL loans) as being the comparable education loan program. Comments and Final Rule The Agencies asked whether the proposed definition of the term ‘‘lowcost education loans’’ is appropriate and, if not, how the Agencies should define ‘‘low-cost education loans.’’ Commenters representing community organizations generally agreed with the proposed definition that private education loans receiving CRA consideration should have interest rates and fees no greater than comparable loans offered through the Department of Education. In fact, the same commenters stated that, to maintain consistency with the purpose of the HEOA to make college affordable, the lowest rates and fees should be used. Although commenters representing financial institutions and their trade organizations generally agreed that loans made by financial institutions under Department of Education programs should be considered lowcost, they raised concerns about requiring the rates and fees on private education loans to be comparable to the rates and fees applicable to Department of Education loans. In particular, they noted the substantial differences between loans made by financial institutions under Department of Education programs and private education loans in terms of risks, costs, PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 61039 and pricing. For example, commenters noted that FFEL education loans have a 97 percent guarantee against default and that a lender’s yield is not tied to the fixed interest rate paid by the borrower, but rather is based on a separate formula set in statute. By contrast, private education loans generally have a variable rate determined by an index, such as Prime or one- or three-month LIBOR, and a margin, which typically varies depending on a borrower’s creditworthiness. In addition, the lender assumes all of the risk of default on a private education loan. Several of the commenters representing financial institutions or their trade groups suggested that the Agencies should develop a formula, based on an index and a margin, to define low-cost, variable rate private education loans. Commenters suggested one-month or three-month LIBOR or Prime as possible rates to use as an index. Margin suggestions varied from three to eight percent. Commenters also suggested that upfront fees of up to four percent would be appropriate. The Agencies also asked how to determine whether a private education loan is comparable to a Department of Education loan and whether the lowest or highest rate and fees available under the comparable Department of Education program should be used to determine whether a private education loan is low cost. Although few commenters addressed these questions, the views of the commenters that did respond were mixed. Commenters suggested both that it is necessary to use the lowest rates and fees, as well as that the higher rate should serve as the maximum permissible rate for private loans. Industry commenters reasserted that it is not appropriate to evaluate whether a private education loan is ‘‘low-cost’’ based on rates and fees applicable to federal education loans. The Agencies have considered these comments carefully. The Agencies considered various options with regard to a definition of a ‘‘low-cost’’ private education loan that could address these concerns. For example, the Agencies considered whether a low-cost private education loan should be defined with a rate that is 100 to 300 basis points over a Federal loan rate. However, we did not receive comments that identified a standard benchmark, margin, or number of basis points to be used as an alternative formula for ‘‘low cost.’’ 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 E:\FR\FM\04OCR1.SGM 04OCR1 61040 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations Education as the benchmark for ‘‘low cost’’ education loans. To determine whether education loans have rates and terms that are no greater than the rates and terms on loans made under the Federal direct loan program, education loans will be compared with comparable direct loans. For example, fixed-rate loans will be compared to fixed-rate Federal loans, variable-rate loans will be compared to variable-rate Federal loans, loans to students will be compared to Federal loans to students, and loans to parents will be compared to Federal loans to parents. The Agencies note that most education loans originated by financial institutions have a variable rate. 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 Origination fees are allowed for Federal direct loans. Financial institutions may use the fee percentages for Federal loans to students and parents, as appropriate, as benchmarks. Although the Agencies are adopting a definition of ‘‘low-cost education loan’’ that is generally similar to the proposal, if the Agencies find that the rules as adopted have not acted as an incentive to financial institutions’ providing lowcost education loans to low-income 23 See 20 U.S.C. 1087e. https://studentaid.ed.gov/ PORTALSWebApp/students/english/ studentloans.jsp; https://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 https:// studentaid.ed.gov/PORTALSWebApp/students/ english/FFEL_DL_InterestRates.jsp. erowe on DSK5CLS3C1PROD with RULES 24 See VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 borrowers, the Agencies may reconsider these provisions. ‘‘Low-Income Borrower’’ The Proposal 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 coborrowers 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 lowincome borrowers. Final Rule and Comments Several commenters, including community groups and several financial institutions or trade associations generally supported using the 50 percent benchmark as proposed. Several financial institutions and trade associations advocated that the final rule be expanded to cover both lowincome and moderate-income borrowers as defined by the existing CRA rule. A state association of lenders commented that the Agencies should simply base the income assessment on loans originated through the U.S. Department of Education by defining low-cost education loans as need-based federal student loans. This commenter and several financial institutions further explained that institutions that make U.S. Department of Education loans do not have access to financial and income information on students and their families because the student borrowers are qualified by the school; thus, it would be hard to determine for CRA purposes whether the borrowers are 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). PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 low-income. Some of these commenters recommended that low-income borrowers be defined as any borrower eligible for a loan through a program of the U.S. Department of Education or, for a borrower through a private loan program, with qualifying income that is less than 50 percent of area median income. Another financial institution recommended that government loans that are needs-based, such as subsidized Stafford loans, automatically qualify as loans to low-income borrowers. One trade association suggested that, as an alternative to the proposed definition of low-income (less than 50 percent of the area median income), the Agencies could look only at the household income of the primary obligor on the loan and if the primary obligor is a dependent in a low-income household, the primary obligor would be considered a low-income borrower no matter what additional guarantors or cosignors are obligated on the loan. Similarly, the commenter noted, if the student is a financially emancipated adult, then his/her individual income would determine his/her income status. Alternatively, the commenter suggests that if all those obligated on the credit are taken into account, then the final rule needs to clarify how the Agencies will calculate whether the low-income standard is met. Several commenters addressed how to treat the income of a student’s family or other expected family contributions to ensure that the CRA consideration is consistent with HEOA’s focus on lowincome borrowers. As noted above, a trade association suggested the final regulation should look at the household income of the primary obligor. That commenter recommended that household income be considered in lieu of considering income of a co-signer, to avoid any situation where obtaining a co-signer, who might strengthen the loan application and improve the safety and soundness of the loan, might be discouraged for CRA-related loans. 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 E:\FR\FM\04OCR1.SGM 04OCR1 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations institution 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. The Agencies considered these commenters’ concerns about the possibility that a student borrower may be considered to be ‘‘low-income’’ under the CRA standard, even though the student’s family may be able to provide additional financial support. The Agencies considered, for example, adopting a test to determine whether a student borrower is an ‘‘independent’’ student and, if not, requiring the use of family income to determine whether the loan was to a ‘‘low-income’’ borrower. The Agencies are adopting the definition of ‘‘low-income’’ as proposed—based on an individual income that is less than 50 percent of the area median income. As noted above, some financial institutions may not require family income information in connection with education loans (except when family members co-sign or guaranty the loan). Requiring collection of data on family income would likely have imposed new burdens and procedural requirements on both borrowers and financial institutions. erowe on DSK5CLS3C1PROD with RULES ‘‘Other Education Loan Issues’’ Quantitative Consideration As proposed by the Agencies, institutions would receive favorable qualitative consideration for originating ‘‘low-cost education loans to lowincome borrowers’’ as a factor in the institutions’ overall CRA rating, independent of the consideration for consumer loans under the current lending test. Such loans would be considered responsive to the credit needs of the institutions’ communities. Under the CRA regulations, 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 this criterion may choose to have education loans evaluated as consumer loans under the lending test applicable to the institution. If an institution opts to have education loans evaluated, the loans would be evaluated quantitatively, based on the data the institution VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 provides. The Agencies requested comment on whether the final regulation should also allow an institution to receive separate quantitative consideration for the number and amount of low-cost education loans to low-income borrowers as part of its CRA evaluation under the performance test applicable to that institution, without regard to other consumer loans. Comments and Final Rule One financial institution agreed that institutions should receive favorable qualitative consideration for originating low-cost loans to low-income borrowers and recommended that, consistent with the treatment of other consumer loans, education loans not be reviewed as part of the quantitative CRA evaluation unless such loans represent a substantial majority of the financial institution’s business or at the institution’s option if it has collected and maintained data. Other financial institutions and a trade association strongly supported providing institutions the option to receive favorable quantitative consideration as consumer loans under the lending test of the current CRA rules. These commenters further stated that if the low-cost education loans were to become a separate subcategory of consumer lending, financial institutions would have to generate the necessary data, to the extent they do not already exist and that it would be difficult to evaluate the data in the absence of data from other institutions. They further stated that if this were the approach taken, it may be a disincentive to participate. Finally, one financial institution commented that the legislation regarding the low-cost education loans clearly anticipates that the agencies would consider student lending on its own merits, apart from other consumer loan categories and suggested that consideration could be accomplished by revising the consumer loan reporting categories to include a separate category for student loans. After consideration of the comments, the Agencies have adopted the provision as proposed to make clear that all types and sizes of institutions will be eligible to receive qualitative consideration for originating ‘‘low-cost education loans to low-income borrowers’’ as a factor in the institutions’ overall CRA rating, without regard to the performance test under which an institution is evaluated. As noted above, institutions may obtain CRA consideration of education loans as consumer loans under existing standards applicable to consumer loans. PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 61041 Application to All Institutions The Agencies also asked whether institutions and other interested parties understood that the new provision on low-cost education loans to low-income borrowers is applicable to all institutions, without regard to institution size, as a result of the provisions’ placement in 12 CFR 25.21, 228.21, 345.21 and 563e.21. No commenters responded directly to the question. However, several commenters suggested that the Agencies should treat low-cost education loans to low-income borrowers differently than initially proposed. Several commenters representing small financial institutions suggested that the provision should not apply to small financial institutions because few small institutions make education loans. As discussed above, financial institutions that do not make education loans will not be required to start making such loans. Another commenter believed that evaluation of education lending should not apply to wholesale or limited purpose institutions. The Agencies agree that wholesale institutions will not engage directly in education lending because, by definition, wholesale institutions do not engage in retail lending. Limited purpose institutions, on the other hand, could engage in education lending as their narrow product line. One commenter suggested that lowcost 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 ‘‘lowcost 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 lowincome borrowers to the institution’s 27 H. Rep. No. 110–500 at 366 (2007) (emphasis added). The CRA also generally encourages financial institutions to help meet the credit needs of the local communities in which they are chartered. 12 U.S.C. 2901(b). E:\FR\FM\04OCR1.SGM 04OCR1 61042 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations assessment 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 moderateincome 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. Finally, one commenter emphasized that the provision addressing consideration of low-cost education loans to low-income borrowers should not affect CRA strategic plans that are already in effect or future plans. The Agencies do not intend this provision to affect CRA strategic plans. Other Comments on the Proposed Education Loan Provision erowe on DSK5CLS3C1PROD with RULES Several commenters suggested that unnecessarily detailed technical requirements should be kept to a minimum in the final rule. The Agencies agree and have attempted to do so. 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 28 See 12 CFR 25.22(b)(3), 228.22(b)(3), 345.22(b)(3), and 563e.22(b)(3). 29 See Interagency Questions and Answers Regarding Community Reinvestment, 75 FR at 11656–57 (Q&A § __.22(b)(2) & (3)–4). 30 12 CFR 25.12(o)(1), 228.12(o)(1), 345.12(o)(1), and 563e.12(o)(1). VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 by the borrower or school to determine the loan location. Activities Undertaken in Cooperation with Minority- and Women-Owned Financial Institutions and Low-Income Credit Unions The Proposal 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 nonwomenowned 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. The Agencies proposed to add the new provision addressing favorable CRA consideration for activities in cooperation with minority- and womenowned financial institutions and lowincome credit unions to 12 CFR 25.21, 228.21, 345.21, and 563e.21. These sections apply to all types and sizes of 31 12 32 74 U.S.C. 2903(b). CFR at 31213. 33 Id. 34 74 Comments and Final Rule Several consumer and community groups commented on the geographic scope of the proposal. They urged the Agencies to narrow the geographic scope by providing favorable CRA consideration to investments outside the majority-owned institution’s assessment area only if the majority-owned institution met the needs of its assessment area. One community organization urged the Agencies to narrow the geographic scope even further by providing favorable CRA consideration only to loan participations and other ventures undertaken in cooperation with minority- and women-owned financial institutions and low-income credit unions outside the majority-owned institution’s assessment area only if the majority-owned institution met the needs of its assessment area. 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 35 74 FR 498, 507 (Jan. 6, 2009) (Q&A § __.12(g)– 4). PO 00000 institutions, without regard to the performance test under which an institution is evaluated. Accordingly, the preamble indicated that the proposed provision would also be applicable to all financial institutions. The Agencies also proposed a conforming amendment to Appendix A of the regulations to include consideration of a financial institution’s activities in cooperation with minorityand women-owned financial institutions as a factor when assigning a rating to the institution. 36 74 FR at 500. FR at 507 (Q&A § l.12(g)–4); 75 FR at 11645 (same). Frm 00008 Fmt 4700 Sfmt 4700 E:\FR\FM\04OCR1.SGM 04OCR1 erowe on DSK5CLS3C1PROD with RULES Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations institutions 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 moderateincome areas or to low- and moderateincome 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 womenowned financial institutions and lowincome 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 37 75 38 75 FR at 11652 (Q&A § l.12(t)–4). FR at 11648 (Q&A § l.12(h)–1). VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 § l.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 womenowned 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 are adopting 12 CFR l.21(f) and revising Appendix A as proposed. Effective Date This joint final rule becomes effective 30 days after the date of publication in the Federal Register. Interagency Guidance 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 womenowned financial institutions and lowincome 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). Regulatory Analysis Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Ch. 3506; 5 CFR 1320 Appendix A.1) (PRA), each agency reviewed its final rule and determined that there are no new collections of information contained therein. However, the amendments may have a negligible affect on burden estimates for existing information collections, including recordkeeping requirements for consumer loans. The Agencies did not receive any comments on the PRA section of the proposed rule. 39 12 CFR 25.21(f); 228.21(f); 345.21(f); and 563e.21(f). PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 61043 Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) requires an agency that is issuing a final rule to provide a final regulatory flexibility analysis or to certify that the rule will not have a significant economic impact on a substantial number of small entities. Under regulations issued by the Small Business Administration, a small entity includes a bank holding company, commercial bank, or savings association with assets of $175 million or less (collectively, small banking organizations). Under this joint final rule, the Agencies would consider, as a factor, when assessing an institution’s CRA record that the institution made low-cost education loans to low-income borrowers or engaged in activities in cooperation with minority- or womenowned financial institutions or lowincome credit unions. The Agencies believe that this joint final rule will not have a significant economic impact on a substantial number of small entities because the final rule does not require a financial institution to engage in these activities. In addition, the Agencies did not receive any comments that the proposal would have a significant impact on small banking organizations. Accordingly, each of the Agencies certifies that this rule will not have a significant economic impact on a substantial number of small entities. OCC and OTS Executive Order 12866 Determinations Pursuant to Executive Order 12866, OMB’s Office of Information and Regulatory Affairs (OIRA) has designated the final rule to be significant. OCC and OTS Unfunded Mandates Reform Act of 1995 Determination 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 E:\FR\FM\04OCR1.SGM 04OCR1 61044 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations or more in any one year. 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 joint final rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999, Public Law 105–277 (5 U.S.C. 601 note). OCC and OTS Executive Order 13132 Determination The OCC and the OTS have each determined that its portion of this joint final rule does not have any Federalism implications, as required by Executive Order 13132. Administrative Procedure Act; Riegle Community Development and Regulatory Improvement Act of 1994 This joint final rule becomes effective 30 days after the date of publication in the Federal Register. 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. List of Subjects erowe on DSK5CLS3C1PROD with RULES 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, VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 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 discussed in the joint preamble, the Office of the Comptroller of the Currency amends 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 is revised 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 2908, and 3101 through 3111. 2. In § 25.21, add new paragraphs (e) and (f) to read as follows: ■ § 25.21 Performance tests, standards, and ratings, in general. * * * * * (e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a bank under this part, the OCC 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). PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 (f) Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions. In assessing and taking into account the record of a nonminorityowned and nonwomen-owned bank under this part, the OCC considers as a factor capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned financial institutions and low-income credit unions. Such activities must help meet the credit needs of local communities in which the minorityand women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the bank’s assessment area(s) or the broader statewide or regional area that includes the bank’s assessment area(s). 3. In Appendix A to Part 25, paragraph (a)(1) is revised to read as follows: ■ Appendix A to Part 25—Ratings (a) * * * (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. * * * * * 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 amends 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 is revised as proposed to read as follows: ■ Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and 2901 through 2908. 2. In § 228.21, add new paragraphs (e) and (f) to read as follows: ■ § 228.21 Performance tests, standards, and ratings, in general. * * * * * (e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a E:\FR\FM\04OCR1.SGM 04OCR1 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations bank 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). (f) Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions. In assessing and taking into account the record of a nonminorityowned and nonwomen-owned bank under this part, the Board considers as a factor capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned financial institutions and low-income credit unions. Such activities must help meet the credit needs of local communities in which the minorityand women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the bank’s assessment area(s) or the broader statewide or regional area that includes the bank’s assessment area(s). ■ 3. In Appendix A to Part 228, paragraph (a)(1) is revised to read as follows: erowe on DSK5CLS3C1PROD with RULES Appendix A to Part 228—Ratings (a) * * * (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. * * * VerDate Mar<15>2010 * * 16:58 Oct 01, 2010 Jkt 223001 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 amends part 345 of chapter III of title 12 of the Code of Federal Regulations as follows: ■ PART 345—COMMUNITY REINVESTMENT Authority: 12 U.S.C. 1814–1817, 1819– 1820, 1828, 1831u and 2901–2908, 3103– 3104, and 3108(a). 2. In § 345.21, add new paragraphs (e) and (f) to read as follows: ■ § 345.21 Performance tests, standards, and ratings, in general. * * * * (e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a bank under this part, the FDIC 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). (f) Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions. In assessing and taking into account the record of a nonminorityowned and nonwomen-owned bank under this part, the FDIC considers as a factor capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned financial institutions and low-income credit unions. Such activities must help PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 meet the credit needs of local communities in which the minorityand women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the bank’s assessment area(s) or the broader statewide or regional area that includes the bank’s assessment area(s). ■ 3. In Appendix A to Part 345, paragraph (a)(1) is revised to read as follows: Appendix A to Part 345—Ratings 1. The authority citation for part 345 is revised to read as follows: ■ * 61045 (a) * * * (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. * * * * * Department of the Treasury Office of Thrift Supervision 12 CFR Chapter V For the reasons set forth in the joint preamble, the Office of Thrift Supervision amends part 563e of chapter V of title 12 of the Code of Federal Regulations as follows: ■ PART 563e—COMMUNITY REINVESTMENT 1. The authority citation for part 563e is revised to read as follows: ■ Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816, 1828(c), and 2901 through 2908. 2. In § 563e.21, add new paragraphs (e) and (f) to read as follows: ■ § 563e.21 Performance tests, standards, and ratings, in general. * * * * * (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 E:\FR\FM\04OCR1.SGM 04OCR1 61046 Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules and Regulations association 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). (f) Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions. In assessing and taking into account the record of a nonminorityowned and nonwomen-owned savings association under this part, the OTS considers as a factor capital investment, loan participation, and other ventures undertaken by the savings association in cooperation with minority- and womenowned financial institutions and lowincome credit unions. Such activities must help meet the credit needs of local communities in which the minorityand women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the savings association’s assessment area(s) or the broader statewide or regional area that includes the savings association’s assessment area(s). 3. In Appendix A to Part 563e, paragraph (a)(1) is revised to read as follows: ■ Appendix A to Part 563e—Ratings (a) * * * (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 lowcost 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. * * * * * erowe on DSK5CLS3C1PROD with RULES Dated: June 29, 2010. John C. Dugan, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, September 2, 2010. Jennifer J. Johnson, Secretary of the Board. Dated at Washington, DC, this 27th day of September, 2010. VerDate Mar<15>2010 15:41 Oct 01, 2010 Jkt 223001 Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. Dated: September 24, 2010. By the Office of Thrift Supervision. John E. Bowman, Acting Director. [FR Doc. 2010–24737 Filed 10–1–10; 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 39 [Docket No. FAA–2010–0342; Directorate Identifier 2002–NE–08–AD; Amendment 39– 16458; AD 2010–20–23] RIN 2120–AA64 Airworthiness Directives; BombardierRotax GmbH Type 912 F, 912 S, and 914 F Series Reciprocating Engines Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. AGENCY: The FAA is superseding an existing airworthiness directive (AD) for certain serial numbers (S/Ns) of Bombardier-Rotax GmbH type 912 F and 914 F series reciprocating engines. That AD currently requires initial and repetitive visual inspections of the engine crankcase for cracks. This AD requires those same inspections, adds the 912 S series to the affected population, adds a test procedure to determine the engine suitability for a special flight permit, and changes applicability from engine S/N to crankcase S/N. This AD results from an increase in the affected crankcase population. We are issuing this AD to prevent oil loss caused by cracks in the engine crankcase, which could lead to in-flight failure of the engine and forced landing. DATES: This AD becomes effective November 8, 2010. ADDRESSES: You can get the service information identified in this AD from BRP-Rotax GmbH & Co. KG, Welser Strasse 32, A–4623 Gunskirchen, Austria. The Docket Operations office is located at Docket Management Facility, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., West Building Ground Floor, Room W12–140, Washington, DC 20590–0001. FOR FURTHER INFORMATION CONTACT: Alan Strom, Aerospace Engineer, Engine SUMMARY: PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 Certification Office, FAA, Engine & Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803; e-mail: alan.strom@faa.gov; telephone (781) 238–7143; fax (781) 238–7199. SUPPLEMENTARY INFORMATION: The FAA proposed to amend 14 CFR part 39 by superseding AD 2002–16–26, Amendment 39–12865 (67 FR 53296, August 15, 2002), with a proposed AD. The proposed AD applies to Bombardier-Rotax GmbH type 912 F, 912 S, and 914 F series reciprocating engines with certain serial-numbered crankcases. We published the proposed AD in the Federal Register on April 7, 2010 (75 FR 17632). That action proposed to require initial visual inspection for cracks in the engine crankcase of engines with certain serialnumbered crankcases, within 50 hours time-in-service (TIS) after the effective date of that AD, and repetitive visual inspections at each 100-hour, annual, or progressive inspection, or within 110 hours TIS since last inspection, whichever occurs first. If any cracks are found, the engine must be removed from service. Examining the AD Docket You may examine the AD docket on the Internet at https:// www.regulations.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647–5527) is provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comment received. One commenter asks us to change paragraph (g)(4) from ‘‘If the engine crankcase is cracked, replace the engine before further flight’’ to ‘‘If the engine crankcase is cracked, replace, repair, or overhaul the engine before further flight’’. The commenter states that this would allow the option of replacing the crankcase as a repair or overhaul as well as an outright engine replacement. We partially agree. An owner or operator might interpret paragraph (g)(4) to mean they can’t repair the engine. We have changed paragraph (g)(4) to state ‘‘If the engine crankcase is cracked, remove the engine from service before further flight.’’ E:\FR\FM\04OCR1.SGM 04OCR1

Agencies

[Federal Register Volume 75, Number 191 (Monday, October 4, 2010)]
[Rules and Regulations]
[Pages 61035-61046]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24737]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 75, No. 191 / Monday, October 4, 2010 / Rules 
and Regulations

[[Page 61035]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket ID OCC-2010-0014]
RIN 1557-AD24

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Docket No. R-1360]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AD45

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563e

[Docket ID OTS-2010-0023]
RIN 1550-AC35


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 final rule.

-----------------------------------------------------------------------

SUMMARY: The OCC, Board, FDIC, and OTS (collectively, ``the Agencies'') 
are issuing this joint final rule, which revises our rules implementing 
the Community Reinvestment Act (CRA). The rule implements the statutory 
requirement that the Agencies consider low-cost education loans 
provided by the financial institution to low-income borrowers as a 
factor when assessing an institution's record of meeting community 
credit needs. The final rule also incorporates the statutory provision 
that allows the Agencies to consider capital investment, loan 
participation, and other ventures undertaken by nonminority-owned and 
nonwomen-owned financial institutions in cooperation with minority- and 
women-owned financial institutions and low-income credit unions as a 
factor when assessing an institution's CRA record.

DATES: Effective Date: November 3, 2010.

FOR FURTHER INFORMATION CONTACT:
    OCC: Margaret Hesse, Special Counsel, Community and Consumer Law 
Division, (202) 874-5750; or Gregory Nagel, National Bank Examiner, 
Compliance Policy, (202) 874-4428, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Rebecca Lassman, Supervisory Consumer Financial Services 
Analyst, (202) 452-2080; or Brent Lattin, Senior Attorney, (202) 452-
3667, Division of Consumer and Community Affairs, Board of Governors of 
the Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551.
    FDIC: Janet R. Gordon, Senior Policy Analyst, Division of 
Supervision and Consumer Protection, Compliance Policy Branch, (202) 
898-3850; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    OTS: Stephanie M. Caputo, Senior Compliance Program Analyst, 
Compliance and Consumer Protection, (202) 906-6549; or Richard Bennett, 
Senior Compliance Counsel, Regulations and Legislation Division, (202) 
906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.

SUPPLEMENTARY INFORMATION:

Background

    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\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 2903.
    \2\ See 12 CFR parts 25 (OCC), 228 (Board), 345 (FDIC), and 563e 
(OTS).
---------------------------------------------------------------------------

Notice of Proposed Rulemaking

    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.
---------------------------------------------------------------------------

    \3\ 74 FR 31209 (Jun. 30, 2009).
---------------------------------------------------------------------------

    Twenty-four different commenters provided their views to the 
Agencies on the proposed revisions. The commenters represented 
financial institutions, financial institution trade organizations, 
community or consumer organizations, and others.

Low-Cost Education Loans to Low-Income Borrowers

Background and General Comments

    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

[[Page 61036]]

this 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.
---------------------------------------------------------------------------

    \4\ ``Consumer loan'' is defined in the CRA regulations as a 
loan to one or more individuals for household, family, or other 
personal expenditures. Consumer loans include the following 
categories of loans: motor vehicle loans, credit card loans, home 
equity loans, other secured consumer loans, and other unsecured 
consumer loans. 12 CFR 25.12(j), 228.12(j), 345.12(j), and 
563e.12(j).
    \5\ See 12 CFR 25.22(a)(1) and 25.42(c); 12 CFR 228.22(a)(1) and 
228.42(c); 12 CFR 345.12(a)(1) and 345.42(c); and 12 CFR 
563e.22(a)(1) and 563e.42(c).
    \6\ See, e.g., 12 CFR 25.22 and 25.26; 228.22 and 228.26, 345.22 
and 345.26, and 563e.22 and 563.26.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \7\ 12 U.S.C. 2903(d).
    \8\ H.R. Rep. No. 110-500 at 297 (2007). See also Private 
Student Lending: Hearing before the Senate Comm. on Banking, 
Housing, and Urban Affairs, 110th Cong. (2007) (comment by Sen. 
Dodd: ``It strikes me that we should be promoting, of course, 
incentives for lenders to provide the neediest students with good 
loans, loans, in my mind, that are similar in rate and fee structure 
to those under the federal loan program.'') (transcript available 
through CQ Congressional Transcripts, Congressional Hearings, Jun. 
6, 2007).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \9\ 74 FR at 31214.
---------------------------------------------------------------------------

The Proposal

    The Agencies proposed to consider low-cost education loans provided 
by the institution to borrowers in its assessment area(s) who have an 
individual income that is less than 50 percent of the area median 
income. Further, the Agencies proposed to define ``low-cost education 
loans'' to mean (1) education loans originated by an institution 
through a U.S. Department of Education loan program; or (2) any private 
education loan as defined in the Truth in Lending Act, including loans 
under a state or local education loan program, originated by an 
institution for a student at an ``institution of higher education,'' 
with interest rates and fees no greater than those of comparable 
education loans offered through loan programs of the U.S. Department of 
Education.
    Under the first prong of the proposed definition, any loans that 
institutions make through a Department of Education loan program, such 
as the Federal Family Education Loan (FFEL) Program, would be 
considered ``low-cost education loans.''
    Under the second prong of the proposed definition, ``private 
education loans'' that institutions make would be considered ``low-cost 
education loans,'' provided that the interest rates and fees are no 
greater than those of comparable education loans offered through loan 
programs of the U.S. Department of Education.
    The Agencies also proposed a conforming amendment to Appendix A of 
the regulations to include consideration of a financial institution's 
low-cost education loans to low-income borrowers as a factor when 
assigning a rating to the institution.
    The Agencies asked for comment on a number of areas related to the 
proposed definition.

General Comment About Education Lending by Financial Institutions

    Several commenters noted that education lending, particularly 
private education lending, is a specialized type of lending engaged in 
by only a few financial institutions. These commenters requested that 
the Agencies expressly state that the final rule does not require 
institutions to make low-cost education loans, or, for that matter, 
education loans generally. The Agencies agree that the intent of the 
revision is to encourage, but not to require, financial institutions to 
make low-cost education loans to low-income borrowers and provide an 
incentive to do so.

Scope of ``Education Loans''

Education Loans--The Proposal

    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.
---------------------------------------------------------------------------

    \10\ 12 U.S.C. 2903(d) (as added by section 1031 of the HEOA).
---------------------------------------------------------------------------

    As discussed in the preamble to the proposed rule, in defining 
private education loans, the Agencies proposed to adopt the terms 
``private education loan,'' ``private educational lender,'' and 
``postsecondary educational expenses,'' each of which is defined in the 
HEOA in the context of the Truth in Lending Act (TILA). Section 1011 of 
the HEOA added section 140 of TILA to provide the following definition:

    [T]he term ``private education loan''--
    (A) Means a loan provided by a private educational lender that--
    (i) Is not made, insured, or guaranteed under title IV of the 
Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and
    (ii) Is issued expressly for postsecondary educational expenses 
to a borrower, regardless of whether the loan is provided through 
the educational institution that the subject student attends or 
directly to the borrower from the private educational lender; and
    (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\
---------------------------------------------------------------------------

    \11\ Section 140(a)(7) of the Truth in Lending Act, as added by 
section 1011 of the HEOA.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \12\ Section 140(a)(6)(A) of the Truth in Lending Act, as added 
by section 1011 of the HEOA.
---------------------------------------------------------------------------

    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

[[Page 61037]]

an 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\
---------------------------------------------------------------------------

    \13\ See 20 U.S.C. 1087ll (definition of ``cost of 
attendance'').
---------------------------------------------------------------------------

    Although section 1031 of the HEOA is not expressly limited to loans 
for higher education, the Agencies proposed to include this limitation 
in the definition of low-cost private education loans. Thus, the 
Agencies proposed that the private education loan definition would 
encompass loans made for expenses incurred at any ``institution of 
higher education'' as that term is generally defined in sections 101 
and 102 of the Higher Education Act of 1965 (HEA), 20 U.S.C. 1001 and 
1002. Such institutions generally include accredited public or 
nonprofit colleges and vocational schools, accredited private colleges 
and vocational schools, and certain foreign institutions offering 
postsecondary education that are comparable to institutions of higher 
education in the United States based on standards approved by the U.S. 
Department of Education. The Agencies did not propose to cover 
unaccredited colleges, universities, or vocational schools because they 
lacked sufficient information regarding these institutions, but 
solicited comment on this issue.
    Based on these definitions and considerations, under the proposed 
rule, financial institutions would receive CRA consideration for making 
private (non-Federal) closed-end education loans, not secured by real 
property or a dwelling, for post-secondary educational expenses at an 
institution of higher education. They would also receive consideration 
for making education loans through a program of the U.S. Department of 
Education.

Comments and Final Rule

    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.
---------------------------------------------------------------------------

    \14\ Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (2010).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \15\ The Agencies note, however, that many such institutions are 
covered under the definition of ``institution of higher education'' 
discussed below, and loans to their students could qualify for CRA 
consideration under this provision if other applicable criteria are 
met.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \16\ H.R. Rep. No. 110-500 at 203, 297 (2007) (emphasis added).
---------------------------------------------------------------------------

Higher Education Institutions--The Proposal

    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).
---------------------------------------------------------------------------

    \17\ If the Agencies were to restrict the definition of 
``institution of higher education'' to only those institutions 
defined in section 101 of the HEA, loans to cover educational 
expenses at for-profit institutions of higher education, some post-
secondary vocational institutions that provide training to prepare 
students for employment in a recognized occupation, and some U.S. 
Department of Education-approved institutions located outside the 
United States would not qualify for consideration.
---------------------------------------------------------------------------

Comments and Final Rule

    Commenters generally opposed using the narrower definition of 
``institution of higher education'' found in section 101 of the HEA 
because it would exclude some institutions providing vocational and 
career training. The Agencies agree that, consistent with the HEOA's 
purpose, eligible schools should include the broad range of accredited 
institutions under the definition of ``institution of higher 
education,'' including accredited vocational institutions that provide 
educational programs that prepare students for gainful employment in a 
recognized profession.
    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

[[Page 61038]]

unaccredited institutions encouraged the Agencies to provide maximum 
flexibility to financial institutions to provide a wide range of 
education loans.
---------------------------------------------------------------------------

    \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 https://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.
---------------------------------------------------------------------------

    The Agencies are adopting the scope of higher education 
institutions as proposed. As noted above, the Agencies believe that the 
broader definition of ``institution of higher education,'' including 
accredited vocational institutions, provides flexibility to financial 
institutions, while limiting the definition to accredited institutions 
will help ensure that such programs benefit students. The Agencies will 
consider, as a factor, low-cost education loans to low-income borrowers 
to attend institutions of higher education, as defined in sections 101 
and 102 of the HEA, 20 U.S.C. 1001-1002, when evaluating a financial 
institution under the CRA.

Private Education Loans--The Proposal

    As discussed above, the Agencies proposed to consider low-cost 
private education loans made to low-income borrowers, as well as loans 
provided to low-income borrowers by a financial institution under a 
Federal education program. The Agencies requested comment on whether 
private education loans not made, insured, or guaranteed under a 
Federal, state, or local education program should be considered for CRA 
purposes.

Comments and Final Rule

    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\
---------------------------------------------------------------------------

    \19\ H.R. 3221, 111th Cong., 1st Sess. (2009).
---------------------------------------------------------------------------

    These commenters noted that many students and families are unable 
to cover the full cost of an education relying only on government 
programs and may need to pursue other types of funding to complete 
their education. Consequently, these commenters encouraged the Agencies 
to allow CRA consideration for non-governmental low-cost private 
education loans. The Agencies note that the HEOA's purpose was, in 
significant part, to provide an incentive to financial institutions to 
provide low-cost private education loans to low-income borrowers not 
currently served by education loan programs.
    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 Sec.  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.
---------------------------------------------------------------------------

    \20\ Title II, Health Care and Education Reconciliation Act of 
2010, Public Law 111-152 (2010).
---------------------------------------------------------------------------

State or Local Government-Sponsored Education Loans--The Proposal

    The Agencies proposed to treat education loans offered to low-
income borrowers under state or local government education programs the 
same as all other private education loans, consistent with the 
definition of ``private education loans'' in section 140(a)(7) of the 
Truth in Lending Act, which includes education loans made by financial 
institutions under local and state education loan programs. The 
Agencies asked whether all education loans offered to low-income 
borrowers under state or local education programs, regardless of 
whether the fees and rates are greater than those under comparable 
Department of Education programs, should be eligible for CRA 
consideration.

Comments and Final Rule

    Only three commenters addressed this question. One commenter 
advised that the Agencies should use consistent measures among all 
private education loan programs, without favoring state and local 
programs. A second commenter believed that rates and fees on loans made 
by an institution under state or local education programs would not 
have to be exactly the same, but should be reasonably comparable to 
rates and fees on loans made under the Department of Education 
programs. The third commenter believed that all education loans offered 
to low-income borrowers and families under state or local programs, 
regardless of whether the rates and fees are comparable to those under 
Department of Education programs, should be eligible for CRA 
consideration.
    After a review of the comments, the Agencies have adopted the 
language in the provision regarding state or local education programs 
as proposed. The Agencies are not aware of any state or local education 
loan programs that are targeted or available to low-income students in 
which costs are limited in a manner similar to the Federal direct loan 
program, and for which an alternative definition of ``low-cost'' might 
be appropriate.

Types of Loans--The Proposal

    The proposed definition of a private education loan was limited to 
closed-end loans not secured by real property or a dwelling originated 
by a financial institution.

Comments and Final Rule

    Community group commenters supported limiting coverage in this 
manner noting a concern about using a home as collateral for an 
education loan. One financial institution commenter also supported the 
proposed limitation, noting that there may be operational difficulties 
determining whether a dwelling-secured loan was used for educational 
expenses. By contrast, other financial institution and trade group 
commenters encouraged the Agencies to broaden the scope of the private 
education loan definition to include open-end or dwelling-secured 
credit, noting that consumers use these types of credit to fund 
educational expenses. These commenters requested that the Agencies 
provide flexibility to financial institutions by including such types 
of credit.
    The definition of education loan in the final rule incorporates the 
TILA definition of that term, which excludes open-end credit and credit 
secured by real property or a dwelling. As discussed more fully below, 
the HEOA amended both the CRA to provide an incentive for financial 
institutions to make low-cost education loans and TILA to provide for 
new disclosures and additional consumer protections for private 
education loans. The Agencies believe that in order for financial 
institutions to receive consideration under the CRA for an education 
loan, it is appropriate that such loans also be covered by the new 
disclosures and other substantive restrictions added to TILA by the 
HEOA. Therefore the Agencies are adopting the definition of private 
education loan as used in section 140(a)(7) of TILA.
    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,

[[Page 61039]]

commenters 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\
---------------------------------------------------------------------------

    \21\ Section 128(e) of the Truth in Lending Act, as added by 
section 1021 of the HEOA.
    \22\ Section 140(e) of the Truth in Lending Act, as added by 
section 1011 of the HEOA.
---------------------------------------------------------------------------

    The Agencies also requested comment on whether to limit 
consideration to loans originated by the financial institution, as 
proposed, or to consider loans purchased by the institution. Community 
group commenters opposed providing consideration for purchased loans, 
stating a concern that purchasing loans does not significantly expand 
the capacity of financial institutions to offer additional loans. By 
contrast, financial institution commenters supported allowing 
consideration for purchased loans, consistent with other types of CRA-
eligible loans.
    The final rule limits consideration to low-cost education loans 
originated by the financial institution, and not to purchased loans. As 
discussed above, the Agencies believe that the intent of the HEOA 
amendment to the CRA was to provide an incentive to financial 
institutions to originate loans to low-income borrowers currently not 
reached by most private loan programs. The Agencies believe that 
providing consideration only for loans originated by the financial 
institution provides an incentive to financial institutions to develop 
education loan programs that are tailored to the specific need targeted 
by the statutory amendment.

``Low-Cost Education Loans''

The Proposal

    The Agencies proposed to define ``low-cost education loans'' as 
education loans that are originated by financial institutions through a 
program of the U.S. Department of Education; or any private education 
loans, including loans under state or local education loan programs, 
originated by financial institutions with interest rates and fees no 
greater than those of comparable education loan programs offered by the 
U.S. Department of Education.
    The proposal would have looked to guaranteed education loans 
provided by financial institutions through the U.S. Department of 
Education's Federal Family Education Loan Program (FFEL loans) as being 
the comparable education loan program.

Comments and Final Rule

    The Agencies asked whether the proposed definition of the term 
``low-cost education loans'' is appropriate and, if not, how the 
Agencies should define ``low-cost education loans.'' Commenters 
representing community organizations generally agreed with the proposed 
definition that private education loans receiving CRA consideration 
should have interest rates and fees no greater than comparable loans 
offered through the Department of Education. In fact, the same 
commenters stated that, to maintain consistency with the purpose of the 
HEOA to make college affordable, the lowest rates and fees should be 
used.
    Although commenters representing financial institutions and their 
trade organizations generally agreed that loans made by financial 
institutions under Department of Education programs should be 
considered low-cost, they raised concerns about requiring the rates and 
fees on private education loans to be comparable to the rates and fees 
applicable to Department of Education loans. In particular, they noted 
the substantial differences between loans made by financial 
institutions under Department of Education programs and private 
education loans in terms of risks, costs, and pricing. For example, 
commenters noted that FFEL education loans have a 97 percent guarantee 
against default and that a lender's yield is not tied to the fixed 
interest rate paid by the borrower, but rather is based on a separate 
formula set in statute. By contrast, private education loans generally 
have a variable rate determined by an index, such as Prime or one- or 
three-month LIBOR, and a margin, which typically varies depending on a 
borrower's creditworthiness. In addition, the lender assumes all of the 
risk of default on a private education loan.
    Several of the commenters representing financial institutions or 
their trade groups suggested that the Agencies should develop a 
formula, based on an index and a margin, to define low-cost, variable 
rate private education loans. Commenters suggested one-month or three-
month LIBOR or Prime as possible rates to use as an index. Margin 
suggestions varied from three to eight percent. Commenters also 
suggested that upfront fees of up to four percent would be appropriate.
    The Agencies also asked how to determine whether a private 
education loan is comparable to a Department of Education loan and 
whether the lowest or highest rate and fees available under the 
comparable Department of Education program should be used to determine 
whether a private education loan is low cost. Although few commenters 
addressed these questions, the views of the commenters that did respond 
were mixed. Commenters suggested both that it is necessary to use the 
lowest rates and fees, as well as that the higher rate should serve as 
the maximum permissible rate for private loans. Industry commenters 
reasserted that it is not appropriate to evaluate whether a private 
education loan is ``low-cost'' based on rates and fees applicable to 
federal education loans.
    The Agencies have considered these comments carefully. The Agencies 
considered various options with regard to a definition of a ``low-
cost'' private education loan that could address these concerns. For 
example, the Agencies considered whether a low-cost private education 
loan should be defined with a rate that is 100 to 300 basis points over 
a Federal loan rate. However, we did not receive comments that 
identified a standard benchmark, margin, or number of basis points to 
be used as an alternative formula for ``low cost.''
    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

[[Page 61040]]

Education as the benchmark for ``low cost'' education loans.
    To determine whether education loans have rates and terms that are 
no greater than the rates and terms on loans made under the Federal 
direct loan program, education loans will be compared with comparable 
direct loans. For example, fixed-rate loans will be compared to fixed-
rate Federal loans, variable-rate loans will be compared to variable-
rate Federal loans, loans to students will be compared to Federal loans 
to students, and loans to parents will be compared to Federal loans to 
parents. The Agencies note that most education loans originated by 
financial institutions have a variable rate.
    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\
---------------------------------------------------------------------------

    \23\ See 20 U.S.C. 1087e.
    \24\ See https://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp; https://studentaid.ed.gov/PORTALSWebApp/students/english/parentloans.jsp.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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 https://studentaid.ed.gov/PORTALSWebApp/students/english/FFEL_DL_InterestRates.jsp.
---------------------------------------------------------------------------

    Origination fees are allowed for Federal direct loans. Financial 
institutions may use the fee percentages for Federal loans to students 
and parents, as appropriate, as benchmarks.
    Although the Agencies are adopting a definition of ``low-cost 
education loan'' that is generally similar to the proposal, if the 
Agencies find that the rules as adopted have not acted as an incentive 
to financial institutions' providing low-cost education loans to low-
income borrowers, the Agencies may reconsider these provisions.

``Low-Income Borrower''

The Proposal

    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.
---------------------------------------------------------------------------

    \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 Sec.  --
--.42(c)(1)(iv)-4).
---------------------------------------------------------------------------

Final Rule and Comments

    Several commenters, including community groups and several 
financial institutions or trade associations generally supported using 
the 50 percent benchmark as proposed. Several financial institutions 
and trade associations advocated that the final rule be expanded to 
cover both low-income and moderate-income borrowers as defined by the 
existing CRA rule. A state association of lenders commented that the 
Agencies should simply base the income assessment on loans originated 
through the U.S. Department of Education by defining low-cost education 
loans as need-based federal student loans. This commenter and several 
financial institutions further explained that institutions that make 
U.S. Department of Education loans do not have access to financial and 
income information on students and their families because the student 
borrowers are qualified by the school; thus, it would be hard to 
determine for CRA purposes whether the borrowers are low-income. Some 
of these commenters recommended that low-income borrowers be defined as 
any borrower eligible for a loan through a program of the U.S. 
Department of Education or, for a borrower through a private loan 
program, with qualifying income that is less than 50 percent of area 
median income. Another financial institution recommended that 
government loans that are needs-based, such as subsidized Stafford 
loans, automatically qualify as loans to low-income borrowers. One 
trade association suggested that, as an alternative to the proposed 
definition of low-income (less than 50 percent of the area median 
income), the Agencies could look only at the household income of the 
primary obligor on the loan and if the primary obligor is a dependent 
in a low-income household, the primary obligor would be considered a 
low-income borrower no matter what additional guarantors or co-signors 
are obligated on the loan. Similarly, the commenter noted, if the 
student is a financially emancipated adult, then his/her individual 
income would determine his/her income status. Alternatively, the 
commenter suggests that if all those obligated on the credit are taken 
into account, then the final rule needs to clarify how the Agencies 
will calculate whether the low-income standard is met.
    Several commenters addressed how to treat the income of a student's 
family or other expected family contributions to ensure that the CRA 
consideration is consistent with HEOA's focus on low-income borrowers. 
As noted above, a trade association suggested the final regulation 
should look at the household income of the primary obligor. That 
commenter recommended that household income be considered in lieu of 
considering income of a co-signer, to avoid any situation where 
obtaining a co-signer, who might strengthen the loan application and 
improve the safety and soundness of the loan, might be discouraged for 
CRA-related loans.
    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

[[Page 61041]]

institution 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.
    The Agencies considered these commenters' concerns about the 
possibility that a student borrower may be considered to be ``low-
income'' under the CRA standard, even though the student's family may 
be able to provide additional financial support. The Agencies 
considered, for example, adopting a test to determine whether a student 
borrower is an ``independent'' student and, if not, requiring the use 
of family income to determine whether the loan was to a ``low-income'' 
borrower.
    The Agencies are adopting the definition of ``low-income'' as 
proposed--based on an individual income that is less than 50 percent of 
the area median income. As noted above, some financial institutions may 
not require family income information in connection with education 
loans (except when family members co-sign or guaranty the loan). 
Requiring collection of data on family income would likely have imposed 
new burdens and procedural requirements on both borrowers and financial 
institutions.

``Other Education Loan Issues''

Quantitative Consideration

    As proposed by the Agencies, institutions would receive favorable 
qualitative consideration for originating ``low-cost education loans to 
low-income borrowers'' as a factor in the institutions' overall CRA 
rating, independent of the consideration for consumer loans under the 
current lending test. Such loans would be considered responsive to the 
credit needs of the institutions' communities.
    Under the CRA regulations, 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 this criterion 
may choose to have education loans evaluated as consumer loans under 
the lending test applicable to the institution. If an institution opts 
to have education loans evaluated, the loans would be evaluated 
quantitatively, based on the data the institution provides. The 
Agencies requested comment on whether the final regulation should also 
allow an institution to receive separate quantitative consideration for 
the number and amount of low-cost education loans to low-income 
borrowers as part of its CRA evaluation under the performance test 
applicable to that institution, without regard to other consumer loans.

Comments and Final Rule

    One financial institution agreed that institutions should receive 
favorable qualitative consideration for originating low-cost loans to 
low-income borrowers and recommended that, consistent with the 
treatment of other consumer loans, education loans not be reviewed as 
part of the quantitative CRA evaluation unless such loans represent a 
substantial majority of the financial institution's business or at the 
institution's option if it has collected and maintained data. Other 
financial institutions and a trade association strongly supported 
providing institutions the option to receive favorable quantitative 
consideration as consumer loans under the lending test of the current 
CRA rules. These commenters further stated that if the low-cost 
education loans were to become a separate subcategory of consumer 
lending, financial institutions would have to generate the necessary 
data, to the extent they do not already exist and that it would be 
difficult to evaluate the data in the absence of data from other 
institutions. They further stated that if this were the approach taken, 
it may be a disincentive to participate. Finally, one financial 
institution commented that the legislation regarding the low-cost 
education loans clearly anticipates that the agencies would consider 
student lending on its own merits, apart from other consumer loan 
categories and suggested that consideration could be accomplished by 
revising the consumer loan reporting categories to include a separate 
category for student loans.
    After consideration of the comments, the Agencies have adopted the 
provision as proposed to make clear that all types and sizes of 
institutions will be eligible to receive qualitative consideration for 
originating ``low-cost education loans to low-income borrowers'' as a 
factor in the institutions' overall CRA rating, without regard to the 
performance test under which an institution is evaluated. As noted 
above, institutions may obtain CRA consideration of education loans as 
consumer loans under existing standards applicable to consumer loans.

Application to All Institutions

    The Agencies also asked whether institutions and other interested 
parties understood that the new provision on low-cost education loans 
to low-income borrowers is applicable to all institutions, without 
regard to institution size, as a result of the provisions' placement in 
12 CFR 25.21, 228.21, 345.21 and 563e.21. No commenters responded 
directly to the question. However, several commenters suggested that 
the Agencies should treat low-cost education loans to low-income 
borrowers differently than initially proposed.
    Several commenters representing small financial institutions 
suggested that the provision should not apply to small financial 
institutions because few small institutions make education loans. As 
discussed above, financial institutions that do not make education 
loans will not be required to start making such loans.
    Another commenter believed that evaluation of education lending 
should not apply to wholesale or limited purpose institutions. The 
Agencies agree that wholesale institutions will not engage directly in 
education lending because, by definition, wholesale institutions do not 
engage in retail lending. Limited purpose institutions, on the other 
hand, could engage in education lending as their narrow product line.
    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

[[Page 61042]]

assessment 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.
---------------------------------------------------------------------------

    \27\ H. Rep. No. 110-500 at 366 (2007) (emphasis added). The CRA 
also generally encourages financial institutions to help meet the 
credit needs of the local communities in which they are chartered. 
12 U.S.C. 2901(b).
    \28\ See 12 CFR 25.22(b)(3), 228.22(b)(3), 345.22(b)(3), and 
563e.22(b)(3).
    \29\ See Interagency Questions and Answers Regarding Community 
Reinvestment, 75 FR at 11656-57 (Q&A Sec.  ----.22(b)(2) & (3)-4).
---------------------------------------------------------------------------

    Finally, one commenter emphasized that the provision addressing 
consideration of low-cost education loans to low-income borrowers 
should not affect CRA strategic plans that are already in effect or 
future plans. The Agencies do not intend this provision to affect CRA 
strategic plans.

Other Comments on the Proposed Education Loan Provision

    Several commenters suggested that unnecessarily detailed technical 
requirements should be kept to a minimum in the final rule. The 
Agencies agree and have attempted to do so.
    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.
---------------------------------------------------------------------------

    \30\ 12 CFR 25.12(o)(1), 228.12(o)(1), 345.12(o)(1), and 
563e.12(o)(1).
---------------------------------------------------------------------------

Activities Undertaken in Cooperation with Minority- and Women-Owned 
Financial Institutions and Low-Income Credit Unions

The Proposal

    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\
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    \31\ 12 U.S.C. 2903(b).
    \32\ 74 CFR at 31213.
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    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.
---------------------------------------------------------------------------

    \33\ Id.
    \34\ 74 FR 498, 507 (Jan. 6, 2009) (Q&A Sec.  ----.12(g)-4).
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    The Agencies proposed to add the new provision addressing favorable 
CRA consideration for activities in cooperation with minority- and 
women-owned financial institutions and low-income credit unions to 12 
CFR 25.21, 228.21, 345.21, and 563e.21. These sections apply to all 
types and sizes of institutions, without regard to the performance test 
under which an institution is evaluated. Accordingly, the preamble 
indicated that the proposed provision would also be applicable to all 
financial institutions. The Agencies also proposed a conforming 
amendment to Appendix A of the regulations to include consideration of 
a financial institution's activities in cooperation with minority- and 
women-owned financial institutions as a factor when assigning a rating 
to the institution.

Comments and Final Rule

    Several consumer and community groups commented on the geographic 
scope of the proposal. They urged the Agencies to narrow the geographic 
scope by providing favorable CRA consideration to investments outside 
the majority-owned institution's assessment area only if the majority-
owned institution met the needs of its assessment area. One community 
organization urged the Agencies to narrow the geographic scope even 
further by providing favorable CRA consideration only to loan 
participations and other ventures undertaken in cooperation with 
minority- and women-owned financial institutions and low-income credit 
unions outside the majority-owned institution's assessment area only if 
the majority-owned institution met the needs of its assessment area.
    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.
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    \35\ 74 FR at 500.
    \36\ 74 FR at 507 (Q&A Sec.  --.12(g)-4); 75 FR at 11645 (same).
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    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

[[Page 61043]]

institutions 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 Agencie

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