ABA: OCC policy changes create uncertainty about minority deposit institution status

In a new letter, the American Bankers Association cited several concerns about recent revisions by the Office of the Comptroller of the Currency to its standards for designating minority depository institutions, saying the changes create uncertainty for institutions seeking to qualify for or retain the MDI designation.

The OCC unveiled the changes last month as part of the Trump administration’s Department of Government Efficiency deregulatory initiative, which directed agencies to identify regulations that “implicate issues of social, political or economic importance that are not authorized by clear statutory authority.” Among the concerns, The ABA said the revised standard used to assess “socially and economically disadvantaged” status should be transparent, consistent and operationally practical.

“We are concerned that the new policy could introduce a subjective and individualized framework for assessing qualifying ownership and control, which could create uncertainty for potential bank organizers, investors and existing MDIs,” the ABA said. “Without a clear and consistently applied standard, institutions will face difficulties in determining whether they qualify for or can maintain MDI status, particularly in connection with mergers, acquisitions, ownership changes, capital increases or other strategic transactions.”

Another concern is that the OCC’s definition of MDI for federal mutual savings associations imposes a three-part test that requires the majority of the board of directors, the account holders and the community it serves to be predominantly minority, the ABA said. “This standard can be difficult to achieve because banks cannot control the composition of their base of depositors or account holders.”

Finally, the ABA urged the OCC to clarify what constitutes a “material change” and what factors will guide the agency’s annual review of existing designations.

“Additional guidance, including clear objective criteria or illustrative examples, would help banks understand whether routine business developments — such as changes in ownership, board composition, executive leadership, capital structure, mergers, acquisitions or other strategic transactions — could affect their MDI status,” the ABA said.