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A bank supervised by the Office of the Comptroller of the Currency (OCC) appealed to the OCC’s Ombudsman the Community Reinvestment Act (CRA) composite rating assigned in a recently completed performance evaluation (PE).
The appeal argued the CRA composite rating was substantially inaccurate. The appeal stated that the supervisory office (SO) misapplied the supervisory standards by downgrading the rating based solely on the evidence of discriminatory or other illegal credit practices. The appeal further stated that the SO failed to consider mitigating factors such as the substantial and ongoing remediation taken by the bank and the implementation of improvements to the bank’s fair lending program. The appeal contended that the nature, extent, and strength of the evidence of discriminatory or other illegal credit practices were limited. The appeal asserted the CRA rating was substantially inaccurate because it did not reflect the bank’s actual performance . The appeal also asserted there was no admission of wrongdoing to the allegations that led to an enforcement action, and as result, there were no factual findings or adjudication in the enforcement action.
The appeal further argued the CRA composite rating imposed additional punishment for conduct already addressed in enforcement actions and settlement agreements, and that the downgrade has significant collateral consequences for the bank and its customers. The appeal contended the rating does not reflect the bank’s actual record of meeting the credit needs of its community or the appreciable improvements made by the bank since the prior evaluation period. The appeal also stated the PE failed to articulate any concrete area in which the bank needs to improve its CRA performance nor identified any additional measures the bank should take to fix the purported evidence of discriminatory or other illegal credit practices.
The Ombudsman conducted a comprehensive review of the information provided by the bank and the SO, and primarily relied on the supervisory standards in 12 CFR 25, "Community Reinvestment Act and Interstate Deposit Production Regulations," and OCC Policies and Procedures Manual (PPM) 5000-43, “Impact of Evidence of Discriminatory or Other Illegal Credit Practices on Community Reinvestment Act Ratings” (conveyed to the public via OCC Bulletin 2018-23).
The Ombudsman concurred with the SO’s conclusion for the CRA composite rating. The SO adhered to the CRA regulation when assessing the effect of discriminatory or other illegal credit practices on the bank’s CRA rating and considered all mitigating factors noted in 12 CFR 25.28(c)(2), including remedial actions and improvements made to the bank’s fair lending program. The bank’s CRA performance rating was adversely affected by the nature and strength of the evidence of discrimination. The SO appropriately determined that the harm to consumers and communities was substantial, warranting a downgrade in the CRA composite rating.
The Ombudsman determined that the SO considered the bank’s policies, procedures, and controls to prevent the violations from occurring, but deemed them deficient. Under PPM 5000-43, a lower rating may not be warranted if a bank self-identifies violations and voluntarily takes corrective actions in a timely manner. In this case, the bank’s actions to correct fair lending concerns and violations were largely guided by regulatory actions rather than being voluntary, did not demonstrate proactive risk management in correcting deficiencies, and were not implemented in a timely manner.
The Ombudsman determined that whether the bank admitted to wrongdoing outlined in the enforcement action is not relevant to the rating determination. Per 12 CFR 25.28(c), examiners should consider the effect of evidence of discriminatory or other illegal credit practices. The regulation does not require consideration of adjudication or specific factual findings.
The Ombudsman determined that the SO did not impose additional punishment by downgrading the CRA composite rating and that the consequence of the downgrade is not a factor in determining the bank’s overall CRA rating. 12 CFR 25.28(c) requires the OCC to consider the adverse effect of evidence of discriminatory or other illegal credit practices in any geography by the bank or in any assessment area by an affiliate whose loans have been considered as part of the bank’s lending performance when concluding the CRA composite rating. The CRA regulation gives the SO the authority to evaluate the evidence of discriminatory or other illegal credit practices and adjust the CRA rating downward, if warranted. The downgrade in the bank’s CRA rating is a direct result of the evidence of discriminatory or other illegal credit practices. The Ombudsman also determined that 12 CFR 25 does not include collateral consequences as a factor to consider when assigning a CRA rating.
The Ombudsman determined that OCC rating assignments under 12 CFR 25.28 involve two distinct processes. First, under 12 CFR 25.28(a), the OCC assigns a rating for a bank’s performance using the three performance tests (lending, investment, and service). Second, under 12 CFR 25.28(c), the OCC can adjust ratings downward when there is evidence of discriminatory or other illegal credit practices. In this appeal, the Ombudsman concurred with the SO’s decision to adjust the rating downward based on evidence of the bank’s discriminatory or other illegal credit practices.
Lastly, the Ombudsman determined that beyond evaluating a bank on the relevant performance tests and standards, the OCC is not required to articulate areas in which the bank needs to improve its CRA performance. However, pursuant to 12 CFR 25.43(b)(5), a bank with less than satisfactory ratings is required to include in its public file a description of current efforts to improve its performance in helping meet the credit needs of its entire community. The bank can also include in its public file the actions it has taken and is continuing to take to correct and prevent future fair lending-related and other illegal credit practice violations described in the PE.
