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Appeal of CRA Rating and Examination Conclusions - (Third Quarter 2003)


A bank formally appealed its overall Community Reinvestment Act (CRA) rating and the examination conclusions. At the most recent CRA examination, the bank's overall performance was downgraded from "outstanding" to "needs to improve." The bank asks the ombudsman to restore the "outstanding" rating and amend the conclusions of the CRA examination.

During the bank's most recent CRA examination, the lending test was rated "outstanding;" the investment test was rated "outstanding." And the service test was rated "high satisfactory." However, the supervisory office concluded that the bank violated the Federal Trade Commission Act (the Act) in connection with the marketing of subprime credit cards. The marketing practices used to solicit consumers were misleading and deceptive as defined in the Act and had a material adverse impact upon the cardholders. The bank was also cited for violations of the safety and soundness standards set forth in 12 CFR part 30 Appendix A. In its payday-lending program, the bank failed to identify the source of repayment and to assess the borrower's ability to repay the loan at each extension of credit.

Although the bank voluntarily discontinued its subprime lending programs and, by consent order, exited the payday-lending business, the supervisory office concluded that the egregiousness of these violations also impacted the bank's overall CRA performance, resulting in a downgrade from "outstanding" to "needs to improve."

In its appeal, the bank disagreed with the OCC's decision to downgrade the bank's CRA performance rating based on the aforementioned violations. The bank's appeal asserts that the supervisory office misinterpreted 12 CFR 25 in applying these violations to the CRA rating. The appeal also states that the ratings assigned to the lending, investment, and service tests genuinely reflect the level of service to its local community.

Discussion and Conclusion

The ombudsman found that here were elements of the bank's CRA performance that technically supported an "outstanding" rating. However, the ombudsman agreed with the supervisory office regarding the egregiousness of the violations. Therefore, the consumer violations and the adverse impact on consumers were appropriately considered in determining the bank's overall CRA rating. The ombudsman also recognized that the bank had discontinued both programs, either voluntarily or by consent order. These actions should prevent further harm to the consumers and preclude future violations. After weighing the cumulative factors of the bank's CRA performance and corrective actions taken, the ombudsman concluded that the appropriate CRA rating was a downgrade to "satisfactory."