Background
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."
