The Office of the Comptroller of the Currency has published a revised Policies and Procedures Manual (PPM 500-43) that clarifies its policy for determining the effect of evidence of discriminatory or other illegal credit practices on the Community Reinvestment Act rating of a national bank, federal savings association, or federal branch. The OCC uses CRA performance evaluation as a tool to encourage banks to help meet credit needs by lending, serving, and investing in the communities in which they operate, across income levels and geographies.
The OCC policy guides examiners in determining the adverse effect evidence of discriminatory or other illegal credit practices in CRA lending activities has on a bank’s CRA evaluation, including whether a downgrade of the composite rating, and/or component performance test rating, is appropriate. The OCC says that going forward it will act according to two “guiding principles”:
- There must be a logical nexus between the assigned rating and the evidence of discriminatory or other illegal credit practices.
- Full consideration must be given to the bank’s remedial actions.
Generally, the OCC considers lowering the composite or component performance test rating of a bank only if the faulty practices directly relate to the institution’s CRA lending activities. “If after completing an evaluation of a bank’s CRA performance, the OCC determines that a bank’s composite or component rating will be lowered based on evidence of discriminatory or other illegal credit practices directly related to the bank’s CRA lending activities, the OCC’s general policy is to downgrade the rating by only one rating level unless such illegal practices are found to be particularly egregious,” according to the updated PPM.
Remedial actions. While the CRA evaluation assesses a bank’s past performance for a specific span of time, the OCC has the discretion to assign a CRA rating in light of the bank’s record of performance, including the status at the time the OCC evaluates a bank’s efforts to remediate previous lapses or deficiencies. Examiners must fully consider the corrective actions taken by a bank regarding discriminatory or other illegal credit practices, including: the cumulative impact of supervisory or enforcement actions taken against a bank; the progress to remediate the issues underlying such actions; and whether the actions are directly related to the bank’s CRA activities and performance.
The OCC’s policy is generally not to penalize a bank by lowering its CRA rating when examiners have determined the bank has taken appropriate remedial actions because penalties in such cases can unnecessarily distract and divert the bank’s resources from lending, investing, or serving the relevant communities and thereby frustrate the CRA’s purposes.
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