The Office of the Comptroller of the Currency released updated internal guidance on how its examiners should weigh possible downgrades in Community Reinvestment Act evaluations.
The Community Reinvestment Act, or CRA, is a 40-year-old rule that places banks under scrutiny to ensure they lend to low- and moderate-income communities. Banks are evaluated and rated by the Federal Deposit Insurance Corp. and the OCC for compliance. They are each given a rating of "substantial noncompliance," "needs to improve," "satisfactory" or "outstanding."
The revisions state that examiners must find a "logical nexus" between a low CRA rating and violations affecting lending that is considered under the evaluation's lending test, instead of violations at the bank in general. "A downgrade of the composite rating should be supported by strong evidence of quantitatively and qualitatively material instances of discriminatory or illegal credit practices directly related to CRA lending activities that have resulted in material harm to customers," the guidance stated.
The guidance also instructs examiners to "fully" consider banks' remedial actions when assigning ratings.
"[A]s a general matter, if the bank has remediated or taken appropriate corrective actions to address the evidence of discriminatory or other illegal credit practices, the ratings of the bank should not be lowered solely based on the existence of the practice prior to commencement of the CRA evaluation," the guidance stated.
When examiners lower a rating, they must provide an explanation of how this guidance was applied in determining the downgrade.
"The revised policy ties a CRA rating, and any downgrade, to CRA lending activities so that banks have incentive to improve their CRA activity and are held accountable for any discriminatory or other illegal credit practices related to their CRA activities," Acting Comptroller of the Currency Keith Noreika said in a statement.