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Breaking: OCC Says Multiple CRA Downgrades for Discrimination Still Possible

3 min read
Aug 16, 2018

In the most recent bulletin from the Office of the Comptroller of the Currency, the regulator explains how and when CRA ratings can be downgraded. In this blog, we'll get into this breaking news.

OCC_LogoThe OCC has been focused on the Community Reinvestment Act (CRA) over the past 12 months. Even though CRA modernization has dominated headlines, there have been a few policy changes worth covering. In particular, these changes relate to how and when the regulatory agency will consider a CRA downgrade in an examination if evidence of discrimination is identified.

If you're regulated by the OCC, read on to learn about the recent changes to CRA ratings downgrades policies.

Note: This new OCC bulletin replaces and rescinds a previously published bulletin.

Under the CRA, the OCC can determine how a bank's CRA Performance Evaluation and ratings are negatively impacted by "evidence of discriminatory or other illegal credit practices in the institution’s CRA lending activities." In doing so, the OCC considers the following factors:

  • Nature, extent, and strength of the evidence of the practices;
  • Policies and procedures that the bank (or affiliate, as applicable) has in place to prevent
    the practices;
  • Any corrective action that the bank (or affiliate, as applicable) has taken or has committed to
    take, including voluntary corrective action resulting from self-assessment; and
  • Any other relevant information.

The most recent bulletins appear to focus on clarify when, why, and how a CRA downgrade can occur as a result of discrimination.

First, we need to go back to a change implemented in October 2017. 

On October 12, 2017, Acting Comptroller of the OCC Keith Noreika released OCC Bulletin 2018-23. It introduced OCC Policies and Procedures Manual (PPM) 5000-43, aka new policies for examinations and downgrades. Here's what you need to know.

  • Most importantly, this bulletin and the accompanying PPM have since been rescinded.
  • This PPM defined two principles for how evidence of discrimination in CRA lending activities might impact CRA ratings. First, it stated that there had to be a "logical nexus" between the assigned ratings and the evidence of discrimination.
    • Note: so-called lending activities are those activities that are considered in the Lending Test portion of the CRA exam.
  • Second, it explained that consideration would be given to any "remedial efforts," and that such efforts might be mitigating factors. The PPM said that "a lower rating may not be warranted if a bank self-identifies violations and voluntarily takes corrective actions in a timely manner.”
  • A footnote said that, at that time, it was the OCC's policy not to downgrade by more than one level.
  • If a bank's rating was lowered, examiners had to explain in the CRA Performance Evaluation (PE) why the discriminatory/illegal practices should result in a lower rating.

This month's updated bulletin makes small, but significant, changes.

On August 15, the OCC issued a new bulletin, Bulletin 2018-2, that replaces and rescinds both Bulletin 2018-23 (described above) and Bulletin 2017-40. It introduces an updated PPM 5000-43. Here's what you need to know.

  • These new guidelines apply to The OCC applies PPM 5000-43 to all OCC-supervised banks that are subject to the CRA, including community banks.
  • Under the "logical nexus" principle section of this PPM, the OCC writes that "[g]enerally, the OCC considers lowering the composite or component performance test rating of a bank only if the evidence of discriminatory or illegal credit practices directly relates to the institution’s CRA lending activities."
    • Here, the use of the word "generally" gives examiners more discretion to determine if evidence of discrimination unrelated (or loosely related) to lending activities should negatively impact ratings. 
    • The addition of the word "only" underscores that examiners are expected to focus closely on lending activities when considering evidence of discrimination or other illegal practices that might result in a downgrade.
  • This PPM removes the language that said downgrades would be limited to only one level. Instead, it says that multiple levels of downgrades could be possible if illegal activities are found to be "particularly egregious." Full text here:
    • "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."

These changes come on the heels of an updated examination schedule published in June 2018.

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