United States: The Growing Importance of Consumer Compliance in Community Reinvestment Act Ratings: Did the OCC Cross the Line In Its CRA Rating of Wells Fargo?

Media reports have recently focused on the Needs to Improve Community Reinvestment Act (CRA) rating assigned to Wells Fargo Bank, National Association (Wells Fargo) by the Office of the Comptroller of the Currency (OCC). CRA and its implementing regulations require prudential supervisors like the OCC, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation to assess the performance record of each of the insured depository institutions they supervise in meeting the credit needs of the entire assessment area for those insured depository institutions, including the needs of low and moderate income neighborhoods consistent with safety and soundness standards. Prudential supervisors use performance ratings ranging from Outstanding (which is the highest rating) to Substantial Noncompliance (which is the lowest rating). The ratings between those extremes include High Satisfactory, Low Satisfactory and Needs to Improve. Though Wells Fargo has often historically received an Outstanding performance rating based upon the OCC's review of CRA's lending test, investment test, and service test, the OCC just recently assigned Wells Fargo a Needs to Improve based upon the OCC's findings that Wells Fargo now has a significant number of consumer compliance deficiencies, especially as evidenced by recent violations of law, and enforcement actions by the OCC, the Consumer Financial Protection Bureau (CFPB) and the Los Angeles City Attorney. The OCC characterized Wells Fargo's compliance status as egregious and found that Wells Fargo had "an extensive and pervasive pattern and practice of violations across multiple lines of business within the bank, resulting in significant harm to large numbers of consumers."

CRA is not treated as a federal financial consumer protection law by policymakers (which explains why the CFPB has no authority over CRA) or by prudential supervisors (which explains why CRA examinations are separate examinations from either safety and soundness examinations or consumer compliance examinations). Many large insured depository institutions typically have a separate CRA Officer, who has day to day responsibility for compliance with CRA and its implementing regulations. Among the differences between CRA and the federal consumer financial protection laws is that CRA was originally based upon a simple concept that insured depository institutions that take deposits from a community should support that community with loans and investments. CRA promotes good corporate citizenship and provides opportunities for insured depository institutions to develop longstanding community and business relationships within an assessment area. While consumer financial protection laws often impose obligations on an insured depository institution or restricts its activities, CRA offers an opportunity for insured depository institutions to find more customers and to engage in more community and business activities. Following the spirit of CRA would be a great idea even if CRA were not a legal requirement.

CRA professionals and prudential supervisors have always taken into account compliance with the fair lending and anti-discrimination laws (such as the Fair Housing Act and the Equal Credit Opportunity Act) and the Home Mortgage Disclosure Act, when assessing CRA performance. It is also clear that prudential supervisors have taken into account actions taken by other governmental agencies in considering a CRA rating. For example, in the case of Wells Fargo, the OCC gave weight to actions taken by the CFPB, the Department of Justice, and the Department of Housing and Urban Development, which makes sense because those governmental agencies enforce many of the anti-discrimination laws at the federal level. It is not as clear that the OCC has historically taken into account actions taken by a city government, and this raises a question regarding whether, in the future, the OCC will take into account actions by other city governments or by state attorneys general in the context of a CRA rating. It is also far less clear that CRA professionals and prudential supervisors have always taken into account compliance with Section 5 of the Federal Trade Commission Act (i.e., prohibitions on unfair and deceptive acts and practices), the Real Estate Settlement Procedures Act, the Servicemembers Civil Relief Act and Dodd Frank Title X prohibitions on unfair, deceptive and abusive acts and practice.

There is at least a danger that the OCC, in the Wells Fargo case, has inadvertently crossed the line too much into compliance with consumer protection laws in the context of CRA. Certainly, the Wells Fargo downgrade in CRA rating from Outstanding to Needs to Improve should cause CRA professionals to consider where they should draw the line in terms of helping insured depository institutions comply with CRA. While Wells Fargo does not appear to have publicly challenged the OCC's assigned rating, Wells Fargo did express disappointment in the rating in its recent press release citing its long standing historical record of receiving Outstanding CRA ratings.

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