On October 12, 2017, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a bank’s CRA lending activities.

Here are our observations and takeaways on the PPM 5000-43:

• PPM 5000-43 provides that the OCC “only considers lowering the composite or component performance test rating of a bank if the evidence of discriminatory or other illegal credit practices directly relates to the institution’s CRA lending activities.”
• Any OCC determination to lower an institution’s CRA composite or component rating will be guided by two principles: (1) there must be a “logical nexus” between the assigned ratings and evidence of discriminatory or other illegal credit practices in the bank’s CRA lending activities to ensure alignment between the ratings and the bank’s actual CRA performance; and (2) full consideration is given to the remedial actions taken by the bank.
• Prior to the lowering of a bank’s CRA composite or component rating, OCC examiners must provide “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 OCC will assign CRA ratings in light of the bank’s entire record of performance, “including the cumulative impact of supervisory or enforcement actions taken against a bank,” and CRA ratings generally will not be lowered solely based on the existence of evidence of discriminatory or other illegal credit practices prior to commencement of the CRA evaluation if the bank has remediated or taken appropriate corrective actions to address them.
• In our view, this would indicate that the OCC will not take into account, for purposes of evaluating a bank’s CRA compliance, any alleged unfair or deceptive practices that are not directly related to a bank’s lending activities.

Click here to view the OCC Bulletin 2017-40.

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