On November 8, 2017, the OCC issued guidance on the impact of less-than-satisfactory Community Reinvestment Act (CRA) ratings on subsequent licensing applications by financial institutions subject to the CRA. This new guidance follows on the heels of OCC guidance issued on October 12, 2017, on which LenderLaw Watch previously reported, which spelled out the factors that examiners should apply to determine whether to downgrade a financial institution’s CRA rating. The OCC’s November guidance is similar in spirit to its October guidance in that the OCC emphasizes financial institutions’ efforts to comply with the CRA in considering whether to approve applications.
For a financial institution to open a new branch, relocate a branch, relocate a home office, merge with another bank, or convert its charter, it must obtain approval of such action by the OCC. According to the new guidance, in considering whether to approve an application, the OCC considers whether the financial institution has an unsatisfactory CRA rating in certain geographical areas, or whether the financial institution’s overall CRA rating is less than satisfactory. The guidance indicates that the OCC is less likely to decline an application where a financial institution’s overall CRA rating is satisfactory, even if it has received unsatisfactory CRA ratings in certain geographic areas. In such a situation, the OCC will presume that the application’s approval is consistent with CRA considerations, though there may be exceptions based on individual circumstances. Such individual circumstances appear to be highly fact-dependent, and the OCC does not provide examples of individual circumstances that might result in a decline.
Where a financial institution’s overall CRA rating is less than satisfactory, the OCC’s analysis is more nuanced. As an initial matter, the financial institution must explain in writing how the approved application would help meet the CRA’s objectives and improve the institution’s CRA performance. The OCC’s evaluation of the application is fact-dependent, but boils down to the recentness and severity of the financial institution’s CRA downgrade and whether the application would further the CRA’s purpose—factors which financial institutions should bear in mind when submitting an application to the OCC. The OCC guidance enumerates the following specific factors that it will consider in evaluating applications when an institution has an unsatisfactory CRA rating: (1) how recently the unsatisfactory rating was issued, and the severity of the rating; (2) whether the change being applied for would increase the size of the financial institution, and whether the increase would meet the credit needs of communities to be served; (3) whether, and the extent to which, the proposed change would benefit the communities to be served; and (4) whether the change would enhance the financial institution’s ability to meet or otherwise further its CRA objectives. The OCC’s guidance applies at the time the financial institution is notified of the CRA downgrade, including as to any currently-pending applications. If the financial institution appeals a CRA downgrade, the OCC has discretion to hold the application in abeyance pending the appeal, or to disregard the appealed downgrade in reaching its determination concerning the application.
In the event of an overall CRA downgrade, the OCC’s policy appears geared towards ensuring that financial institutions take steps to remedy the unsatisfactory conduct. If a financial institution can demonstrate in its application that approval would help remedy the previously-identified unsatisfactory CRA conduct, or that it would otherwise serve the purposes of the CRA, such a showing may make it more likely that the OCC will approve the application.