The two years since your last CRA examination have been great. The bank’s lending is exceeding peer averages in your assessment area. Financial contributions for community development purposes are the highest in the bank’s history. Every employee volunteered or taught a financial literacy course. A Satisfactory CRA rating is guaranteed (and hopefully that interview with the local news as the best CRA Officer in the state).
Then it happens. You’re handed the CRA Public Evaluation and in bold, italics, and underlined – Needs to Improve. Your rating was just downgraded! Now, I know you’re wondering how this could possibly happen, but looking just at FDIC examinations for 2013 you begin to get an idea. Of all the banks that received a Needs to Improve rating last year, 10% were downgraded due to fair lending violations.
CRA performance, as it turns out, is more than just meeting the basic CRA requirements for lending, service and investment. Many factors can affect your overall CRA rating, including your bank’s performance during fair lending examinations. Not only do you have to focus on originating loans in your assessment areas for CRA purposes, but you must also adhere to requirements established by the Equal Credit Opportunity Act and Fair Housing Act.
If you’re both the CRA Officer and Compliance Officer, as is often the case, you know that the data examiners analyze for your CRA performance evaluation is also the data analyzed for your fair lending assessment. Under fair lending laws, protected classes such as age, gender, race, and ethnicity must receive the same credit opportunities from banks as non-protected classes. When a pattern or practice of discrimination is identified, fair lending violations can be cited, and CRA ratings downgraded. Not only does a “Needs to Improve” rating appear in your Public Evaluation, it can also prevent acquisitions, branching and other expansion plans and shorten the examination cycle before your next CRA evaluation.
Where possible, discuss fair lending reviews and findings with your compliance staff and determine what additional steps you can take through CRA efforts to combat a downgrade. At a minimum, if you can bolster your CRA rating to Outstanding, a downgrade caused by a fair lending oversight or similar violation, while disappointing, would only drop your CRA rating to Satisfactory, making recovering a little easier.