Guidance aims to clarify license evaluations for banks with ‘less than satisfactory’ CRA ratings

Evaluating certain types of applications for licenses by banks that have less than satisfactory Community Reinvestment Act (CRA) ratings – or similar ratings in one or more geographic rating areas – is the subject of guidance issued Wednesday by the chief regulator of national banks.

The Office of the Comptroller of the Currency (OCC) issued the guidance for banks that have earned CRA ratings of “needs to improve” or “substantial non-compliance.”

The guidance applies to all national banks, federal savings associations, and federal branches of foreign banks subject to CRA. It also applies to state-chartered institutions subject to CRA that propose to convert to a federal charter.

OCC said its regulations enforcing CRA list the application types for which a bank’s rating of performance must be considered in the agency’s review: branch establishment, branch relocation, main or home office relocation, a Bank Merger Act (BMA) filing involving two insured depository institutions, conversion from state to federal charter, and conversion between federal charters.

The agency said the framework outlined in the guidance applies to applicant banks proposing to participate in a license application in two different situations—those with an overall satisfactory or better rating but with one or more geographic rating areas rated less than satisfactory and those with an overall less than satisfactory CRA rating.

For a bank with an overall satisfactory or better CRA rating, but a less than satisfactory CRA rating in one or more geographic rating areas, OCC said its general presumption is the CRA consideration is consistent with approval of the covered application, although the specific facts of a particular transaction may, on balance, result in a determination that the CRA consideration is not consistent with approval.

For a bank has an overall less than satisfactory CRA rating, the OCC provides enhanced scrutiny of covered applications by the bank.

“As part of its enhanced scrutiny, the OCC requires the applicant bank to submit with its application a description, and appropriate supporting information, of how it would meet its CRA objectives in connection with the proposed transaction. The applicant bank also must describe in detail how approval of the covered application would allow the bank to improve its CRA performance,” the guidance states.

OCC said it takes into account the descriptions and all the facts of record when considering the application. “The OCC generally would find that the CRA consideration is consistent with approval of a covered application if the applicant bank demonstrates that approval, subject to conditions or otherwise, would help the bank to achieve its CRA objectives and would further the public policy goals of the CRA by encouraging the bank to help meet the credit needs of the communities it serves, consistent with its safe and sound operation.”