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Appeal of CRA Rating - (First Quarter 1998)


A formal appeal was received concerning a bank's Community Reinvestment Act (CRA) rating of "Needs to Improve Record of Meeting Community Credit Needs" ("Needs to improve"). The bank is chartered under the Competitive Equality Banking Act (CEBA) and engages solely in consumer credit card operations. For CRA purposes the bank is considered a limited purpose bank and is evaluated under the Community Development Test.

In reference to the CRA rating of "Needs to Improve," the appeal letter states the board of directors cannot comprehend the position of the OCC, as the bank operated under severe financial constraints during the two-year CRA review period. According to the letter the bank has been working diligently to improve the condition of the bank by returning it to profitability, ensuring capital adequacy, complying with two regulatory enforcement actions, and improving risk management systems. Despite these obstacles, members of the bank were able to participate in community development organizations in the assessment area during the review period. Management concludes by stating the board believes that the CRA activities of the bank more adequately support a "Satisfactory" rating.

The ROE states the bank has a minimal level of qualifying community development services, and has made no CRA loans. The ROE continues by stating that little has been done since the bank was designated a limited purpose institution. The ROE does acknowledge that management and the board's time and effort during the past year has been focused on implementing and strengthening controls over credit card assets; nonetheless, the bank's demonstrated performance under CRA falls substantially short of the criteria for a "Satisfactory" rating. Board and management were encouraged to develop a plan to strengthen the bank's performance under CRA, consistent with the spirit and intent of the act.


For purposes of this discussion, apply the following definitions from 12 CFR 25:

  1. Limited purpose bank means a bank that offers only a narrow product line (such as credit card or motor vehicle loans) to a regional or broader market and for which a designation as a limited purpose bank is in effect, in accordance with 25.25(b). ["Definitions," 12 CFR 25.12(o).]
  2. Designation as a wholesale or limited purpose bank. In order to receive a designation as a wholesale or limited purpose bank, a bank shall file a request, in writing, with the OCC, at least three months prior to the proposed effective date of the designation. If the OCC approves the designation, it remains in effect until the bank requests revocation of the designation or until one year after the OCC notifies the bank that the OCC has revoked the designation on its own initiative.
  3. Performance criteria. The OCC evaluates the community development performance of a wholesale or limited purpose bank pursuant to the following criteria:
  1. The number and amount of community development loans (including originations and purchases of loans and other community development loan data provided by the bank, such as data on loans outstanding, commitments, and letters of credit), qualified investments or community development services;
  2. The use of innovative or complex qualified investments, community development loans, or community development services and the extent to which the investments are not routinely provided by private investors; and
  3. The bank's responsiveness to credit and community development needs. ["Community development test for wholesale or limited purpose banks," 12 CFR 25.25(b)-(c).]

The preamble to the 1995 revision to the CRA regulations lists what information the examiners will consider, as appropriate by stating the following:

  • Performance context. An institution's performance under the tests and standards in the rule is judged in the context of information about the institution, its community, its competitors, and its peers. Examiners will consider the following information, as appropriate, in order to assist in understanding the context in which the institution performance should be evaluated:
  1. The economic and demographic characteristics of the assessment area(s);
  2. Lending, investment, and service opportunities in the assessment area(s);
  3. The institution's product offerings and business strategy;
  4. The institution's capacity and constraints;
  5. The prior performance of the institution and, in appropriate circumstances, the performance of similarly situated institutions; and,
  6. Other relevant information. [Federal Register, vol. 60, no. 86, May 4, 1995, p.22162-22163.]


During the time since the bank's last CRA examination, the management team and the bank's board of directors focused their primary attention on the financial condition of the bank. The bank's condition did not allow the bank's management and board to expend significant resources on the bank's compliance with CRA. The bank's election to be designated as a limited purpose institution limited the bank's CRA performance to an evaluation under the Community Development Test. After reassessing the bank's performance under the Community Development Test, the ombudsman concluded that the institution's capacity and constraints were considered, and the bank's CRA performance was appropriately assigned a "Needs to Improve" CRA rating.mically viable for the borrower to develop oil and gas reserves at existing commodity prices.