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OCC Sees No Evil

Adam Rust's picture

Posted September 18, 2009

The latest round of exam scores are out for the OCC's Community Reinvestment Act examinations.  Surprise!  Everyone is a winner! The OCC handed out all A's and B's.  Wouldn't you love to take that class?  Last month, they handed out all A's and B's, too!

This time, five banks got outstanding, and thirty got satisfactory.  No one earned a score that would require any kind of a strategic plan to improve their service.

One large bank, Fifth Third,  dropped from Outstanding! to Satisfactory.  The OCC decided not to examine any of Fifth Third's service, investment, or lending for North Carolina.  That is in spite of the fact that Fifth Third acquired First

Charter, NA last year.  First Charter had 62 branches in North Carolina at the time of the examination.  Fifth Third has closed several branches and opened a new one in Davidson, North Carolina. In fact, although Fifth Third has branches in Florida, Ohio, Tennessee, Michigan, Kentucky, and North Carolina, the examiners decided that there would only be four MSAs that deserved assessment.  Those four MSAs were:

  • Knoxville, TN
  • Nashville, TN
  • Maury County, TN
  • Augusta-Richmond, GA

Fifth Third had an unusual set of grades on the subsets within its exam. While Fifth Third got an outstanding for lending, it received a needs to improve for service and a low satisfactory for investments.

So, what made the lending so impressive?

It looks like Fifth Third made a lot of refinance loans to moderate income borrowers.  That could be good, although in last year's environment, putting an emphasis on making refinance loans was hardly unusual.  In Augusta, the OCC decided that it would weight home purchase, rehab, and multi-family loans with less significance since Fifth Third didn't make as many loans in those categories.  Hmm...again, that seems odd. If I was being examined, and I decided not to do major parts of my assignment, I would be surprised if the examiner just decided not to worry about those inadequacies.

In terms of services, Fifth Third got points for offering a free checking account and for having a senior checking account program. The first account offers no monthly fees and no minimums; the latter has low monthly costs.  Since the bank did not supply statistics to reflect the extent that consumers participated in these accounts, the OCC decided that it must be good enough.

No data was available concerning the effectiveness of the alternative products to low- and
moderate-income geographies or individuals, and as a result we did not place significant
weight on the products in the overall Service Test conclusions.

Where were these kinds of tests when I was in school?

It is no wonder that banks have so little concern about the Community Reinvestment Act.  Absent any regulatory enforcement, there is no pressure on them to perform.  In years past, community groups could develop lending agreements with banks.  Now, thanks to a new wrinkle in the law written during the Bush Administration, those agreements do not count.  Right now, there is a lot of debate about reforming the CRA.  The banks are spending heavily to lobby against those changes.