More CRA Grade Inflation at the OCC

Minutes ago, the Office of the Comptroller of the Currency demonstrated once again why no one takes their CRA exams very seriously.

The OCC released evaluations for 27 banks.  All of the evaluations were made from October 15th through November 14th.  No banks were given any grades that would reflect shortcomings in service, lending, or investment to their local areas.  Twenty-five passed, and two passed with “outstanding” colors.

How good is an “outstanding?”  Well, the people who run your credit card are apparently doing an outstanding job at making you happy.  Citibank (South Dakota) NA received an outstanding.  Did they do an outstanding job? Sure, maybe they are charging millions of Americans up to 29.9 percent on their credit card debt, but they did it well, right?

Drilling down to Citibank’s evaluation, it is easy to see some of the reasons for why the CRA needs to be updated.  This is a big institution with a national scope.  Citibank’s credit card operations have more than 88 billion in receivables.  They have customers in every state.

How does the OCC assess their ability to meet the credit needs of their local communities?  It uses an incredibly narrow defintion for “local.” In spite of the fact that you cannot possibly travel to any community in America where Citibank (South Dakota) NA is not providing credit, the OCC’s chooses to assess them in only one place – Sioux Falls, South Dakota.  Are you falling out of your chair yet?

The CRA is supposed to evaluate the allocation of capital into poor neighborhoods.  Guess what? In Sioux Falls, where there are 37 census tracts, none are low-income areas.  Seven tracts are characterized as “moderate income.” Could this be any more of a sham?

If you have a problem with how Citibank (South Dakota) is serving your credit needs, then you are going to need to move to Sioux Falls.  Is Sioux Falls a good stand-in for the country?  Well, right now, Sioux Falls is humming along at 4.6 percent unemployment.  Agriculture is probably the largest business sector in the area.

This is a great deal for Sioux Falls.  Citibank has put more than $930 million into Sioux Falls in the last three years into CRA-qualified investments.  That works out to about $4,976 per person, just from Citibank.  Your nuclear family with two kids in Sioux Falls is enjoying almost $20,000 in below-market rate lending. That is the kind of impact that the current Community Reinvestment Act rules make possible. Here’s  Citi CEO Vikram Pandit making a local visit to Sioux Falls last month.  It is odd that he’d make a visit to Sioux Falls, unless you consider that this town was in the midst of the only CRA assessment it has had since 2006.

We’re not only here because of the business, but we’re part of the community,” Pandit told the local paper.

Sioux Falls has incredibly liberal rules for the regulation of its financial institutions.  National banks know this (Citibank v. Smiley made it possible.  Target runs its credit cards out of Sioux Falls, as does Wells Fargo.   Those capital-engorged Sioux Falls families are getting the same treatment from Target and Wells as they are from Citibank.  No wonder no one is unemployed.  We have capitalized Sioux Falls into some kind of credit card Saudi Arabia.

Citibank put more than $200 million into the construction of affordable housing in Sioux Falls alone.  At a time when our country is in the midst of a housing crisis, government policy is encouraging national banks to flood one of our smallest and most well-off communities with pools of capital.

To those who might feel frustrated with their CitiCard, the OCC was brief.  It examined fair lending and credit practices at Citi.  Here was the entirety of their report:

We found no evidence of discrimatory or illegal credit practices inconsistent with helping to meet community credit needs.

What does that mean?  Did they find some illegal credit practices that were helpful to community credit needs? Did they only consider discriminatory credit practices to the extent that they occurred in Sioux Falls, where more than 88 percent of the population is white?

Now would be a good time to pass CRA Modernization. Right now, CRA modernization rests with the Senate.  Chris Dodd put CRA into the CFPA.  Language in the bill would move CRA assessment areas from where the deposits are located (Sioux Falls) to wherever the credit is utilized, provided that the lender had more than 1 percent of the credit market within that financial category.  That would change this charade.  It would probably end Vikram Pandit’s visits to his friends in the Sioux Falls community. That’s a loss, but Sioux Fall’s loss would be the gain of people who use credit with Citibank, Wells Fargo, or most any national credit card.