The Office of the Comptroller of the Currency is expected to downgrade Wells Fargo’s Community Reinvestment Act rating in January to “needs to improve,” from “outstanding,” according to a story by Reuters, citing unnamed sources.
A two-notch downgrade would prohibit Wells from making bank acquisitions or filing applications to open new branches until the rating improves.
Though Wells’ last CRA exam was in 2012, the bank has not had a CRA rating released since 2008. The OCC has not commented on why it has taken eight years to release a CRA rating on Wells. The OCC and Wells Fargo declined to comment on the Reuters report.
Last month, the OCC revoked certain privileges given to Wells including its ability to name new directors and senior executives or to change the duties of existing executives without first notifying the agency. The bank now is required to give 90 days’ notice to its regulator, which can reject any changes.
A CRA downgrade would not be a surprise. This year, Fifth Third Bancorp in Cincinnati and Regions Financial in Birmingham, Ala., each received “need to improve” CRA ratings from regulators that have impacted their ability to expand.
Consumer groups first urged the OCC to give Wells a failing CRA rating four years ago, citing the bank’s lending practices in minority communities. Consumer advocates have also called for more scrutiny of Wells by the OCC.
Wells has paid more than $1 billion for a variety of regulatory settlements and class-action lawsuits related to overdraft fees, student loans, steering borrowers into costly mortgages and mortgage servicing failures, according to the California Reinvestment Coalition.
Wells’ CRA rating has received new scrutiny because of the bank’s phony account scandal. Wells agreed to a $190 million settlement with regulators in September after firing 5,300 employees for opening 2 million fake customer accounts to meet sales goals.
Congress passed the CRA in 1977 to reduce discriminatory credit practices such as redlining. Banks are graded on a wide range of issues including whether they are meeting the needs of low- and moderate-income neighborhoods.
More than 90% of financial institutions receive a passing “satisfactory” CRA rating. Fewer than 10% get an “outstanding” grade.