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Appeals of Material Supervisory Determinations: Guidelines & Decisions

SARC-2007-04 (May 2, 2008)

The Bank appealed the downgrades of its Compliance Rating and its Community Reinvestment Act (“CRA”) Rating assigned to it as a result of the concurrent Compliance Examination and the CRA Evaluation in 2006. The Examiner had determined that the Bank’s Compliance Management System (“CMS”) was seriously deficient because of the absence of adequate and effective oversight, monitoring, and program administration by the Bank’s Board of Directors and senior management, primarily with respect to affinity contracts with third-parties for the marketing and servicing of subprime credit card products issued by the Bank. The Report of Examination (“ROE”) cited numerous instances of credit card practices that violated provisions of consumer protection laws, including the Federal Trade Commission Act (“FTC Act”), the Equal Credit Opportunity Act (“ECOA”), the Truth in Lending Act (“TILA”), and the Fair Credit Reporting Act (“FCRA”), among others. The deficiencies in the Bank’s CMS contributed to the situation by failing to forestall or detect many of the violations.

Bank management disputed the examiner’s findings as a matter of law, citing, among other things, the interplay between TILA and section 5 of the FTC Act, as well as the fact that its credit card program was in line with widespread industry practice. Further, the Bank argued that the findings were inconsistent with the Bank’s prior examination history; that its CMS had improved significantly; and that the CRA Rating was a misapplication of the FDIC’s regulations.

The Committee determined that the Bank’s CMS was weak, monitoring practices ineffective, and training for Bank personnel deficient. The Committee also concluded that solicitations for credit card products were unfair and/or deceptive and that the violations, catalogued in detail in the ROE, were properly cited and documented. Further, the deceptive practices involved a significant number of consumers, and the Bank’s business was largely influenced by its relationship with a third-party vendor. Finally, the Committee determined that the Bank’s CRA Rating, as a result of the violations cited in the ROE, was consistent with regulatory requirements.