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Appeals of Material Supervisory Determinations: Guidelines & Decisions

SARC-98-03 (June 2, 1998)

On May 28, 1998, the Supervisory Appeals Review Committee (“Committee”) of the Federal Deposit Insurance Corporation considered the appeal by [Bank] (“Bank”) of the Community Reinvestment Act (“CRA”) rating assigned at the examination conducted as of December 9, 1996.

The Committee first considered the Bank’s request to appear before the Committee for purposes of presenting evidence in support of its appeal. Based upon the comprehensive nature of the Bank’s April 8, 1998, submission to Carmen J. Sullivan, Director, Division of Compliance and Consumer Affairs, the Committee concluded that the record relating to the Bank’s appeal was sufficiently complete and that an oral presentation would not be productive.

The Committee then gave careful consideration to the issues you raised in your appeal letter of April 8, 1998, and concluded that the “Needs to Improve” CRA rating should be affirmed. The Committee based its determination on 12 C.F.R. § 345.28 (c), which discloses the effect of evidence of discriminatory or other illegal credit practices on a bank’s CRA rating:

“Evidence of discriminatory or other illegal credit practices adversely affects the FDIC’s evaluation of a bank’s performance. In determining the effect on the bank’s assigned rating, the FDIC considers the nature and extent of the evidence, the policies and procedures that the bank has in place to prevent discriminatory or other illegal credit practices, any corrective action that the bank has taken or has committed to take, particularly voluntary corrective action resulting from self- assessment, and other relevant information.”

The Committee determined that the nature and extent of the evidence, described in the Report of Examination, supports findings of substantive violations of the Fair Housing Act and the Equal Credit Opportunity Act constituting a pattern and practice of disparate treatment involving “overages”. The policies and procedures in place during the examination period from August 1995 to December 1996 were insufficient to prevent these substantive violations. The Bank did not implement adequate corrective action until entering into a remediation agreement with the New York State Banking Department on February 17, 1998, more than one year after the period of the examination as of December 9, 1996, for which the CRA rating of “Needs to Improve” is assigned. Based on consideration of these facts, the Committee concludes that the assignment of a “Needs to Improve” rating for performance as of December 9, 1996, is appropriate.

The effect of the recent corrective action resulting from the remediation agreement on current CRA performance will more appropriately be considered at the next examination and during consideration of any application. In this regard, the Committee noted the otherwise satisfactory evaluation of the Bank in the other CRA performance categories and was encouraged to learn of the positive developments in performance outlined in the appeal letter.

This determination is considered the Federal Deposit Insurance Corporation’s final supervisory decision.

By Direction of the Supervisory Appeals Review Committee of the Federal Deposit Insurance Corporation.