On March 28, 2017, Wells Fargo & Co announced (Bloomberg, March 28, 2017) that the Office of the Comptroller of the Currency (OCC) downgraded the firm in its assessment of the firm’s performance under the Community Reinvestment Act (CRA). Under CRA, depository institutions are evaluated to determine their responsiveness in meeting the needs of low- and moderate-income (LMI) communities and families within the geographic areas they primarily service. While examiners noted that Wells Fargo was responsive to consumer credit needs, a series of regulatory actions against the firm caused the OCC to downgrade its CRA assessment rating from “Outstanding” – the highest rating available – to “Needs to Improve.”

This rating downgrade was driven by a history of regulatory violations since 2004 (Mortgage Professional America, March 29, 2017). The OCC noted that the firm engaged in discriminatory practices on the basis of race or color from 2004 through 2008 and in 2012 the firm settled allegations of steering Hispanic and African American borrowers towards costlier mortgage products. Most recently, the firm was hit with a $185 million fine (USA Today, September 8, 2016) and an associated $110 million class-action settlement (Bloomberg, March 28, 2017) regarding millions of deposit and credit card accounts created by Wells Fargo employees without customer authorization.

Under CRA, any legal, economic or financial issues that adversely impact the needs of LMI communities can be factored into the CRA rating. The history of discriminatory patterns and illegal consumer practices had a significant, adverse impact on Wells Fargo’s most recent CRA examination. While depository institutions are not fined under CRA, a poor rating can be detrimental by hindering a firm’s ability to grow. Ratings of “Needs to Improve” and “Substantial Non-Compliance” may prevent depository institutions, like Wells Fargo, from receiving new charters, opening new branches and merging with or acquiring other financial institutions.