Late last year, as the fallout from the fake account scandal at Wells Fargo was still unfolding, rumors began to circulate that the bank could be facing another regulatory smackdown due to reportedly failing to meet its requirements under the Community Reinvestment Act.

And Tuesday, the other shoe dropped, as the bank disclosed that it did indeed fail to meet its CRA requirements.

According to Wells Fargo’s new CRA review from the Office of the Comptroller of the Currency, Wells Fargo’s overall CRA rating is being dropped two notches, from “Outstanding” to “Needs to Improve.”

In its review, the OCC said that the downgrade is due, in part, to “the extent and egregious nature of the evidence of discriminatory and illegal credit practices.”

According to the OCC report, Wells Fargo demonstrated an “extensive and pervasive pattern and practice of violations across multiple lines of business within the bank,” which resulted in “significant harm to large numbers of consumers.”

The OCC report continues: “The bank failed to implement an effective compliance risk management program designed to property prevent, identify and correct violations. Further, bank management instituted policies, procedures and performance standards that contributed to several of the violations for which evidence has been identified.”

It should be noted that the evaluation period for the new CRA review covers the years 2009-2012, and as the bank notes in its announcement of the downgrade, many of the bank’s ratings are still in the “outstanding” category.

“On the performance aspects of this exam, the OCC rated Wells Fargo's overall CRA performance as ‘Outstanding,’” Wells Fargo notes in a release.

“On the individual components of the exam, Wells Fargo received an ‘Outstanding’ on the Lending Test (which makes up 50% of the exam), an ‘Outstanding’ on the Investment Test, and a ‘High Satisfactory’ on the Service Test,” the bank continues. “Wells Fargo's efforts were also rated a minimum of ‘Satisfactory’ across all 54 states and multi-state metropolitan areas reviewed by the OCC for the timeframe concluding in 2012.”

But as Wells Fargo notes, its final rating fell to “Needs to Improve” based on number of regulatory issues.

The OCC report cites the following examples among the “discriminatory or other illegal credit practices” that adversely affected Wells Fargo’s Community Reinvestment Act rating:

  • The $150 million fine levied against the bank last year by the Consumer Financial Protection Bureau, the OCC, and the city and county of Los Angeles for the “widespread unlawful” practices of more than 5,000 of the bank’s former employees who opened more than 2 million fake accounts to get sales bonuses.
  • The bank’s $175 million settlement over claims that Wells Fargo’s wholesale brokers steered minority homebuyers into more expensive subprime mortgages. The settlement, from 2012, stemmed from a lawsuit brought against Wells Fargo by the OCC and the Department of Justice, which claimed that mortgages from the bank’s wholesale lending program between 2004 and 2009 discriminated against more than 34,000 African-American and Hispanic borrowers.
  • The $28.36 million in consumer relief Wells Fargo was ordered to pay in 2015 for illegally foreclosing on the homes of U.S. service members in violation of the Servicemembers Civil Relief Act.
  • The $24 million fine Wells Fargo was ordered to pay the CFPB and the Maryland Attorney General for participating in an illegal marketing services kickback scheme they participated in with Genuine Title, a now-defunct title company.
  • The $5 million settlement between the Department of Housing and Urban Development and Wells Fargo Home Mortgage, resolving allegations that the lender discriminated against women who were pregnant, or had recently given birth, and were on maternity leave.

In a statement, Wells Fargo’s CEO, Tim Sloan, said that the bank has made significant improvements since the examination’s review period and invites the OCC to examine it again soon.

“We are disappointed with this rating given Wells Fargo's strong track record of lending to, investing in and providing service to low- and moderate-income communities,” Sloan said.

“However, we are committed to addressing the OCC's concerns because restoring trust in Wells Fargo and building a better bank for our customers and our communities is our top priority,” Sloan continued.

“Wells Fargo is deeply committed to economic growth, sustainable homeownership and neighborhood stability in low- and moderate-income communities and will continue to invest above and beyond what is required by CRA,” Sloan added.

“With more than four years having passed since the end of our last CRA evaluation period, Wells Fargo intends to ask the OCC to accelerate the timing of its next exam so that we may continue to serve most effectively the low- and moderate-income communities in which we operate,” Sloan concluded.

In its release, Wells Fargo noted that it continued its “deep and broad commitment to all communities it serves” in the time period since the exam, adding that the bank originated “more home loans than any other bank in America over the last six years to African-Americans, Asians, Hispanics, Native Americans, LMI borrowers, and residents of LMI neighborhoods.”

In February Wells Fargo announced that it was making a $60 billion lending commitment to create at least 250,000 African American homeowners by 2027.

To read the OCC report in full, click here.

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