USAA Federal Savings Bank is again in hot water with regulators over discriminatory practices at its auto loan unit.
The San Antonio-based bank is now the first with more than $100 billion in assets to receive low marks on back-to-back Community Reinvestment Act performance tests. And according to the report from the Office of the Comptroller of the Currency, USAA’s main regulator, things seem to be going in the wrong direction.
In 2019, the OCC lowered USAA’s CRA rating from “satisfactory” to “needs improvement,” the second-lowest rating in the system, after identifying 600 violations of laws intended to protect the military. In the 2022 report, the OCC noted 6,477 violations of a different statute and again issued a “needs improvement” rating.
“There are only 34 banks with more than $100 billion [of assets], we expect everyone to be outstanding,” said Kenneth H. Thomas, president of Miami-based consulting group Community Development Fund Advisors LLC. Outstanding is the highest score that can be achieved on the exam. “Satisfactory, we’ll take it… but you hardly ever go below that. Only four banks have done that and each time, they have upgraded to the next round.”
The other four big banks that received “needs improvement” ratings are Centennial, Colorado, Countrywide Bank in 2008, Sioux Falls, SD, Wells Fargo National Bank Association in 2012, Fifth Third Bank and Cincinnati-based Birmingham. Alabama-based Regents Bank, both in 2014, according to a digital database maintained by the Federal Financial Institutions Examination Board.
No bank of that size has ever received the lowest CRA exam score of substantially non-compliant, but Thomas said that might have been justified for USAA.
“If you have the same bad results, you will get the same low grade, but they actually got worse. They were 10 times worse. They went from 600 rapes to 6,000,” she said. “I don’t know why they didn’t get material default. That’s the absolute lowest rating and we only get a handful of those every year.”
USAA declined to comment on the results of its CRA exam. But in a written statement, a company spokesperson said the bank views its latest result as an improvement over its previous review, even though its rating was left unchanged, because it received a “highly satisfactory” rating on the loan portion of the performance test, above “low satisfactory” in 2019.
“USAA FSB received an overall CRA rating of satisfactory based on CRA performance, consistent with our commitment to the financial security of all members, including those in low- and moderate-income communities,” the spokesperson wrote. “Our overall rating was lowered due to regulatory concerns that were addressed and related to a product that USAA discontinued in 2020.”
The USAA spokesperson declined to disclose the name of the discontinued product line where the violations originated, citing concerns about the disclosure of confidential supervisory information.
In February 2020, the US Announced that he was ending his digital car buying business and cutting his relationship with the online car pricing website TrueCar, Inc.
Enacted in 1977, the CRA was designed to encourage bank investment in underserved communities. OCC regulated banks are subject to CRA examinations approximately every three years. During these reviews, the agency inspects a bank’s lending activity, investment activity, and services to ensure they meet performance standards in each category.
USAA received passing scores in each of three performance categories on the 2022 exam, but was still rated “needs improvement” because of its illegal lending practices, the OCC report notes.
Advocates for fair lending and consumer protection see the unprecedented second degree of failure as a sign of both the severity of USAA’s malpractice and a growing willingness by regulators to get tougher on banks.
“What’s encouraging about all of this is that we’ve called on the OCC and all bank regulators to pay more attention when there are consumer protection violations,” said Adam Rust, senior policy adviser at the advocacy group National Community Reinvestment Coalition. “Usually that would be the job of other agencies, but consulting each other is good.”
Those in and around the banking sector view the action with more skepticism.
Alan Wingfield, a partner at the law firm Troutman Pepper who defends banks in consumer protection disputes, said the specific law the OCC accused USAA of violating: Section 5 of the Federal Trade Commission Act, which relates to Unfair and Deceptive Acts and Practices, or UDAAP — is open to broad interpretation.
During the Biden administration, Wingfield said, the Consumer Financial Protection Bureau has used the UDAAP provision of the Dodd-Frank Act to expand its reach beyond previously assumed legal limits. He sees that the OCC and other regulators will follow his lead.
In the USAA’s 2019 CRA report, 546 of the violations cited by the OCC were under the Servicemembers Civil Relief Act, which prohibits the military from being sued while on active duty overseas, and the rest were under the Military Loan Act, which provides financial protections for service members. For the 2022 report, all violations were under UDAAP.
Wingfield said it was difficult to say how directly the latest violations fell under UDAAP, due to the limited details revealed in the CRA report. But he said it was something the industry is on high alert for.
“Regulators are looking to that power of UDAAP as their magic wand so they can do whatever they want,” he said. “That has definitely been viewed quite negatively in the industry.”
Still, others see the issuance of a second failing grade to USAA as a sign of the CRA’s legal limitations.
“It shows that one of the big problems with the CRA is that unless a bank tries to merge, the CRA really has no teeth,” said Todd Phillips, an independent consultant and former attorney for Federal Depository Insurance Corp. “Going from 600 or more violations to more than 6000 is very, very bad. But unless USAA is trying to buy another bank or open a new branch at a time when most banks are closing branches, it doesn’t really have much of an impact on the bank operations”.
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