Bank regulators have given Wells Fargo & Co. a poor grade when it comes to serving low-income communities, the bank said Tuesday.
In a regulatory filing and news release, the San Francisco bank said that the Office of the Comptroller of the Currency had given it a rating of "needs to improve" on its lending and other activities under the Community Reinvestment Act. The rating has wide-ranging implications for the bank.
Better known as the CRA, the act is a 1977 law that encourages banks to operate and lend in low-income and minority communities, and threatens them with sanctions if they fall short.
Wells Fargo noted that this is the first time since 1994, when ratings were made public, that it has received less than an "outstanding" score for its CRA activities.
CRA ratings are usually based on whether and how much banks lend, serve and invest in their communities, including low-income neighborhoods. But Wells Fargo's downgrade had less to do with those measures and more with a recent history of bad practices.
In their report, regulators gave the bank high marks across the board, including for so-called community development lending _ providing financing for affordable housing, for instance _ but knocked its score down after considering 10 different regulatory orders or settlements issued against the bank related to discriminatory or illegal practices.
That includes the bank's recent scandal over unauthorized accounts, which led to a $185 million settlement with the OCC and other regulators last year.
The bank said in its regulatory filing that the downgrade could have wide-ranging implications, including limiting potential mergers and acquisitions.
The downgrade also could prompt some government entities to cease or limit their business with the bank. Wells Fargo said that some public agencies have policies that restrict them from doing business with banks that have less than a "satisfactory" CRA rating.
Several city and state government entities across the country have already sought to cut off at least some of their business with Wells Fargo over the past six months following revelations that employees opened as many as 2 million accounts without customers' authorization.
The practices led to the ouster of former Chief Executive and Chairman John Stumpf.
Wells Fargo executives noted that the new CRA report looked at the bank's activities between 2009 and 2012 and that the bank is seeking an expedited review _ and potential upgrade in rating _ based on activity after that.
"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," Wells Fargo CEO Tim Sloan said in a statement Tuesday.
