Of the four ratings a bank can receive for their CRA performance, only the Needs to Improve and Substantial Non-Compliance are viewed as “bad” ratings. However, especially in the case of a Needs to Improve rating, just because the bank received a negative rating doesn’t mean that the bank is ignoring the community.
In some cases, a bank may receive a technical downgrade to their CRA rating based on other compliance matters or issues within the bank. This can result in a bank that would otherwise have a Satisfactory CRA rating receive a lower rating. In those cases the banks may have a good record of meeting community needs even though other problems exist within the bank.
Regardless, if a bank receives a negative rating, it can be time-consuming. It effectively pauses the bank’s long-term strategy for growth by preventing the banks from opening new branches, merging with another bank or acquiring a bank.
It also poses significant reputation risk to the banks since the CRA rating is public. A negative rating brings a higher level of scrutiny both from the bank’s regulator and the general public.
Also, banks are expected to take immediate action to begin correcting the negative CRA rating. Therefore, the bank’s CRA regulator will often shorten the time frame before their next examination. This can be shortened to as little as twelve months before the bank is re-examined to determine if it has taken the necessary steps to increase its CRA performance.