Liberty Bank, Inc. and the Community Reinvestment Act
Imagine a bank that engaged in an illegal credit practice that “caused substantial harm to a majority of the bank’s mortgage loan borrowers.” Imagine further that this bank’s management failed to take “corrective action to address the violation” and, worse still, has not even “committed to implementing corrective action” to address the problem. Nor does the bank have “sufficient policies, procedures, training programs, internal assessment efforts, or other practices in place to prevent illegal credit practices.”
What should happen to the Community Reinvestment Act rating of such a bank?
For Liberty Bank, Inc., a tiny $12 million asset non-member bank located in Utah, the answer is that its CRA rating is unchanged,1 but only because the FDIC had already determined that the bank’s performance was “substantially deficient,” before even getting to the illegal credit practices.
The FDIC identified illegal credit practices during the evaluation period. Examiners cited a violation of the Federal Trade Commission Act, Section 5 Unfair or Deceptive Acts of Practices (UDAP). The UDAP violation caused substantial harm to a majority of the bank’s mortgage loan borrowers. Management has not completed corrective action to address the violation, and management has not committed to implementing corrective action. Further, the bank does not have sufficient policies, procedures, training programs, internal assessment efforts, or other practices in place to prevent illegal credit practices. Although the bank’s practices harmed consumers, considering the bank’s already substantially deficient performance, this illegal credit practice did not affect the CRA rating.
That quote is from a CRA performance evaluation for Liberty Bank, Inc. released today by the FDIC finding the bank in Substantial Noncompliance with the CRA.
This institution is rated Substantial Noncompliance. An institution in this group has a substantially deficient record of helping to meet the credit needs of its assessment area (AA), including low- and moderate-income (LMI) neighborhoods, in a manner consistent with its resources and capabilities. […]
The following narrative supports the bank’s performance:
The loan-to-deposit (LTD) ratio is less than reasonable given the institution’s size, financial conditions, and AA’s credit needs.
All of the loans were originated outside of the institution’s AA. […]
In its previous CRA evaluation, Liberty Bank, Inc. also received a Substantial Noncompliance rating, and in the evaluation before that it received a Needs to Improve rating.
At one point a few years ago Liberty Bank, Inc. was the target of an acquisition by the company behind CreditNinja, a proposal opposed by various community groups. The FDIC’s website shows a change of control application as having been withdrawn in July 2021 and never refiled.
As described by the FDIC in this latest evaluation, the bank’s primary lending product is “a consumer loan product referred to as Tiny Home Loans.” For the first quarter of 2023, Liberty Bank, Inc. recently reported a net loss of $263,000.
One other thing: Liberty Bank, Inc. is at least the second small Utah-based bank to have a failing CRA grade published this year. In February the FDIC disclosed that TAB Bank’s rating had been downgraded to needs to improve in light of what the American Banker described as “predatory puppy loans.”
A Story About Protego and the OCC
Earlier this week Jen Wieczner of New York Magazine published an article titled, “Is the Federal Government Trying to Kill Off Crypto?”
On the whole, I do not think the evidence marshaled in the article is compelling, but reasonable people can differ. What I thought was most interesting in the article was its discussion of Protego’s attempt to become a national trust bank regulated by the Office of the Comptroller of the Currency.
Protego Trust Bank’s application to convert to a national bank charter, which was conditionally approved by the OCC in early 2021, was the subject of various posts on this blog wondering what was taking so long for Protego to secure final OCC approval and open for business.
The initial deadline came and went without any public announcements from the OCC or from the bank, but it later emerged that Protego had been granted an extension of time until early February 2023. Ultimately this was not enough however, and Protego’s time ran out before it secured final approval.
The article offers this explanation.
But when Protego told the OCC in February that it had completed all of the agency’s requirements for full approval, its application was denied on a technicality — one that the OCC had never mentioned before, according to a person familiar with the situation. […]
In Protego’s case, the company had lined up more than $100 million in necessary funding ahead of its deadline, Gilman confirmed. But a month later, the OCC said that Protego’s application had failed because the money wasn’t physically in the bank yet, according to a person familiar with the situation. All Protego needed to do was wire the money in (it had previously been told that only needed to happen four days before its official opening date, once its application had been approved). But the OCC told the company that it was too late, the person said, because the conditional approval had expired. Protego was well-versed in how the process typically worked at the OCC: Brian Brooks, who ran the OCC during the Trump administration, sat on the company’s board.
I have no personal knowledge either way, but my initial take on reading this was to call the story unbelievable, in the sense that I literally cannot believe it.
But assume for the sake of argument that it is true that this was the only condition Protego had not met, and that with respect to this condition the OCC indeed applied a different standard here than previously.2
Even if that is so, how did Protego find itself in this position? In light of the approaching deadline, shouldn’t they or their advisors have called up the OCC and asked them to confirm that the application was going to be approved and that it was okay to wait to wire the funds? I do not understand how this conversation apparently occurred with the OCC only after the deadline had already expired. What am I missing?
Thanks for reading! Thoughts, challenges, criticisms are always welcome at bankregblog@gmail.com.
In light of what the FDIC has to say about the bank’s management and its compliance with law, I assume the bank’s other supervisory ratings are also unsatisfactory, but those ratings, unlike its CRA rating, are confidential.
From the article: “The OCC declined to comment on specific banks except to say that Protego did not meet all of the requirements before its conditional approval expired on February 4.”