The Board of Governors of the Federal Reserve System Seal 

BOARD OF GOVERNORS 

OF THE 

FEDERAL RESERVE SYSTEM 

WASHINGTON, D.C. 20551 

DIVISION OF CONSUMER 

AND COMMUNITY AFFAIRS 

CA-80-15 

December 11, 1980 

TO THE OFFICERS IN CHARGE OF BANK EXAMINATIONS 

AND CONSUMER AFFAIRS SECTIONS 

SUBJECT: Uniform Interagency Consumer Compliance Ratings System 

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The Federal Financial Institutions Examination Council has recently approved a new 

interagency rating system applicable to consumer compliance examinations. This system will be 

effective January 1, 1981, and will apply to all Federal Reserve System consumer compliance 

examinations commenced subsequent to that date. 

With the exception of the tie-in to the CRA rating, the interagency rating and the current 

Federal Reserve rating system are basically the same. Since CRA is rated under a separate 

system, CRA considerations should no longer be given weight under this new system. 

In order to effect a smooth transition to the new system January 1, 1981, please distribute 

the interagency rating system to your examiners prior to that date. The new rating system and a 

summary of the changes is enclosed. 

Sincerely, 

[signed by] 

Jerauld C. Kluckman 

Associate Director 

Enclosure 
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Summary of changes created by the interagency rating system 

• Elimination of a tie-in to the CRA rating 

• Elimination of descriptive one-word terms for the rating categories 

Category two 

• reimbursable violations and repeat violations are no longer permitted in this category 

Category three 

• discriminatory practices may not be in evidence 

• elimination of reference to the number of reports in which a repeat violation may have 

been cited previously 

Category five 

• elimination of reference to type of supervisory action that should be considered 

• inclusion of the fact that "previous efforts on the part of the regulatory authority to obtain 

voluntary compliance have been unproductive." 
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UNIFORM INTERAGENCY CONSUMER COMPLIANCE RATING SYSTEM 

Introduction 

The rating system provides a general framework for evaluating and integrating significant 

compliance factors in order to assign a consumer compliance rating to each federally regulated 

commercial bank, savings and loan association, mutual savings bank and credit union. The 

rating system does not consider or take into account an institution's record of lending 

performance under the CRA or its compliance with the applicable provisions of the 

implementing regulations since institutions are rated separately for CRA purposes. 

The purpose of the rating system is to reflect in a comprehensive and uniform fashion the nature 

and extent of an institution's compliance with consumer protection and civil rights statutes and 

regulations. In addition to serving as a useful tool for summarizing the compliance position of 

individual institutions, the rating system will also assist the public and the Congress in assessing 

the aggregate compliance posture of regulated financial institutions. 

Overview 

Under the uniform rating system, each financial institution is assigned a consumer compliance 

rating predicated upon an evaluation of the nature and extent of its present compliance with 

consumer protection and civil rights statutes and regulations and the adequacy of its operating 

systems designed to ensure compliance on a continuing basis. The rating system is based upon a 

scale of 1 through 5 in increasing order of supervisory concern. Thus, "1" represents the highest 

rating and consequently the lowest level of supervisory concern; while "5" represents the lowest, 

most critically deficient level of performance and therefore the highest degree of supervisory 

concern. Each of the five ratings is described in greater detail below. 

In assigning a consumer compliance rating all relevant factors must be evaluated and weighed. 

In general, these factors include the nature and extent of present compliance with consumer 

protection and civil rights statutes and regulations, the commitment of management to 

compliance and its ability and willingness to take the necessary steps to assure compliance, and 

the adequacy of operating systems, including internal procedures, controls, and audit activities 

designed to ensure compliance on a routine and consistent basis. The assignment of a 

compliance rating may incorporate other factors that impact significantly on the overall 

effectiveness of an institution's compliance efforts. 

While each type of financial institution has differences in its general business powers and 

constraints, all are subject to the same consumer protection and civil rights statutes and 

regulations covered by the rating system. Thus, there is no need to evaluate differing types of 

financial institutions on criteria relating to their particular industry. As a result, the assignment 

of a uniform consumer compliance rating will help direct uniform and consistent supervisory 

attention which does not depend solely upon the nature of the institution's charter or business or 

the identity of its primary federal regulator. In this manner, overall uniformity and consistency 

of supervision will be strengthened by the existence of common consumer compliance ratings. 

The primary purpose of the uniform rating system is to help identify those institutions whose 

compliance with consumer protection and civil rights statutes and regulations display 
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weaknesses requiring special supervisory attention and which are cause for more than a normal 

degree of supervisory concern. To accomplish this objective, the rating system identifies an 

initial category of institutions that have compliance deficiencies that warrant more than normal 

supervisory concern. These institutions are not deemed to present a significant risk of financial 

or other harm to consumers but do require a higher than normal level of supervisory attention. 

Institutions in this category are generally rated "3." The rating system also identifies certain 

institutions whose weaknesses are so severe as to represent, in essence, a substantial or general 

disregard for the law. These institutions are, depending upon nature and degree of their 

weaknesses, rated "4" or "5." 

The uniform identification of institutions giving cause for more than a normal degree of 

supervisory concern will help ensure: 

o That the degree of supervisory attention and the type of supervisory response are based 

upon the severity and nature of the institution's problems; 

o That supervisory attention and action are, to the extent possible, administered uniformly 

and consistently, regardless of the type of institution or the identity of the regulatory 

agency; and 

o That appropriate supervisory action is taken with respect to those institutions whose 

compliance problems entail the greatest potential for financial or other harm to 

consumers. 

Consumer Compliance Ratings 

Consumer Compliance Ratings are defined and distinguished as follows: 

One 

An institution in this category is in a strong compliance position. Management is capable of and 

staff is sufficient for effectuating compliance. An effective compliance program, including an 

efficient system of internal procedures and controls, has been established. Changes in consumer 

statutes and regulations are promptly reflected in the institution's policies, procedures and 

compliance training. The institution provides adequate training for its employees. If any 

violations are noted they relate to relatively minor deficiencies in forms or practices that are 

easily corrected. There is no evidence of discriminatory acts or practices, reimbursable 

violations, or practices resulting in repeat violations. Violations and deficiencies are promptly 

corrected by management. As a result, the institution gives no cause for supervisory concern. 

Two 

An institution in this category is in a generally strong compliance position. Management is 

capable of administering an effective compliance program. Although a system of internal 

operating procedures and controls has been established to ensure compliance, violations have 

nonetheless occurred. These violations, however, involve technical aspects of the law or result 

from oversight on the part of operating personnel. Modification in the bank's compliance 

program and/or the establishment of additional review/audit procedures may eliminate many of 
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the violations. Compliance training is satisfactory. There is no evidence of discriminatory acts 

or practices, reimbursable violations, or practices resulting in repeat violations. 

Three 

Generally, an institution in this category is in a less than satisfactory compliance position. It is a 

cause for supervisory concern and requires more than normal supervision to remedy deficiencies. 

Violations may be numerous. In addition, previously identified practices resulting in violations 

may remain uncorrected. Overcharges, if present, involve a few consumers and are minimal in 

amount. There is no evidence of discriminatory acts or practices. Although management may 

have the ability to effectuate compliance, increased efforts are necessary. The numerous 

violations discovered are an indication that management has not devoted sufficient time and 

attention to consumer compliance. Operating procedures and controls have not proven effective 

and require strengthening. This may be accomplished by, among other things, designating a 

compliance officer and developing and implementing a comprehensive and effective compliance 

program. By identifying an institution with marginal compliance early, additional supervisory 

measures may be employed to eliminate violations and prevent further deterioration in the 

institution's less than satisfactory compliance position. 

Four 

An institution in this category requires close supervisory attention and monitoring to promptly 

correct the serious compliance problems disclosed. Numerous violations are present. 

Overcharges, if any, affect a significant number of consumers and involve a substantial amount 

of money. Often practices resulting in violations and cited at previous examinations remain 

uncorrected. Discriminatory acts or practices may be in evidence. Clearly, management has not 

exerted sufficient effort to ensure compliance. Its attitude may indicate a lack of interest in 

administering an effective compliance program which may have contributed to the seriousness of 

the institution's compliance problems. Internal procedures and controls have not proven 

effective and are seriously deficient. Prompt action on the part of the supervisory agency may 

enable the institution to correct its deficiencies and improve its compliance position. 

Five 

An institution in this category is in need of the strongest supervisory attention and monitoring. It 

is substantially in noncompliance with the consumer statutes and regulations. Management has 

demonstrated its unwillingness or inability to operate within the scope of consumer statutes and 

regulations. Previous efforts on the part of the regulatory authority to obtain voluntary 

compliance have been unproductive. Discrimination, substantial overcharges, or practices 

resulting in serious repeat violations are present.