- APPLICABILITY AND SCOPE
This bulletin applies to all banks, credit unions, and licensees. The purpose of the bulletin is to affirm the examination policies and procedures of each of the Division of Bank's (Division) three examination units. The Financial Institutions Supervision (FIS) Section conducts safety and soundness examinations of banks and credit unions. The Community Reinvestment and Outreach (CRA) Unit conducts a specialty examination of all banks and credit unions to evaluate their performance under the provisions of the Massachusetts Community Reinvestment Act. The Consumer Compliance Unit also conducts a specialty examination of all banks and credit unions for compliance with applicable consumer protection laws and regulations. The Consumer Compliance Unit also conducts examinations/ inspections of persons (defined as natural persons or organizations including corporations, partnerships, associations, cooperatives, or trusts), which are licensed by the Division, to ensure compliance with all applicable statutes and regulations as well as to ensure financial responsibility through a modified safety and soundness review.
- EXAMINATION SCHEDULING POLICY
It is a policy of the Division to provide banks, credit unions, and licensees with sufficient advance notice of examinations. Credit unions under $5 million in total assets are the only current exception to this policy. The Division reserves the right to examine any institution or entity under its jurisdiction without notice. Each unit's notification procedures are described in this section.
- Financial Institution Supervision
Each examination cycle, the FIS Section sends advance written notification of examination to the chief executive officers of banks and credit unions scheduled for safety and soundness examinations. The notice states the approximate calendar period in which the examination is tentatively scheduled. A brief survey accompanies the notice and requests, among other things, the preference of the bank or credit union regarding the CRA and Consumer Compliance examinations. Each bank or credit union may indicate its preference to have these specialty examinations conducted either concurrently with the safety and soundness examination or separately at another time.
If a bank or credit union requests to be examined simultaneously for safety and soundness, CRA, and Consumer Compliance, the FIS Section will notify the specialty examination units and will assume the prime responsibility for coordinating the scheduling process, including delivery of pre-examination materials. Every effort is made to accommodate the institution.
On June 26, 1995, the Division implemented special procedures for small credit union examinations that specify no advance notice of safety and soundness examinations. Therefore, the annual preference survey will not disclose the quarter of the year during which the examination is scheduled.
Banks and credit unions will receive notice of their CRA examination approximately 45 days in advance of the quarter in which the examination is scheduled. The Division must publish a list of banks and credit unions scheduled for CRA examination at least 30 days in advance of the calendar quarter in which the examination is scheduled pursuant to 209 CMR 46.45. In order to meet the publishing deadline, a CRA & Outreach Unit manager will contact targeted banks and credit unions at least two weeks prior to the publishing date to confirm that the examination will be conducted during the next quarter and to verify that no conditions exist that might adversely affect the conduct of the examination.
Should a bank or credit union prefer its CRA examination independent of the safety and soundness examination, the Division's goal is to conduct the CRA and Consumer Compliance examinations either concurrently or in close proximity to one another.
- Consumer Compliance
- Financial Institutions
The Consumer Compliance Unit makes every effort to coordinate with the CRA & Outreach Unit if a bank or credit union prefers an examination independent of the safety and soundness examination. The Consumer Compliance Unit will either directly, or in conjunction with the CRA & Outreach Unit, notify the bank or credit union approximately two weeks in advance of the start of the on-site examination.
Examinations of licensees are conducted independently by the Consumer Compliance Unit. Licensees will receive approximately two weeks advance notice of a scheduled examination from either a Regional Field Manager or the Examiner-in-Charge.
- Financial Institutions
- Financial Institution Supervision
- INITIAL EXAMINATION CONTACT POLICY
It is a Division policy that at least two weeks prior to the start of an examination, senior management of the entity to be examined will be contacted by a Field Office Supervisor, a Regional Field Manager, or the designated Examiner-in-Charge, and advised of the actual start date of the examination. At that time, a pre-examination package, containing questionnaires and/or requests for information, will be either hand delivered or mailed to the senior management of the entity. In order to expedite the examination, it is important that all requested material be completed prior to the arrival of examiners. The Field Office Supervisor or Regional Field Manager can address questions about the requested information and unexpected scheduling problems.
- ON-SITE EXAMINATION
A qualified examiner is placed in charge of each examination, under the supervision of a Field Office Supervisor and/or a Regional Field Manager, who are part of the Division's management structure. These managers are available to the examined entity to resolve any problems which may arise during the examination and act as liaison between the field examination staff and senior management in the Division's Boston Office.
Each examination has a time budget established by a manager and the examiner-in-charge. The budget is normally based on appropriately adjusted historical time records for examinations of the entity. Where past records are not available, or not representative, the budget will be based on recent examinations of comparably-sized entities. The examination time budget may be exceeded, but only with the approval of the Division's senior management after receipt of a written request from the examiner with a satisfactory explanation of the reasons.
When the safety and soundness and specialty examinations are conducted concurrently, the examiner-in-charge for the FIS Section will be responsible for coordinating all requests for information to avoid duplication of efforts.
- EXAMINATION EXIT MEETING
An exit meeting shall be held at the end of each examination. This will be scheduled by the examiner-in-charge and management of the examined entity at a mutually acceptable time. The purpose of this meeting is to discuss the preliminary findings of the examination.
At the exit meeting, the entity may be represented by its senior staff and members of its governing board. Attendance of board members is optional; however, board members are reminded that they have a fiduciary obligation to demonstrate active involvement in the affairs of the entity and to be fully aware of the contents of the reports of examination. They should be actively involved in discussions on the topics of the examination. For out-of-state licensees, this meeting may be conducted either fully or partially by means of a telephone conference call.
- Disclosure of Ratings
The Division will be represented by the examiner-in-charge, a member of the Division's management staff, and any other examiners that may be needed for presentations. At this meeting, the representatives of the bank, credit union, or licensee will be apprised of the examiner's proposed component and composite ratings, as well as any recommendations for formal or informal enforcement actions. The only exception to this is that the Consumer Compliance Unit will disclose only composite ratings to licensees. These proposed ratings, however, are not final until the completion of the review process conducted by the Division's senior management.
- Draft Reports of Examination
Prior to the exit meeting of all CRA examinations, a numbered copy of the draft report of examination will be given to management and collected at the end of the meeting. In other examination units, a draft report of examination may be provided at the Division's discretion. For all distributed examination reports, the examiner-in-charge must clearly label examination materials as "Draft." In addition, institutions should be aware that all copies of any draft materials are confidential and should not be subsequently redisclosed to third parties without the permission of the Division. Institutions should also be aware that all draft examination comments are preliminary drafts and as such are subject to further review by senior management of the Division.
- BOARD MEETINGS
A formal meeting with the board and the Division shall be held as warranted; but, such a formal meeting is mandatory with examined entities assigned composite ratings of 3, 4, or 5 for safety and soundness, or 3, 4, or 5 for Consumer Compliance, or performance ratings of Needs to Improve or Substantial Noncompliance for CRA. The Division will be represented by the examiner-in-charge and a member of management. This meeting will normally be scheduled after completion of the examination and after the Division's senior management has reviewed and concurred with the findings of the report; but, it may be before the final report of examination has been issued by the Division. In banks and credit unions, the meeting will normally be timed to coincide with a scheduled board meeting, and the full board would be expected to attend. However, for licensees, senior officials may attend the meeting in lieu of board members.
A bank or credit union's primary federal regulator will usually be invited to attend, and similarly, the Division may attend any meetings called by federal regulators. The Division may also invite the applicable private excess share/deposit insurer to attend. The primary purpose of this meeting would be to report material findings of the examination and to place emphasis on corrective measures deemed necessary.
- ISSUANCE OF REPORT OF EXAMINATION
It is a goal of the Division to issue all reports of examination to examined entities thirty days following the completion of the examination. However, unanticipated complex issues may require more time and resources, thus delaying the review and editing of some reports of examination and delaying their issuance.
- AVAILABILITY OF REPORTS OF EXAMINATION
All reports of examination are confidential by statute. Copies of reports of examination shall be made available only to the examined entity and to those persons, organizations or agencies who have received the prior written approval of the Division. (See RB 1.1-104, Public Information Requests.) However, the Division has authorized that copies of reports of examination may be made available for individual study by the directors, trustees, and senior officials of examined entities subject to the following conditions and restrictions:
- To retain confidentiality, the copies must be numbered and allocated only to directors, trustees, and senior officials, and
- After review, the copies must be returned and destroyed.
Directors, trustees, and senior officials should be made aware that the improper use of these reports will be considered a breach of fiduciary duty and a serious statutory violation.
- RATING SYSTEM
- Financial Institutions Supervision
Upon the recommendation of the Federal Financial Institutions Examination Council ("FFIEC"), the Federal Deposit Insurance Corporation ("FDIC") adopted a policy statement on November 26, 1979 entitled Uniform Financial Institutions Rating System ("UFIRS"). This statement was adopted by the National Credit Union Administration ("NCUA"), Federal Home Loan Bank Board, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency. The Division adheres to FFIEC standards and similarly adopted the UFIRS.
On December 19, 1996, the FFIEC updated the UFIRS. Coinciding with the recommendation of the FFIEC, the Division adopted and implemented the new UFIRS, effective for all safety and soundness examinations of banks beginning on or after January 1, 1997. For the purpose of credit union examinations, however, the NCUA and the Division did not adopt the new UFIRS. Therefore, all credit union examinations will continue to use the prior UFIRS, dated November 26, 1979. ( Credit unions should refer to Appendix A).
- Disclosure of Composite Rating
In accordance with the UFIRS, each financial institution is assigned a uniform composite rating based on an evaluation of pertinent financial and operational standards, criteria and principles. This overall rating is expressed through the use of a numerical scale of 1 through 5 in ascending order of supervisory concern. A 1 indicates the highest rating and least degree of concern, while a 5 is the lowest rating and therefore the highest degree of supervisory concern. A 5 rating would be indicative of an institution bordering on failure.
The examiner-in-charge assigns a preliminary composite rating at the conclusion of an examination. This rating is subject to review and may be changed by the Division's senior management. Composite ratings are disclosed in the open sections of the examination reports as well as in board or management exit meetings.
- Disclosure of Component Ratings
To implement the uniform rating system, the Division and other regulators utilize a similar scale of 1 to 5 to assess the key performance dimensions upon which the composite rating is principally based. These performance dimensions are commonly identified by the acronym CAMELS: Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk. A 1 rating indicates strong or significantly higher than average performance and 5 rating represents critically deficient performance.
The sixth component of "S" for Sensitivity to Market Risk was added by the update to the UFIRS on December 19, 1996; as such, CAMEL was changed to CAMELS. The updated policy statement also reformatted and expanded the component rating descriptions and definitions, and placed more emphasis on the quality of risk management practices. As previously stated, the NCUA and the Division did not adopt the revised UFIRS for credit union examinations. Therefore, credit union examinations will continue to utilize the former CAMEL system.
Examiners review and analyze several quantitative and qualitative measurements before assigning CAMELS or CAMEL component ratings. Quantitative analysis measures tangible matters related to an institution's structure and operations. Qualitative analysis would involve reviewing the adequacy and effectiveness of policies and procedures, the integration of policies with short and long term goals and objectives, as well as the philosophy of management toward the operation of the institution. Analysis is not limited to these measurements when conditions indicate that further review is needed. Examiners also consider that each institution is unique and that performance is also affected by demographics, local competition, and other economic conditions
The examiner-in-charge assigns ratings to the components at the conclusion of an examination. As a matter of policy, the Division began disclosing the component ratings in reports of examination issued by the Division for examinations commencing after January 1, 1995. Preliminary ratings will be disclosed by the examiner-in-charge at the examination exit meeting with the board and senior management. The FDIC began disclosing component ratings in safety and soundness examinations in process as of October 1, 1996. In addition, the FDIC began disclosing component ratings in trust examinations, management information examinations, and U.S. foreign bank branch examinations that commenced after January 1, 1997. It should be noted that these component ratings are an integral part of the examination and, as such, fall under the same confidentiality rules as the full report of examination. (See above, Section VIII.)
- Disclosure of Composite Rating
For CRA examinations, the Division assigns banks and credit unions one of the following five descriptive ratings pursuant to G.L. c. 167, s. 14, and 209 CMR 46.28 and 46.61, as well as RB 2.3-102 Section III: Outstanding, High Satisfactory, Satisfactory, Needs to Improve, and Substantial Noncompliance. The rating reflects the bank's or credit union's record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods consistent with safe and sound operations.
In assigning a CRA performance rating, the Division evaluates an institution under the applicable performance criteria in accordance with 209 CMR 46.21 and 46.28, which provide for adjustments on the basis of evidence of discriminatory or other illegal credit practices. In addition, an exceptionally strong performance with respect to some aspects may compensate for weak performance in others. The institution's overall performance, however, must be consistent with safe and sound banking practices.
- CONSUMER COMPLIANCE
Entities licensed by the Division are required by statute to demonstrate financial responsibility. Also, certain statutes and regulations specify a dollar amount of net worth in order to conduct business. Accordingly, the Consumer Compliance Unit conducts limited scope safety and soundness examinations of licensees. The Consumer Compliance Unit uses the CAMEL rating system for these examinations as described previously under Financial Institutions Supervision. (See above, Section IX(A).) However, similar to credit union examinations, and due to the limited scope of its safety and soundness examination, the Division has not adopted the "S" component for Consumer Compliance examinations. ( Licensees should refer to Appendix A for definitions of CAMEL composite ratings.)
The Consumer Compliance Unit's primary mission is to examine all banks, credit unions, and licensees for compliance with all applicable consumer protection laws and regulations. The Division utilizes the uniform interagency consumer compliance rating system to assess Management, Violations, and Programs ("MVP"), upon which the Consumer Compliance composite rating is principally based. This system also uses a scale of 1 to 5 in which a 1 rating indicates strong or significantly higher than average performance and a 5 rating represents critically deficient performance. ( See Appendix B.)
In assigning the composite rating, all relevant factors must be evaluated and weighed. In general, these factors include the nature and extent of present compliance with consumer protection statutes, regulations and regulatory bulletins, management's commitment 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 the composite compliance rating may also incorporate other factors that impact significantly on the overall effectiveness of an entity's compliance efforts.
At the conclusion of all bank, credit union, and licensee examinations, the examiner assigns the entity an MVP composite rating. For examinations of licensees only, the examiner also assigns a CAMEL composite rating. These are preliminary ratings that are subject to review and approval by the Division's senior management before the final report of examination is issued. While individual MVP component ratings are disclosed to banks and credit unions, only the composite MVP rating is disclosed to licensees. In addition, individual CAMEL component ratings are not disclosed to licensees due to the limited nature and scope of the safety and soundness examination of licensees.
As a matter of policy, the Division began disclosing composite ratings to institutions in reports of examinations issued by the Division for examinations commencing after January 1, 1995. It should be noted that composite ratings are an integral part of the examination and, as such, fall under the same confidentiality rules as the full examination report. (See above, Section VIII.)
- Financial Institutions Supervision
- APPEAL PROCESS
When the management of an examined entity disputes the preliminary composite or component safety and soundness or compliance rating(s) assigned by the examiner, the examiner should be requested to duly note the disputed rating(s) in the draft report of examination. The examination will be reviewed by the Division's senior management together with the noted disagreement(s).
After the final report of examination is issued, should management of the examined entity disagree with any 3, 4, or 5 safety and soundness, or compliance rating, then management may appeal the rating(s) by conveying the basis of the disagreement in writing with supporting documentation to the Division. The appeal should be submitted within forty-five days of the receipt of the report of examination. In the case of CRA, management may appeal a composite performance rating of Needs to Improve or Substantial Noncompliance. However, the appeal must be filed prior to disclosure of the public section of the report, which by regulation is within thirty business days of receipt of the report of examination. Notwithstanding these appeal criteria, at its discretion, the Division may consider a request for review of any rating, provided the request is submitted within the timeframes above.
A qualified senior manager, who is not directly involved with the particular examination unit, will be appointed by the Division to conduct a thorough and impartial review of the matter(s) being appealed. This review may include further communication with the examination unit managers, examiners, and the examined entity to ensure full understanding of all facts. Upon conclusion of the review, the manager's finding will be summarized and presented with a recommendation to the Division's Policy Group, which will ultimately decide whether a change should be made. The Policy Group is comprised of the Commissioner, First Deputy Commissioner, General Counsel, and two Senior Deputy Commissioners. The examined entity will then be advised in writing of the Division's decision.
- REGIONAL OFFICES
In order to promote efficiency and productivity in the examination process and to be more responsive to the local needs of state chartered or licensed financial institutions, it is the Division's policy to assign examiners by geographic region. To implement this policy, the Division has established three regional field offices, each under the supervision of a Field Office Supervisor, a management position under the FIS Section.
The western Massachusetts field office is located in Springfield and covers Worcester County and west. The northern Massachusetts field office is located in Lowell and covers parts of Boston and north. The southern Massachusetts field office is located in Lakeville and covers parts of Boston and south. The field offices are used for off-site examination work, conducting meetings, training personnel, electronically transmitting reports of examination to the Boston Office, and storing reports of examination, work papers, and supplies. The field offices are also an integral part of the Division's disaster recovery plan.
Due to the large numbers of licensees, the Consumer Compliance Unit has a fourth geographic region to cover those entities located in the Metro West area. This is generally defined as the suburban areas west of Route 128 (I-95) and along the Route I-495 belt.
In addition to the Field Office Supervisors, who have primary responsibility for supervising safety and soundness examiners, the Consumer Compliance and CRA & Outreach Units have Regional Field Managers who supervise examiners for their respective units. The Field Office Supervisors and Regional Field Managers facilitate communication between the examiners and Division management in the Boston office, as well as between financial institutions and the Division. The Field Office Supervisors or Regional Field Managers provide financial institutions with advance notification of examination start dates, and are an on-going contact to answer questions or resolve any difficulties which may arise during the examination.
- HISTORICAL NOTES
This bulletin was originally issued on December 30, 1994 as Administrative Bulletin 5-2 that was applicable only to safety and soundness examinations of banks and credit unions. The current bulletin is more expansive in scope and applies additionally to CRA examinations and compliance examinations of banks, credit unions, and licensees. Additionally, former Administrative Bulletin 5-3, entitled Availability of Examination Reports for Individual Study by Directors and Trustees of State-Chartered Financial Institutions, has been consolidated into this bulletin as Section VIII.
G.L. c. 167, s. 2; c. 167, s. 14 and 209 CMR 46.00; G.L. c. 140, ss. 96 - 114A and 209 CMR 12.00; G.L. c. 169 and 209 CMR 44.00; G.L. c. 169A and 209 CMR 45.00; G.L. c. 255B and 209 CMR 20.00; G.L. c. 255C and 209 CMR 20.00; G.L. c. 255D and 209 CMR 20.00; G.L. c. 255E and 209 CMR 42.00; G.L. c. 93, ss. 24 - 28 and 209 CMR 18.00.
Composite and component ratings of the Uniform Financial Institutions Rating System ("UFIRS") dated November 13, 1979. Note: This appendix is applicable to only licensees and credit unions .
COMPOSITE RATINGS - Definitions
Composite 1 - Institutions in this group are basically sound in every respect; any adverse findings or comments are of a minor nature and can be handled in a routine manner. Such institutions are resistant to external economic and financial disturbances and are more capable of withstanding the vagaries of business conditions than institutions with lower ratings. As a result, such institutions give no cause for supervisory concern.
Composite 2 - Institutions in this group are fundamentally sound, but may reflect modest weaknesses correctable in the normal course of business. The nature and severity of deficiencies, however, are not considered material and, therefore, such institutions are stable and able to withstand business fluctuations quite well. While areas of weakness could develop into conditions of greater concern, the supervisory response is limited to the extent that minor adjustments are resolved in the normal course and operations continue satisfactory.
Composite 3 - Institutions in this category exhibit financial, operational or compliance weaknesses ranging from moderately severe to unsatisfactory. When weaknesses relate to financial condition, such institutions may be vulnerable to the onset of adverse business conditions and could easily deteriorate if concerted action is not effective in correcting the areas of weakness. Institutions which are in significant non-compliance with laws and regulations may also be accorded this rating. Generally, these institutions give cause for supervisory concern and require more than normal supervision to address deficiencies. Overall strength and financial capacity, however, are still such as to make failure only a remote possibility.
Composite 4 - Institutions in this group have an immoderate volume of serious financial weaknesses or a combination of other conditions that are unsatisfactory. Major and serious problems or unsafe and unsound conditions may exist which are not being satisfactorily addressed or resolved. Unless effective action is taken to correct these conditions, they could reasonably develop into a situation that could impair future viability, and, as such, could constitute a threat to the interests of depositors. A higher potential for failure is present but is not yet imminent or pronounced. Institutions in this category require close supervisory attention and financial surveillance and a definitive plan for corrective action.
Composite 5 - This category is reserved for institutions with an extremely high immediate or near term probability of failure. The volume and severity of weaknesses or unsafe and unsound conditions are so critical as to require urgent aid from stockholders or other public or private sources of financial assistance. In the absence of urgent and decisive corrective measures, these situations will likely result in failure or some form of emergency assistance, merger or acquisition.
CAMEL COMPONENTS - Description
Capital Adequacy - Rated in relation to the volume of risk assets; the volume of marginal and inferior quality assets; the institution's growth experience, plans and prospects; and the strength of management. Consideration is also given to an institution's capital ratios relative to its peer group, its earnings retention and its access to capital markets or other appropriate sources of financial assistance.
Asset Quality - Rated in relation to the level, distribution and severity of classified assets; the level and distribution of non-accrual and reduced rate assets; the adequacy of valuation reserves; and management's demonstrated ability to administer and collect problem credits. Adequate valuation reserves and proven capacity to police and collect problem loans clearly mitigate to some degree the weaknesses inherent in a given level of classified assets. Asset quality evaluation also takes into consideration any undue degree of concentration of credits or investments, the nature and volume of special mention classifications, and the adequacy of lending policies and credit administration procedures.
Management - Evaluated against virtually all factors considered necessary to operate the institution within accepted banking practices and in a safe and sound manner. Thus, management is rated in relation to technical competence; leadership and administrative ability; compliance with regulations and statutes; ability to plan and respond to changing circumstances; adequacy of and compliance with internal policies; and depth of succession. The assessment of management also takes into account the quality of internal controls, operation procedures and all lending, investment and operating policies; and the involvement of the directors and shareholders.
Earnings - Rated with respect to the ability to cover losses and provide for adequate capital; earnings trends; peer group comparisons; the quality and composition of net income; and the degree of reliance on interest-sensitive funds. Consideration is also given to the interrelationships between the dividend payout ratio, the rate of growth of retained earnings and the adequacy of capital. The adequacy of transfers to the valuation reserve, and the extent to which extraordinary items, securities transactions and tax effects contribute to net income, are also assessed.
Liquidity - Rated in relation to the volatility of deposits; the frequency and level of borrowings; technical competence relative to structure of liabilities; availability of assets readily convertible into cash; and access to money markets or other ready sources of funds. The liquidity position is appraised over a period of time as well as on a particular date. The overall effectiveness of asset-liability management strategies is considered, as well as the adequacy of and compliance with established liquidity policies. The nature, volume and anticipated usage of credit commitments are also factors that are weighed.
CAMEL COMPONENT RATINGS - Definitions
The following is a description of the gradations utilized in conjunction with the evaluation of the five components of CAMEL:
Rating 1 - Indicates strong performance, significantly higher than average.
Rating 2 - Reflects satisfactory performance, which is average or above; this includes performance that adequately provides for the safe and sound operation of the institution.
Rating 3 - Represents performance that is flawed to some degree and as such is considered fair. It is neither satisfactory nor unsatisfactory but is characterized by performance that is at or below average quality.
Rating 4 - Refers to marginal performance, significantly below average. If left unchecked, such performance might evolve into weaknesses or conditions that could threaten the viability of the institution.
Rating 5 - Indicates unsatisfactory performance that is critically deficient and in need of immediate remedial attention. Such performance, by itself, or in combination with other weaknesses, threatens, the viability of the institution.
CONSUMER COMPLIANCE RATINGS - Definitions
The FFIEC developed and recommended the adoption of a uniform interagency consumer compliance rating system. This rating system was adopted by the FDIC which, in addition, devised the three component rating system: Management/Violations/Programs (MVP). The Division adopted the uniform interagency consumer compliance rating system. Ratings are assigned on the basis of the following guidelines. These guidelines do not preclude consideration of other factors which, in the judgment of the examiner, are deemed relevant to accurately portray the rating.
COMPOSITE CONSUMER COMPLIANCE RATINGS
Rating 1 - 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 are promptly corrected by management. As a result, the institution gives no cause for supervisory concern.
Rating 2 - 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. Modifications in the institution's compliance program and/or the establishment of additional review/audit procedures may eliminate many of the violations. Compliance training is satisfactory. There is no evidence of discriminatory acts or practices, reimbursable violations, or practices resulting in well-defined patterns of repeat violations.
Rating 3 - Generally, an institution in this category is in a less than satisfactory compliance position. Institutions in this category are a cause for supervisory concern and require 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.
Rating 4 - 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 cited at previous examinations remain uncorrected. Discriminatory acts or practices may be in evidence. Clearly, management has not exerted sufficient efforts 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 problem. 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.
Rating 5 - An institution in this category is in need of the strongest supervisory attention and monitoring. It is substantially in noncompliance with the consumer laws and regulations. Management has demonstrated its unwillingness or inability to operate within the scope of consumer laws and regulations. Previous efforts on the part of the regulatory authority to obtain voluntary compliance have been unproductive. Discrimination, substantial overcharges, and/or practices resulting in serious repeat violations are present.
Rating 1 - Management displays a positive attitude toward compliance and is capably administering an effective compliance program. Changes in consumer laws and regulations are promptly addressed in the institution's policies, and violations and deficiencies receive immediate corrective action.
Rating 2 - Management is adequately overseeing the institution's compliance program. Problem areas are few in number and easily corrected. Review of prior reports indicates a willingness to effect necessary correction of violations. If required, reimbursements are made voluntarily.
Rating 3 - Management is not devoting sufficient time to the administration of the institution's compliance program and previously identified violations remain uncorrected. Although knowledgeable of the requirements of the various laws and regulations, increased efforts are required to effectuate compliance.
Rating 4 - Management has not exerted sufficient effort to ensure compliance with the various laws and regulations. There is a lack of interest or capability in administering a compliance program which has resulted in numerous repeat violations.
Rating 5 - Management has demonstrated an unwillingness or inability to operate within the scope of consumer laws and regulations. Serious problems remain uncorrected and management's attitude towards compliance is poor.
Rating 1 - Violations, if any, are technical and easily corrected. There is no evidence of discriminatory acts or practices and there are no repeat violations.
Rating 2 - Any violations noted involve technical aspects of the law, or result from oversight or clerical error on the part of operating personnel. There is no evidence of discriminatory acts or practices and no reimbursable violations. Any repeat violations are few in number and technical in nature.
Rating 3 - Reimbursements, if present, involve several customers and are minimal in amount. There is no evidence of discrimination; however, violations may be numerous. Patterns of repeat violations may exist.
Rating 4 - Numerous violations are present and reimbursements, if any, affect a significant number of customers and are substantial in amount. Discriminatory acts or practices may be in evidence. Practices resulting in violations cited at previous examinations remain uncorrected.
Rating 5 - The institution is in substantial noncompliance with most consumer laws and regulations. Discrimination, numerous reimbursements, and/or practices resulting in repeat violations are present.
Rating 1 - An effective compliance program, including a system of internal procedures and controls, has been established. Recordkeeping systems and employee training arrangements are good. Changes in laws and regulations are promptly reflected in the institution's compliance program and procedures for handling consumer complaints are in place.
Rating 2 - Although a system of internal controls and operating procedures has been established to ensure compliance, violations have nonetheless occurred. Modifications in the institution's compliance program and/or establishment of additional review/audit procedures may be warranted. Personnel appear knowledgeable of compliance matters and training is satisfactory.
Rating 3 - Operating controls and procedures have not proven effective and require strengthening. Training is inconsistent and knowledge of regulations is weak in some areas. Management is not sufficiently involved in the compliance program to effect favorable changes.
Rating 4 - The compliance program is not effective and internal procedures and controls are seriously deficient. Personnel lack knowledge in several critical areas and there is no formal training. Management is not actively involved in administering the very rudimentary compliance program in place.
Rating 5 - There is no compliance program, written or oral. Knowledge of the laws and regulations is extremely limited and problem areas remain uncorrected.