US tells Santander it needs to improve

David L. Ryan/Globe Staff/File

Illegal and deceptive marketing and lending practices, along with paltry investments in the communities it serves, earned Boston-based Santander Bank a rare downgrade from federal regulators on a key performance benchmark.

The federal Office of the Comptroller of the Currency graded Santander as a bank that needs to improve how well it serves the communities where it has branches and takes deposits, including Boston, New York, and Pennsylvania.

Santander, with $83 billion in assets, is one of the few large institutions to receive such a low grade from regulators under the Community Reinvestment Act, a law aimed at ensuring that banks don’t discriminate in lending, extend credit to low-and moderate-income neighborhoods, and engage in the cities and towns they serve.


This marks a deep slide from the bank’s previous rating of outstanding and underscores the regulatory problems Santander has faced in the past few years. The bank, which is owned by the Spanish financial titan Banco Santander SA, has been fined or sanctioned three times in the past two years by the US Department of Justice, the US Treasury Department, and the Consumer Financial Protection Bureau.

Many of the violations were tied to the bank’s poor oversight of its vendors. Santander was also the only bank to fail the Federal Reserve’s stress test three times in a row because it lacked appropriate controls and procedures to handle a serious economic crisis.

Santander, along with other banks its size, received an exemption from that part of the Fed’s test this year.

“This rating is disappointing,” Scott Powell, chief executive of Santander, said in a statement. Powell said many of the problems cited in the evaluation are old and the bank has been addressing the issues.

The low grade reflected “prior regulatory actions,” Powell said. “Santander Bank has never been more committed to helping our communities.”


Regulators found shortcomings in the bank’s investments in nonprofits and affordable housing programs, and employees were stingy with their community service.

For example, in the Boston area, where nearly half of the bank’s branches are located and nearly 70 percent of its deposits held, Santander made just $905,000 in grants during the two-year evaluation period, which the regulator described as “very poor.”

By comparison, Eastern Bank, the state’s largest community bank with about $10 billion in assets, makes about $7 million in grants a year, according to its website.

Santander officials said they have beefed-up their grant programs and community activity in the past two years.

Last year the bank made $9 million in grants to affordable housing, neighborhood revitalization, and youth financial education programs, nearly double what it gave in 2015. Santander has also hired more staff to engage in community outreach and development efforts, opening five branches last year in low- and moderate-income communities and made $1.6 billion in loans and investments that help the community, bank officials said.

For this recent evaluation, the federal regulator considered the bank’s performance between 2011 and 2013. The report will be posted on its website later this week. Santander’s downgrade was first reported by American Banker.

The bank did receive some good marks from the regulator. Its lending to home buyers and businesses was strong, the regulator said.

Still, its past problems proved too weighty.

In 2015, the Comptroller of the Currency fined the bank $6 million for billing customers for identify theft protection services that many did not receive. Santander also spent $42.3 million refunding 190,000 customers who were enrolled in the program.


The bank’s subprime auto-lending arm, Santander Consumer USA, in 2015 also reached an agreement with the Justice Department over wrongly repossessing cars of military service members.

Last year, the bank paid a $10 million fine to the Consumer Financial Protection Bureau after its telemarketer enrolled customers in an overdraft protection program without their consent and provided them with false information about fees.

Santander has been correcting these problems, but “as a result of these noted illegal credit practices the . . . rating was lowered from satisfactory to needs to improve,” according to the evaluation.

This evaluation was the first one since 2010.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.