Several trade associations are suing federal regulators for allegedly exceeding their statutory authority during recent updates to the Community Reinvestment Act.
The lawsuit was filed Feb. 5 against the Federal Reserve, FDIC and Office of the Comptroller of the Currency in the Northern District of Texas. Trade groups involved in the lawsuit include the American Bankers Association, U.S. Chamber of Commerce, Independent Community Bankers of America, Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce and Longview Chamber of Commerce. The groups are seeking a preliminary injunction against the CRA update along with a court order that the update is illegal.
The proposal was the first time the 1977 law had been updated since 1995. The modernization requires community banks with more than $2 billion in assets to comply with the same CRA evaluation standards as the largest banks, including by undergoing a new retail lending test, facing expanded assessment areas and undertaking more rigorous data and reporting obligations.
According to the trade groups, regulators exceeded their authority under the Administrative Procedure Act by evaluating bank lending beyond banks’ deposit-taking footprint nationwide and to low- and moderate-income consumers. According to the lawsuit, the final CRA rules eliminate the statutory focus on meeting the bank lending and credit needs of their local communities.
Although both ICBA President and CEO Rebeca Romero Rainey and ABA and CEO Rob Nichols said they support the CRA, they criticized the updates as veering away from what the regulatory agencies are authorized to do. “In this exceedingly complex rulemaking, the agencies have created a CRA evaluation framework that unlawfully exceeds what Congress authorized and fails to recognize banks’ demonstrated commitment to fully serving their communities,” Nichols said.
Romero Rainey said the update is “likely to have unintended consequences and fail to consider the long-term impact on the very communities they seek to protect. Rather than increasing lending in low- or moderate-income communities, the new and unnecessarily complex evaluation could result in banks being forced to close branches or reduce product offerings.”