A cohort of trade groups representing the financial industry has filed a lawsuit seeking to block the recently finalized reforms to implementing regulations for the Community Reinvestment Act (CRA). The lawsuit, filed in the Northern District of Texas, argues that the Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency exceeded their statutory authority in making changes to the CRA rules. The suit calls for a stay on the rules pending the outcome of the lawsuit.
The trade groups involved in the lawsuit include the Independent Community Bankers of America, American Bankers Association, U.S. Chamber of Commerce, Texas Bankers Association, and Independent Bankers Association of Texas, among others. They argue that the reforms unnecessarily increase the complexity and compliance burden of the CRA, undermining its purpose of compelling banks to serve the needs of lower-income communities.
One major concern raised by the industry is the expanded assessment areas outlined in the final rules. Rather than assessing lending only in areas where banks have branches, the amended rule requires banks to lend to lower-income communities in areas where they have a concentration of mortgage and small-business loans. Regulators argue that the updated assessment areas accurately capture community needs in the face of changing customer bases due to online banking. However, the industry claims that this diverges from Congressional intent.
The final rule also redefines large banks as firms with $2 billion or more in assets, lowering the threshold significantly compared to other regulations. The industry argues that this could result in unintended consequences such as branch closures or reduced product offerings.
Additionally, the trade groups assert that regulators failed to provide sufficient evidence demonstrating the benefits of the new rules and ignored industry concerns raised during the public comment period. The lawsuit argues that the rule violates the process requirements outlined in the Administrative Procedure Act.
The Independent Community Bankers of America and its co-plaintiffs have called on the court to intervene and issue a preliminary injunction, preventing the new rules from taking effect. They are also requesting an order and judgment setting aside the CRA rules as illegal or impermissible.
This lawsuit comes after years of complaints from banks regarding various aspects of the CRA regime, including the recently unveiled rule. While some provisions in the new rule were sought after by banks, there was uncertainty regarding whether the opposition would result in legal action.
As the lawsuit unfolds, it remains to be seen how the court will address the concerns raised by the financial industry and whether it will impact the implementation of the CRA reforms.
