Trade associations sue regulators for exceeding statutory authority under new CRA rules

In early February, the American Bankers Association, the 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 filed a lawsuit in the Northern District of Texas against the Federal Reserve, FDIC and OCC for exceeding their statutory authority and acting arbitrarily and capriciously with their recent amendments to the Community Reinvestment Act rules.

The lawsuit asks the court to vacate the Final Rules, and the groups will also seek a preliminary injunction pausing the new rules while the court decides the merits of the case.

“We strongly support and appreciate the goals of the Community Reinvestment Act, but 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,” said ABA President and CEO Rob Nichols, noting that in 2022 banks provided more than $227 billion in capital to low- and moderate-income communities in the form of mortgages and small business loans and an additional $151 billion in community development loans. “Even more troubling, the Final Rules risk undermining the very goals of CRA by creating disincentives for banks to offer certain products or lend in geographies outside of their branch network. Given federal regulators’ failure to respond to public comments and fix significant flaws in this rulemaking, we were left with no choice but to reluctantly file this lawsuit.”

“The U.S. Chamber supports the goals of the Community Reinvestment Act and believes that access to safe and affordable credit is central to achieving the American dream and ascending the economic ladder,” said Neil Bradley, U.S. Chamber chief policy officer, executive vice president, and head of strategic advocacy. “The new rules are counterproductive to the purpose of the Community Reinvestment Act, which was intended for banks to meet the credit needs of traditionally underserved communities where they operate. The rules ignore that community focus and will cause banks to limit lending across sectors, significantly impacting small, Main Street businesses.”

“TBA and our member banks are committed to investing in their communities — a thriving community benefits all residents,” said Chris Furlow, president and CEO of the Texas Bankers Association. “What we do not support, however, is regulatory overreach far beyond Congressional authorization. Federal agencies should not assume powers unless specifically granted to them by Congress, but with the CRA Final Rules the Agencies have assumed powers far beyond Congressional intent. This undermines the Constitution’s separation of powers and politicizes banking at a time when families, small businesses and the community banks that serve them need stability. Regulators have adopted a brazen strategy to go as far and fast as they can, betting that Congress and the courts cannot keep up with their ability to bureaucratically promulgate thousands of pages of regulation, again, regardless of whether congressionally authorized to do so. These unlawful regulatory actions must be challenged.”

The complaint explains how the new rules will limit future bank lending, and identifies how the regulatory agencies exceeded their statutory authority in violation of the Administrative Procedure Act by:

Evaluating bank lending well beyond banks’ deposit-taking footprint, as required by CRA. The Final Rules will evaluate bank lending across the entire country, eliminating the statutory focus on a bank’s lending in its “local community.”
Evaluating some institutions’ records of providing deposit products and services to low- and -moderate-income consumers even though the CRA only authorizes regulators to assess a bank’s record of meeting the credit needs of its local communities.

The complaint highlights how the 1977 law explicitly limited regulators’ statutory authority. It also describes how the agencies engaged in unreasoned and unreasonable decision-making, or acted “arbitrarily and capriciously,” in violation of the Administrative Procedure Act.

The complaint cites ABA analysis showing the cost for banks to comply with the Final Rules in the first 12 months could exceed $600 million.

The complaint further asserts:

“While the Agencies may indeed have introduced through the Final Rules ‘more rigor and stricter standards,’ what they have failed to do is produce any meaningful evidence that the new burdensome tests will increase lending in low- or moderate-income communities—the very purpose of the CRA. Indeed, these rules may have just the opposite effect. Some banks may elect not to lend, or to scale back lending, in areas outside their geographic deposit-taking footprint to avoid triggering assessment areas outside their local community.”