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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. The federal banking agencies must act within the bounds of their statutory authority.
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.
Absolutely not. Banks have long supported the goals of the Community Reinvestment Act to make sure people in every corner of the country have the chance to succeed. In demonstration of that commitment, in 2022 alone banks of all sizes 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.
Our industry has also strongly supported modernizing the CRA rules to reflect the realities of modern-day banking. As we shared with the agencies when they began the rulemaking process, the test for any CRA modernization is whether it incentivizes investment in underserved communities with requirements that are transparent, promote consistency and align with Congressional intent. Unfortunately, the CRA Final Rules do not meet that test.
As Fed Governor Michelle Bowman pointed out in her strong dissent to the Final Rules, this rulemaking presumes that banks are not committed to banking underserved communities, and as an industry we strongly challenge that premise. We don’t believe the data bears that out. Certainly, a thoughtful conversation with bank communities across the country would demonstrate their commitment.
We would also note that other financial institutions, including credit unions, nonbank mortgage lenders and fintechs are not required to meet current CRA requirements. It’s past time for Congress to change that.
We call on the court to immediately intervene and issue a preliminary injunction that will prevent the new rules from taking effect until it decides the merits of the case. The complaint asks the court to issue an order and judgment setting aside the CRA rules as impermissible. The agencies need to repropose these rules, taking into account the constructive feedback they received during the comment period.
We have long supported the goals of the CRA and have strongly advocated for modernizing the rules to reflect the realities of modern-day banking—in a manner that is consistent with the CRA statute. Unfortunately, the Final Rules released by regulators are not the answer. The test for a proper CRA modernization rule is whether it incentivizes investment in underserved communities with requirements that are transparent, promote consistency, and align with Congressional intent.
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 large institutions’ (defined as banks with more than $10 billion in assets) record 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 industry’s complaint describes how the agencies engaged in unreasoned and unreasonable decision-making, or acted “arbitrarily and capriciously,” in violation of the Administrative Procedure Act:
The CRA statute requires periodic evaluation of a bank’s CRA performance, but the Final Rules leave banks guessing about what areas will be assessed, which products will qualify for CRA evaluation, and what market benchmarks they must meet in order to earn a Satisfactory, much less an Outstanding, rating.
The costs of the Final Rules are enormous, both at the implementation stage and on an annual basis going forward. Yet the agencies offer no predictions, let alone evidence, that the Final Rules will lead to more lending of the sort that the CRA was designed to encourage. To the contrary, the Agencies turn a blind eye to the substantial likelihood that these Final Rules will actually reduce lending to low- and moderate-income borrowers. Such decision making violates the APA.
The change is not with the banks but with the regulators. They are obligated to stay within the bounds of the law. Unfortunately, the agencies have chosen to push rule changes that clearly exceed their statutory authority. When regulators exceed their authority and attempt to make changes only Congress can make, seeking judicial relief is our only recourse.
We never want to sue a regulator, but in these cases, we felt like we had no choice. We would note that in the industry’s recent challenge to the CFPB’s UDAAP manual change, a federal judge has already ruled in our favor. We also secured an injunction in the ongoing 1071 litigation. We feel confident in the strength of this case as well.
Nicole Swann
VP, Communications, ICBA
nicole.swann@icba.org
Title | Recipient | Date |
---|---|---|
Comments on CRA Modernization Proposal | FDIC, Fed, OCC | 08/05/22 |
CRA Comment Period Extension Request Banking Trades Joint Letter | FDIC, OCC | 05/31/22 |
Joint Trades Letter to OCC Regarding 2020 CRA Rescission | OCC | 10/29/21 |
OCC CRA Rule Recission ICBA Comment | OCC | 10/29/21 |
Joint Letter on Withdrawing CRA Rule | OCC | 05/03/21 |
Letter Regarding CRA Information Collection Survey | OCC | 02/16/21 |
ICBA Comment Regarding CRA Advance Notice of Proposed Rulemaking | FRB | 02/16/21 |
ICBA OCC CRA Benchmarks NPR Comment - 2021 | OCC | 01/21/21 |
Request to Withdraw CRA Information Collection | OCC | 01/11/21 |
ICBA Letter Regarding CRA - April 8, 2020 | FDIC, OCC | 04/08/20 |