Federal judge blocks implementation of Community Reinvestment Act overhaul

New rules — now put on hold — redefine area in which banks 'do business'

A federal judge in Texas has sided with a coalition of banking organizations and, for now,  put the implementation of an overhaul of regulations with the purpose of curbing discriminatory lending on hold.

Judge Matthew Kacsmaryk, a U.S. District Court judge in Amarillo, granted a preliminary injunction to seven groups, including the American Bankers Association, the U.S. Chamber of Commerce and the Independent Community Bankers of America (ICBA). The injunction, in response to a suit filed by the groups in February, pauses the application of new final rules to the Community Reinvestment Act (CRA) that were issued by federal regulators last October.

The CRA is a federal law aimed at encouraging banks to meet the needs of a full spectrum of borrowers, including those in low- and moderate-income areas. Among other things, the act, originally passed to curb discriminatory lending and redlining, mandated that institutions insured by the Federal Deposit Insurance Corp. (FDIC) receive evaluations from federal regulators on whether they offer nondiscriminatory credit services in all communities where they do business. Unsatisfactory evaluations may cause lenders to receive a poor CRA rating, which could bar them from certain corporate activities, including mergers and acquisitions.

Currently, the CRA defines the area in which banks do business via their physical footprint, taking into account the locations of branches and deposit-taking facilities. But with the rise of online and mobile banking, the Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency sought to update that definition.

When the groups filed the suit, ICBA President and CEO Rebeca Romero Rainey said that the overhaul 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, in contravention of CRA’s stated purpose.”

Kacsmaryk ruled that the new rules went beyond what the original CRA, which was enacted in 1977, authorized. The assessment of banks has since the CRA’s inception, been specifically limited “to areas surrounding deposit-taking facilities,” said Kacsmaryk.

“We welcome this decision by the Northern District of Texas pausing implementation of the Community Reinvestment Act Final Rules until the litigation we filed challenging the rules can be resolved,” said the trade groups in a joint statement. “While we strongly support the goals of CRA, the Final Rules exceeded the banking agencies’ regulatory authority and created disincentives for banks to lend in low- and moderate-income communities that need access to credit the most. We look forward to litigating this matter to a final judgment.”


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