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The CRA was enacted in 1977 to ensure that each insured depository institution serves the convenience and needs of its entire community, including low and moderate-income (“LMI”) neighborhoods, consistent with its safe and sound operation. This mission is the essence of what community banks do.
In 2023 the OCC, FDIC, and Federal Reserve Board published a nearly 1,500-page final rule creating a new CRA framework. We view some aspects of the rule, including the increased asset thresholds, a qualifying activities list and confirmation process, and the ability of small banks to opt-in to the new framework or continue to be evaluated under their current framework as beneficial to community banks.
However, we are deeply concerned that the complexity of the new tests, in particular the Retail Lending Test, will increase the cost of compliance and make it more difficult to attain “high satisfactory” or “outstanding” ratings. We are also concerned that Retail Lending Assessment Areas (“RLAAs”) may have the unintended consequence of causing larger community banks to reduce or eliminate lending away from their branches in order to avoid triggering the creation of RLAAs.
On February 5, 2024, ICBA and other groups filed a lawsuit against the federal banking regulators, challenging the agencies for exceeding their statutory authority with their recent Community Reinvestment Act final rule.
The complaint — which was filed in the Northern District of Texas with the Independent Bankers Association of Texas,
Texas Bankers Association, Amarillo Chamber of Commerce, American Bankers Association, U.S. Chamber of Commerce, and Longview Chamber of Commerce — asks the court to vacate the final rule and seeks a preliminary injunction to pause it while
the court decides the merits of our case.
The complaint explains how the new rules will limit future bank lending. It also 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 institutions with more than $10 billion in assets for 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.
Jenna Burke
EVP, General Counsel, Government Relations & Public Policy, ICBA
[email protected].
Nicole Swann
VP, Communications, ICBA
[email protected]
Feb. 05, 2024
Groups ask court to vacate new CRA rules and will seek preliminary injunction to block implementation until case is decided.
The Independent Community Bankers of America, American Bankers Association, U.S. Chamber of Commerce, Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce and Longview Chamber of Commerce today 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.
“ICBA and the nation’s community banks support agency efforts to modernize the CRA’s implementing regulations,” said ICBA President and CEO Rebeca Romero Rainey. “Unfortunately, the Final Rules are 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. The agencies’ approach penalizes many smaller institutions, eroding the diversity of institutions and products that drive much-needed access to banking services, credit, and reinvestment in communities around the country. ICBA submitted a comment letter to the regulators that clearly laid out our position and concerns, many of which were not included in the Final Rules. Our nation’s community banks have a strong track record of meeting and exceeding the credit needs of underserved communities that the new rules are likely to undermine.”
“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.”
“Texas is a growing state, with new centers of population growth that are unserved by any financial institution,” said Christopher L. Williston, VI, president and CEO of the Independent Bankers Association of Texas. “As Texas community banks seek to serve new and diverse communities, they should be able to do so without unreasonable new standards that are impossible to satisfy. The new CRA rules are an overreach that disincentivizes growth and undermines community banks' ability to meet the needs of the communities they serve.”
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:
“The Agencies rely heavily on the authority delegated to them ‘to carry out the purposes’ of the CRA, but that authority does not give the Agencies authority to ignore the plain text of the CRA. And even Congress’s statement of purpose focused on ‘local communities,’ a phrase that cannot be understood as capaciously as the Agencies would need it to be read to ignore the geographic limitations of deposit-taking branches.”
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 CRA 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. Further, 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 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.”
ICBA and its co-plaintiffs will call on the court to immediately intervene and issue a preliminary injunction that will prevent the new rules from taking effect. In addition, the plaintiffs ask the court to issue an order and judgment setting aside the CRA rules as illegal or impermissible.
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About the Independent Community Bankers of America
The Independent Community Bankers of America® has one mission: to create and promote an environment where community banks flourish. We power the potential of the nation’s community banks through effective advocacy, education, and innovation.
As local and trusted sources of credit, America’s community banks leverage their relationship-based business model and innovative offerings to channel deposits into the neighborhoods they serve, creating jobs, fostering economic prosperity, and fueling their customers’ financial goals and dreams. For more information, visit ICBA’s website at icba.org.
About the American Bankers Association
The American Bankers Association is the voice of the nation’s $23.4 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $18.6 trillion in deposits and extend $12.3 trillion in loans.
About the U.S. Chamber of Commerce
The U.S. Chamber of Commerce is the world’s largest business organization representing companies of all sizes across every sector of the economy. Our members range from the small businesses and local chambers of commerce that line the Main Streets of America to leading industry associations and large corporations. They all share one thing: They count on the U.S. Chamber to be their voice in Washington, across the country, and around the world. For more than 100 years, we have advocated for pro-business policies that help businesses create jobs and grow our economy.
About the Texas Bankers Association
Founded in 1885, the Texas Bankers Association is the largest state-based banking association in the US. TBA advocates for 400 of its member banks in Austin and Washington; trains more than 10,000 bankers annually; provides nationally recognized community bank services; and invests in Texas communities through financial literacy, scholarships, and charitable activities.
About the Independent Bankers Association of Texas
Formed in 1974, the Independent Bankers Association of Texas (IBAT) represents Texas community banks. The Austin-based group is the largest state community banking organization in the nation with membership comprised of almost 5,000 banks and branches in more than 700 Texas communities. Providing safe and responsible financial services to all Texans, IBAT member bank assets range in size from $28 million to $51 billion with combined assets statewide of $296 billion. IBAT member banks are committed to supporting and investing in their local communities.