Banks Sue Regulators Over Anti-Redlining Rule
Some of the banking industry's most powerful trade groups sued the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Monet on Monday, claiming regulators overstepped their authority in updating a law that was intended to reverse the effects of redlining.
In October, regulators imposed new frameworks to assess banks' compliance with the 1977 Community Reinvestment Act, which requires banks to do business in neighborhoods largely made up of racial minorities or low-income households they typically avoid.
The lawsuit stated that the rule was “a complex and burdensome regime” and “could ultimately result in reduced lending to the very populations that the CRA would benefit from.”
The lawsuit was filed by the American Bankers Association, the Independent Community Bankers of America and the US Chamber of Commerce, trade groups that represent virtually all US banks. Several Texas groups joined as plaintiffs, allowing the Washington-based groups to sue in federal court in that state, where they had already won favorable rulings against the regulators.
In a statement, Independent Community Bankers of America President Rebeca Romero Rainey said the group had “clearly laid out our position and concerns” during the comment period required before regulators approved new rules, but that its warnings appeared to be ineffective. to have had. had little effect on the final version of the rule.
Banks said they were not opposing the anti-redlining bill itself, but the latest version of it. The 1977 law does not specifically state what banks must do to ensure they are lending to underserved communities, giving regulators wide latitude to determine what is needed to comply.
The lawsuit alleged that regulators exceeded their authority by requiring banks' operations to be scrutinized even when they were far away from a physical branch. It also said the new rule will allow regulators to investigate whether banks provide services unrelated to lending – such as payment and savings products, which fall outside the scope of the 1977 law.
Monday's lawsuit is part of a broad conflict that has emerged in recent years between banks and their regulators, which banking groups say are unwilling to compromise. The groups have filed two other lawsuits against Texas regulators, one to stop a new rule requiring banks to share data about their small business lending practices and one about a new initiative to investigate banks for possible discrimination.
Jesse Van Tol, chairman of the National Community Reinvestment Coalition, which works with banks to help them meet their Community Reinvestment Act requirements, said in an email that he was “saddened and angered” by the lawsuit.
“The banking sector is showing its true colors,” he said. “No one should believe them when they say they care about making loans to working-class people and people of color.”
Representatives from the Fed, the FDIC and the Office of the Comptroller of the Monet declined to comment.