WASHINGTON–A coalition of banking industry trade groups has filed suit against the Federal Reserve, FDIC and Office of the Comptroller of the Currency, claiming the regulators have overstepped their authority with new laws aimed at reversing the effects of redlining.
As CUToday.info reported earlier, in October, 2023 the regulators introduced a set of new frameworks to be used assessing whether banks are abiding by the 1977 Community Reinvestment Act (CRA), which requires banks to do business in neighborhoods made up largely of racial minorities or low-income households that they typically shunned.
In response, the lawsuit argues rule was “a complicated and burdensome regime” and might “ultimately result in reduced lending to the very populations that the CRA was designed to benefit,” the Wall Street Journal said in its analysis.
Plaintiffs in the case include the American Bankers Association, the Independent Community Bankers of America and the U.S. Chamber of Commerce, as well as several Texas groups, which allows the Washington-based groups to sue in federal court in the Lone Star State, where they have already won favorable rulings against the regulators, the Journal said.
‘Warnings Had Little Effect’
In a statement, the president of the Independent Community Bankers of America, Rebeca Romero Rainey, said that the group had “clearly laid out our position and concerns” during the comment period required before regulators adopt new rules, but that its warnings appeared to have had little effect on the final version of the rule.
“Banks said they did not oppose the anti-redlining law itself, just its latest iteration,” the report states. “The 1977 law does not specifically state what banks need to do to ensure lending to underserved communities, leaving regulators with a lot of leeway to determine what is required to comply.”
‘Exceeded Authority’
But the lawsuit says the Fed, FDIC and OCC have exceeded their authority by requiring banks’ activities to be scrutinized even if they were far away from a physical branch. It also said the new rule let regulators examine whether banks were providing services that didn’t relate to lending — like checking and savings products, which are outside the 1977 law’s scope, the Journal stated.
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