This week in Washington, D.C., representatives at federal agencies reinforced their support for the new rules that would modernize the Community Reinvestment Act (CRA), a few days after a federal judge in Texas granted a preliminary injunction to banking associations that seek to halt its implementation.
Meanwhile, community-focused trade groups and associations, although feeling that the new rules miss some relevant aspects of fair lending, criticized the judge’s decision. In reaction, they are willing to support regulators via an amicus brief if the federal agencies decide to appeal in the Texas case.
Federal Reservevice chair for supervision Michael Barr said that the CRA rules were put in place in 1977 as part of a series of laws written in a way that permits bank agencies to meet periodically to revise them, as happened in 1995. Now, almost three decades after the CRA was first issued, the goal is to “make sure that it can keep pace with the modern world.”
“One of the things that this rule does is it updates the Community Reinvestment Act by including for assessment for certain banks that do an activity outside of their branch network, making sure that those communities also are brought into the evaluation,” Barr said Wednesday afternoon during a National Community Reinvestment Coalition (NCRC) conference in Washington, D.C.
The following day, Martin Gruenberg, chairman at the Federal Deposit Insurance Corp. (FDIC), said during a general session at the same conference that the new CRA rule is about adapting the regulation to the “rapidly changing nature of the banking business” and making it “relevant for the next generation.”
Gruenberg also added that the new rule “strengthens the provisions of CRA to make it even more impactful” by expanding access to credit to every community in the U.S., including low- to moderate-income communities and communities of color.
At the same event, Michael Hsu, acting comptroller of the currency, said that the Office of the Comptroller of the Currency (OCC) is fully committed to carrying out the statutory purpose of CRA regarding the combat of discrimination and redlining.
In order to achieve its purpose, the agency needs to make sure it assesses “how banks meet the credit needs of everyone in their community, including and especially in low- and moderate-income neighborhoods.”
The case in Texas
Last week, Judge Matthew Kacsmaryk sided with the American Bankers Association (ABA), the U.S. Chamber of Commerce and five additional trade associations at the state and national levels by halting the implementation of the new CRA rules while deciding the merits of the broader case.
The defendants in the case are the OCC, the Federal Reserve Board and the FDIC, which in October 2023 announced the new rules that advance the CRA by taking online and mobile banking into account, as well as by addressing systemic inequalities in access to credit.
Jessica Morton, senior counsel at the Democracy Forward Foundation, explained during a session on CRA rules that the lawsuit — filed under the Administrative Procedures Act (APA), which governs how agencies can use the authority delegated from the Congress to write rules — challenges the concept of community.
According to Morton, the plaintiffs stated that “the word ‘community’ means a geographic location that is closely tethered to where a bank has a physical branch, and the new rule says that community is broader and can capture the way that things are working now, where people are making deposits and getting credit online.”
Morton added that the lawsuit also states that “even though in the statute, Congress talks about the purpose of the law being related to both deposits and credit, the text of the operative provision authorizing the agencies to make rules only talks about credit.”
Thus, focusing on deposit products, per the lawsuit, is inappropriate because it’s “outside the bounds of the statute,” Morton said.
Kevin Stein, chief of legal and strategy at Rise Economy, said during the same session that the new CRA rules ignore some relevant topics. These include race, financing displacement (banks making loans that could result in landlords evicting low-income tenants), financing of fossil fuels and mechanisms to stop branch closures.
Despite all these missing points, Stein said there were disappointments related to the preliminary injunction in Texas.
“There’s so much that we wanted to see in the rules that we did not see. So we had a lot of disappointment in seeing the final rule. But at the same time, we also recognize it feels like progress from where we are,” Stein said.
The National Community Reinvestment Coalition said it plans to file an amicus brief to support regulators if they appeal the decision in Texas.
