Several banking industry groups have joined forces to sue U.S. regulators to block amendments to the Community Reinvestment Act, which aims to tackle redlining and boost lending to lower-income areas.
According to the group, the anti-redlining laws discourage banks from lending.
The complaint accuses the Federal Reserve, FDIC and OCC of overreaching their statutory authority and acting “arbitrarily and capriciously” with their recent amendments. The American Bankers Association, the U.S. Chamber of Commerce, Independent Community Bankers of America, Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce, and Longview Chamber of Commerce in the Northern District of Texas filed the lawsuit.
“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.
“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 term “redlining” comes from government homeownership programs created during the 1930s New Deal era. These programs offered government-insured mortgages for homeowners. Color-coded maps were used to classify the “residential security” of neighborhoods in more than 200 cities and towns across the United States. Neighborhoods deemed “best” and safe investments were given a grade of A and colored green. However, “hazardous” neighborhoods were graded “D” and colored red.
Most of the neighborhoods marked in red were predominantly inhabited by Black residents, who were almost always denied mortgage loans.
The Department of Justice (DOJ) has been targeting banks caught redlining, including a $9 million agreement with Washington Trust Company and Ameris Bank each, to settle allegations of redlining in Rhode Island and Jacksonville, Florida, respectively. First National Bank of Pennsylvania also agreed to pay out $13.5 million after it was found that they discriminated against Black and Latino homebuyers in North Carolina for at least four years.
The lawsuit requests that the judge vacate the Final Rules and seeks a preliminary injunction halting the new rules while the court decides the case’s merits.
“ICBA and the nation’s community banks support agency efforts to modernize the CRA’s implementing regulations,” added Rebeca Romero Rainey, president and CEO of ICBA. “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.”
A report from the National Community Reinvestment Coalition notes that 8.25 million people live in neighborhoods identified by the federal government 80 years ago as “hazardous” and redlined since that time, with more than three-quarters of these Americans identifying as belonging to a minority group.
