Warren, Waters slam ‘baseless’ industry lawsuit over CRA reform

Bloomberg News

WASHINGTON — Two top Democratic banking lawmakers are criticizing the American Bankers Association, the Chamber of Commerce and other industry groups for their lawsuit against banking agencies on final regulations implementing the Community Reinvestment Act.

Last year, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued a final rule to update the CRA implementing regulations. The CRA is a civil rights-era law that aims to eliminate income-based redlining by banks.

A group of banking groups — including the Independent Community Bankers of America, the American Bankers Association, the U.S. Chamber of Commerce, the Texas Bankers Association and the Independent Bankers Association of Texas — filed a lawsuit in February, alleging that the agencies overstepped their authority when finalizing regulations implementing the act.

Meanwhile, banking agencies argued in court that the CRA gives them sufficient powers to make the changes specified in the final regulation, in particular in expanding the definition of where a company’s lending activities can be assessed to include financial technologies and online banking.

Warren, who sits on the Senate Banking Committee, and Waters, who is the ranking member of the House Financial Services Committee, made a similar argument in their letter.

“This lawsuit is without merit,” the lawmakers said.

Democratic lawmakers also said the current rules are essentially a “free pass” for banks to be scrutinized for compliance with CRA guidelines.

“The banking industry has changed dramatically since the CRA’s last major update in 1995, and the current, outdated rules give banks carte blanche to meet CRA standards even if they engage in the discriminatory practices the law was designed to stop,” they said. “These rules need to be updated, and your efforts to stop regulators from doing so are unjustified and counterproductive.”

The CRA was enacted in 1977 to ensure that banks make loans to all of their customers, not just wealthier customers who pose a lower risk of default. The act requires banks to make loans and provide services to low- and moderate-income residents in census tracts where they have branches.

With the advent of mobile banking, more and more banks are accepting deposits from areas where they have no branchesAND some banks have no branches at allMeanwhile, the banking sector has complained that the CRA approval process is opaque and risky because it is difficult for them to know in advance whether a loan or service will be considered a CRA credit before it is made or offered.

The plaintiff groups argued in the lawsuit that the agency’s action to include mobile deposits as a proxy for CRA credit obligations violates a statute that they say closely ties a bank’s obligations to CRA to its branch network.

“Even if the Final Rule’s attempt to regulate banks in an open-ended geographic manner could be understood as consistent with CRA’s authority—and, I repeat, it cannot be understood—their promulgation would be a clear example of an economically significant agency action taken in the absence of the requisite ‘clear congressional authorization,’” the lawsuit says.