The banking industry is currently embroiled in a legal battle with three federal agencies over updated regulations intended to combat redlining. The American Bankers Association, the Independent Community Bankers of America, and the U.S. Chamber of Commerce have filed a lawsuit against the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The lawsuit claims that the regulators overstepped their authority in updating the Community Reinvestment Act (C.R.A.), a law designed to reverse the effects of redlining, a practice in which banks avoid providing services to minority or low-income communities.
In October, the regulators imposed new frameworks for assessing whether banks are abiding by the 1977 C.R.A., requiring banks to do business in neighborhoods largely consisting of racial minorities or low-income households. The banking industry contends that the new rule is overly complicated and burdensome, potentially resulting in reduced lending to the very populations the C.R.A. was meant to benefit.
Rebeca Romero Rainey, president of the Independent Community Bankers of America, expressed frustration with the regulators, stating that the group’s concerns during the comment period had little effect on the final version of the rule. The lawsuit also claims that regulators exceeded their authority by scrutinizing banks’ activities even if they were distant from a physical branch and examining whether banks were providing services unrelated to lending.
This legal battle is part of a broader conflict between banks and regulators in recent years. The banking groups have filed two other suits against regulators in Texas, one to stop a new rule requiring banks to share data on their small-business lending practices and one over a new initiative to examine banks for potential discrimination.
In response to the lawsuit, Jesse Van Tol, president of the National Community Reinvestment Coalition, expressed disappointment with the banking industry’s actions, stating, “The banking industry is showing its true colors. Nobody should believe them when they say they care about lending to working-class people and people of color.” Representatives of the federal agencies declined to comment on the lawsuit.