The Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency exceeded statutory authority in violation of the Administrative Procedure Act, according to the groups, which include the Independent Community Bankers of America, American Bankers Association, U.S. Chamber of Commerce, Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce and Longview Chamber of Commerce.
“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,” ICBA CEO Rebeca Romero Rainey said in a prepared statement. “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.”
Established in 1977, the CRA addresses discriminatory lending practices, or redlining, by financial institutions. The CRA empowers regulators to evaluate banks’ lending and investment records in low- to moderate-income communities.
Federal regulators in October updated the CRA to include online and mobile banking, which has grown in popularity in recent years. Under the new rules, grades given to banks for LMI lending won’t be based on branch geography. The trade groups allege that therein lie the APA violations, because the CRA’s statutory focus is on lending in the “local community.”
ABA CEO Rob Nichols said the new CRA rules “[fail] to recognize banks’ demonstrated commitment to fully serving their communities” and “undermin[e] the very goals of CRA by creating disincentives for banks to offer certain products or lend in geographies outside of their branch network.”
Additionally, the trade groups allege that complying with the final rules will cost banks millions of dollars and thousands of hours. The regulators estimate banks will spend “between approximately 105,500 and 235,000 hours each year in reporting, recordkeeping, and disclosure,” and the OCC estimated the total cost of compliance for banks to be roughly $91.8 million, according to the lawsuit.
Per the ABA’s own calculation — done with data it collected from a survey on the proposed rules which called for a 12-month implementation period rather than a two-year implementation period — compliance will cost banks more than $600 million.
“Setting aside the underestimation of the actual compliance burden of these Final Rules, the Agencies fail to explain how the benefits could possibly outweigh that burden,” the lawsuit alleges.
The trade groups allege that regulators didn’t respond to their comments earlier in the rulemaking process. The groups have asked the court to issue a preliminary injunction to prevent the final rules from taking effect, and also asked the court to consider the CRA rules illegal.
The OCC and the Fed declined to comment on the lawsuit. The FDIC did not return requests for comment by press time.