Seven Democratic senators are calling on regulators to defend the Community Reinvestment Act’s 2023 final rule in court, rather than rescind it, as they have proposed to do.
“The CRA is one of your agencies’ most critical tools to combat the effects of decades of discriminatory banking and lending practices and encourage increased investment in low- and moderate-income communities,” wrote a group of seven lawmakers led by Sen. Elizabeth Warren, D-MA, ranking member of the Senate Banking Committee.
“The 2023 CRA final rule made important updates to outdated CRA regulations to ensure that banks are meeting the needs of everyone in the communities where they do business,” they wrote Monday to Federal Reserve Chair Jerome Powell, Comptroller of the Currency Jonathan Gould and Federal Deposit Insurance Corp. Acting Chair Travis Hill.
Sens. Raphael Warnock of Georgia; Chris Van Hollen of Maryland; Tina Smith of Minnesota; Cory Booker of New Jersey; Ron Wyden of Oregon; and Tammy Baldwin of Wisconsin each signed the letter.
A coalition of trade groups sued regulators last year to block the CRA updates, alleging the updates have unintended consequences “in contravention of CRA’s stated purpose.”
The groups – including the American Bankers Association, U.S. Chamber of Commerce, Independent Community Bankers of America, Independent Bankers Association of Texas, Texas Bankers Association, Amarillo Chamber of Commerce and Longview Chamber of Commerce – accused regulators of exceeding statutory authority in violation of the Administrative Procedure Act with the CRA final rule.
Updates within the CRA final rule address online and mobile banking, which has grown in popularity in recent years. Under the new rules, grades given to banks for LMI lending aren’t based on branch geography. Therein lie the APA violations, the trade groups argued, because the CRA’s statutory focus is on lending in the “local community.”
But the senators take issue with that assessment – and with the regulators who announced in March they would rescind it in the face of the litigation.
“Bank regulators’ old method of assessing CRA compliance, which focused primarily on a bank’s activities near the geographic location of its branches and ATMs, is no longer sufficient to assess whether banks are meeting their lending and community investment obligations,” lawmakers wrote, also taking aim at what they alleged was “rampant” grade inflation.
Ninety-six percent of banks evaluated under the CRA were rated “satisfactory” or “outstanding” from 1990 to 2019, but hundreds of Equal Credit Opportunity Act and Fair Housing Act lawsuits were filed against banks in that time, the senators wrote.
The CRA final rule was the culmination of a nearly three-year rulemaking process and gained interagency and bipartisan support, they wrote, and it was “clearly lawful.”
Michael Barr, who was the Fed’s vice chair for supervision at the time the rule was finalized, called the final rule a “win-win for all” when it was announced.
“Fair lending is safe and sound lending, and the CRA regulations we promulgate today will help make the financial system safer and fairer,” Barr said at the time.
But following the lawsuit, and a judge in the Fifth Circuit Court of Appeals blocking the final rule’s implementation pending additional legal action, the agencies have “decided to let [the judge] and the Fifth Circuit have the final word,” the senators wrote Monday.
The lawmakers request a staff briefing on the regulators’ efforts to withdraw their rescission in favor of defending the CRA final rule by Sept. 29.
Spokespeople for the FDIC, OCC and Fed did not immediately respond to a request for comment.
The ICBA, U.S. Chamber and ABA also did not immediately respond to a request for comment.
