Anti-redlining rule lawsuit filed by banks

Some major banking industry groups sued the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on Monday. They claim that these regulators went beyond their authority in updating a law aimed at addressing the negative impacts of redlining.

In October, the regulators introduced new criteria for evaluating whether banks are following the 1977 Community Reinvestment Act, which mandates that banks engage in business in neighbourhoods predominantly composed of racial minorities or low-income households that were previously neglected.

The lawsuit argues that the new rule is too complex and burdensome, and it could lead to reduced lending to the very communities the Community Reinvestment Act was designed to help.

The American Bankers Association, the Independent Community Bankers of America, and the U.S. Chamber of Commerce filed the suit, representing almost all U.S. banks. Some Texas groups also joined as plaintiffs, allowing them to file the lawsuit in federal court in Texas, where they have previously won favourable rulings.

The banking groups insist they don’t oppose the anti-redlining law itself but have concerns about its latest version. The 1977 law lacks specific instructions on what banks must do to ensure lending to underserved communities, giving regulators significant flexibility in defining compliance requirements.

The lawsuit argues that regulators overstepped their authority by scrutinising banks’ activities even if they are far from a physical branch. It also contends that the new rule allows regulators to examine non-lending services, such as checking and savings products, which are beyond the scope of the 1977 law.

This legal action is part of a broader conflict between banks and regulators, with banking groups claiming regulators are unwilling to compromise. The groups have previously filed two other suits in Texas, one challenging a new rule on sharing small-business lending data and another contesting an initiative examining banks for potential discrimination.


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