ABA's Response Brief, 9/18/2024

TEXAS BANKERS ASSOCIATION; AMARILLO CHAMBER OF COMMERCE; AMERICAN BANKERS ASSOCIATION; CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; LONGVIEW CHAMBER OF COMMERCE; INDEPENDENT COMMUNITY BANKERS OF AMERICA; INDEPENDENT BANKERS ASSOCIATION OF TEXAS, Plaintiffs-Appellees,

v. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM; JEROME POWELL, in his official capacity as Chairman of the Board of Governors of the Federal Reserve System; FEDERAL DEPOSIT INSURANCE CORPORATION; MARTIN GRUENBERG, in his official capacity as Chairman of the Federal Deposit Insurance Corporation; OFFICE OF THE COMPTROLLER OF THE CURRENCY; MICHAEL J. HSU, in his official capacity as Acting Comptroller of the Currency, Defendants-Appellants.

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STATEMENT OF THE ISSUE

Whether the district court abused its discretion in granting a preliminary injunction against the Community Reinvestment Act Final Rules, 89 Fed. Reg. 6574 (Feb. 1, 2024), where the court held that: (1) appellees were likely to succeed on the merits because the Final Rules exceed the agencies’ statutory authority; (2) appellees’ members face immediate, unrecoverable costs to comply with the rules; and (3) the balance of the equities and public interest favor an injunction.

INTRODUCTION

For much of the twentieth century, banks and other financial institutions accepted deposits across the community where they operated, from affluent and lower-income depositors alike. But “instead of reinvesting” deposits “in that community” by extending loans community-wide, government policies and private actors fostered so-called redlining. See 123 Cong. Rec. 17,630 (June 6, 1977) (statement of sponsor Sen. William Proxmire). Some financial institutions “actually or figuratively dr[e]w a red line on a map around [] areas of their city”—often low-income or inner-city neighborhoods—and refused to lend there. See id.

In response, Congress enacted the aptly-named 1977 Community Reinvestment Act (CRA), 12 U.S.C. § 2901 et seq., and directed federal banking agencies to “assess [a bank’s] record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods.” Id. § 2903(a)(1). The CRA refers to a bank’s “community” as the particular area surrounding places where banks accept deposits, i.e., offices, branches, and ATMs. See id. § 2906(b)(1)(B), (e)(1). And the CRA repeatedly requires evaluation of whether banks are reinvesting in those communities by serving “community credit needs,” i.e., by extending loans throughout the whole community. Id. §§ 2903(c)(1)(A), (c)(2)(A), 2906(b)(2), 2908(a) (emphasis added); accord §§ 2901(a)(3), (b), 2903(a)(1), (b), 2906(a)(1), 2907(a).

Thus, from 1978 until now, agency regulations interpreted the CRA as requiring assessments of banks’ performance in extending loans within the cities or equivalent geographical areas where banks maintained deposit-taking facilities. Congress’ amendments to the CRA endorsed those interpretations. That approach helped level the playing field for lower-income borrowers within banks’ communities.

But now, the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and Federal Reserve seek to rewrite the CRA via byzantine, 649-page, 60,000-word Final Rules. Claiming a need to modernize the CRA to account for online banking, the Final Rules jettison 50 years’ worth of agency rules in favor of novel, cumbersome, and unlawful bank performance tests. For many large and intermediate banks (i.e., banks that hold $600 million or more in assets), the Final Rules redefine a bank’s “community” to extend nationwide—not simply to the cities, towns, or equivalent areas surrounding banks’ depository facilities. Yet the agencies tellingly never define the word “community,” let alone justify why a bank’s “community” could span the nation. Further, the Final Rules go far beyond evaluating banks’ performance serving community credit needs by asserting newfound authority to assess any banking activity with a “sufficient nexus” to credit needs, including large banks’ performance in offering low-cost deposit products and services.

Together, those novel requirements would empower the agencies to evaluate banks based upon amorphous judgments about what products and services banks should offer to particular customers. Worse, because low CRA ratings can stymie banks from engaging in a wide range of activities, from mergers to opening new branches, these novel requirements would allow the agencies to seize expansive control over banks’ operations. The CRA does not permit that result. Indeed, Congress has repeatedly rejected the very modernizing initiatives that the agencies would now impose by fiat.

The district court in no way abused its discretion in granting a preliminary injunction to enjoin these Final Rules, which defy the CRA’s text, violate the major questions doctrine, and unquestionably inflict irreparable harm. In the agencies’ own telling, the Final Rules will inflict $90 million in unrecoverable compliance costs on banks—and that figure significantly underestimates the likely burden. The balance of equities and public interest likewise favor injunctive relief given the patent unlawfulness of these rules. The CRA’s success in addressing redlining does not give the agencies a blank check to retool the statute in search of a new mission.

ABA's Response Brief in Community Reinvestment Act Appeal

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