A federal judge in Texas has paused enforcement of a revised version of the Community Reinvestment Act by banking regulators.
The ruling, issued Friday by Judge Matthew J. Kacsmaryk of the U.S. District Court for the Northern District of Texas, determined that the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency exceeded their authority in their overhaul to the CRA, proposed in October. The first of the new rules enforced by the overhaul, were set to take effect Monday.
A coalition of trade groups, including the Independent Community Bankers of America, American Bankers Association and U.S. Chamber of Commerce, sued in February to block the overhaul, claiming it would discourage lending. The Texas Bankers Association, Independent Bankers Association of Texas, Amarillo Chamber of Commerce and Longview Chamber of Commerce are also among the plaintiffs.
The Fed, FDIC and OCC delayed until 2026 the implementation date of portions of the CRA rule. The most impactful of those changes would have forced large banks to include only whole counties in their assessment areas — rather than including partial counties, as they had been doing — and to update these assessment areas by April 1.
Kacsmaryk ruled that the regulators exceeded their authority by permitting banks to be evaluated not only in the geographic areas where they maintain physical branches but also in other regions where they engage in retail lending activities. Additionally, he criticized the rules for allowing regulators to assess the availability of a bank's deposit products rather than solely focusing on credit offerings within a community.
He deemed these aspects of the rules to be an overreach, exceeding the intended boundaries of the CRA, adding that the agencies did not claim authority to assess banks wherever they conduct retail lending.
“On the contrary, they have — since 1978 — limited themselves to areas surrounding deposit-taking facilities,” Kacsmaryk noted.
He further added that the Community Reinvestment Modernization Act, which was introduced four times in nine years, would have shifted the focus from deposit-taking facilities to areas where banks make loans, but it was not passed by the Congress.
“Thus, the fact that ‘Congress considered and rejected bills that would have granted the [federal banking agencies] such jurisdiction undercuts their assertion of authority,” Kacsmaryk said.
In addition to the preliminary injunction, the judge ordered that effective Monday, the rules’ implementation date be “extended day, for day, for each day the injunction remains in place.”
The plaintiffs claimed the CRA achieved its goal by offering trillions of dollars of credit to low-and moderate-income individuals in their communities for over 45 years. In 2022, banks provided more than $227 billion in capital to LMI individuals and businesses and $151 billion in community development loans, they argued, citing statistics from the Federal Financial Institutions Examination Council.
The trade groups welcomed the injunction.
“While we strongly support the goals of CRA, the Final Rules exceeded the banking agencies’ regulatory authority and created disincentives for banks to lend in low- and moderate-income communities that need access to credit the most,” the trade groups said in a statement Saturday. “We look forward to litigating this matter to a final judgment.”
The Bank Policy Institute and the ABA claimed a CRA revision must be held off until the impact of the higher capital requirements and a Supreme Court ruling on the constitutionality of the Consumer Financial Protection Bureau’s funding are known.
Under the October proposal, some banks considered large under the CRA would have been forced to redraw their assessment areas to meet the April deadline but would fall in the “intermediate” bracket under other thresholds set to take effect in 2026.
