On March 29, 2024, the District Court for the Northern District of Texas granted the motion by several industry associations for a preliminary injunction of the revised Community Reinvestment Act (“CRA”) regulations that the federal banking agencies finalized in October 2023 (the “Final Rule”) and Covington summarized here. The court in Texas Bankers Association, et al. v. Office of the Comptroller, et al. enjoined the federal banking agencies from enforcing the Final Rule in its entirety against the plaintiffs, extending the effective date of April 1, 2024, as well as all other implementation dates, day-for-day for each day that the injunction remains in place. In the meantime, the existing CRA regulations will remain in effect for the plaintiffs. The plaintiffs in the case are the Texas Bankers Association, the Amarillo Chamber of Commerce, the American Bankers Association, the Chamber of Commerce of the United States of America, the Longview Chamber of Commerce, the Independent Community Bankers of America, and the Independent Bankers Association of Texas.
The plaintiffs have argued that the Final Rule exceeds the agencies’ statutory authority in that it provides for the evaluation of some banks (1) outside the geographies where they operate physical facilities that take deposits; and (2) on their deposit products in addition to how they meet the credit needs of the community. In issuing its preliminary injunction, the court determined that the plaintiffs had demonstrated substantial likelihood of success on the merits based on the following reasoning:
- The court concluded that the federal banking agencies’ reading of the phrase “entire community” clashes with the text of the CRA. The Final Rule expands the geographic scope of an institution’s assessment through the addition of new retail lending assessment areas and an outside lending assessment area that are not based on an institution’s physical deposit-taking footprint. The statute requires the federal banking agencies to “assess [an] institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods,” and the parties disagree as to whether a bank’s “community” should be defined in relation to (1) the bank’s physical locations or (2) where it serves customers more broadly with retail loans. The court concluded that the statute generally only permits evaluation in the geographic areas surrounding a bank’s physical facilities.
- The court concluded that the CRA does not authorize the federal banking agencies to assess deposit products. The Final Rule’s Retail Services and Products Test assesses the availability and usage of institution’s deposit products, as well as the extent to which they incorporate low-cost and other identified features. The court concluded that no provision of the statute authorizes the federal banking agencies to assess deposit products.
- The court concluded that the Major Questions Doctrine weighs in favor of Plaintiffs. The decision states that under the Major Questions Doctrine, courts “expect Congress to speak clearly if it wishes to assign to an agency decisions of vast economic and political significance.” The court identified a “powerful basis” for applying the doctrine in the plaintiffs’ favor in the fact that Congress has not passed legislation to shift assessment areas away from deposit-taking facilities to where banks make retail loans.
Additionally, in issuing the preliminary injunction, the court determined that the plaintiffs had demonstrated a substantial threat of irreparable injury, citing to banks’ projected costs to comply with the Final Rule, and that the balance of equities and public interest support injunctive relief.
Covington’s Financial Services Group has deep experience advising banks of all sizes with CRA compliance. For further information on the Final Rule, please contact the lawyers listed.
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