On February 5, 2024, several national and Texas banking and business trade groups (Plaintiffs) filed a lawsuit challenging the final regulations (Final Rules) implementing the Community Reinvestment Act of 1977 (CRA) that were jointly adopted in October 2023 by the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Reserve Board (Agencies). Four days after filing the complaint, Plaintiffs filed a motion for a preliminary injunction. The Agencies filed a brief in opposition to Plaintiffs’ motion and the Plaintiffs filed a reply brief. On March 29, 2024, the U.S. District Court for the Northern District of Texas granted the Plaintiffs’ motion for preliminary injunction and enjoined the Agencies from enforcing the Final Rules against Plaintiffs pending the resolution of the lawsuit. The court also extended the effective date of the Final Rule’s implementation by one day for each day the injunction remains in place.

The CRA states, in part:

In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall — (1) assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution[.]

In reliance on the CRA statutory text, facts pled, and briefs, the court found that the Plaintiffs have associational standing and meet the standard for issuance of the preliminary injunction, which require the Plaintiffs to show: “(1) a substantial likelihood of prevailing on the merits; (2) a substantial threat of irreparable injury if the injunction is not granted; (3) the threatened injury outweighs any harm that will result to the non-movant if the injunction is granted; and (4) the injunction will not disserve the public interest.”

Associational Standing

The court cited to precedent that provides “association[s] may bring suit on behalf of its members when (1) those members would otherwise have standing to sue; (2) the interests it seeks to protect are germane to the organization’s purpose; and (3) neither the claim asserted nor the relief requested requires the participation of individual members.” The court rejected the Agencies’ arguments that Plaintiffs had not identified members by name and had not alleged that the challenged activity affects all members and found that Plaintiffs have associational standing.

Substantial Likelihood of Prevailing on Merits

The court determined that Plaintiffs have a substantial likelihood of prevailing on the merits for the following reasons:

• The court determined that the Agencies’ interpretation of “entire community” is inconsistent with the ordinary meaning of the term “community” and the totality of the CRA’s text that focus on geographic areas surrounding a bank’s physical deposit taking facilities.
• The court agreed with the Plaintiffs’ argument that the CRA does not authorize the Agencies to consider deposit products in determining whether a bank is “meeting the credit needs of its entire community.”
• The Major Questions Doctrine favors Plaintiffs as evidenced by the Agencies’ past practices if limiting their authority under CRA to areas surrounding deposit taking facilities and Congress’s failed attempts to pass the Community Reinvestment Modernization Act, which if passed would have shifted the CRA assessment areas from the areas surrounding deposit taking facilities to areas where banks make loans.

Substantial Threat of Irreparable Injury

The court considered the Agencies’ statement in the Notice of Supplemental Rulemaking regarding the substantial compliance costs. The Agencies stated:

Were the [Rule] to require full compliance within the first 12 months of the transition period, the OCC estimates that expenditures to comply with mandates during those twelve months would not exceed approximately $91.8 million (approximately $7.9 million associated with increased data collection, recordkeeping or reporting; $82 million for large banks to collect, maintain, and report annually geographic data on deposits; and $1.9 million for banks’ strategic plan submissions).

Based on Fifth Circuit precedent which holds that “nonrecoverable costs of complying with a putatively invalid regulation typically constitute irreparable harm,” the court found that the Plaintiffs’ immediate compliance costs to implement the Final Rules constitute irreparable harm.

The court found that the two remaining factors for injunctive relief—balance of equities and the public interest—support injunctive relief.

Limited Scope Injunction

The injunctive relief granted by the court only expressly prevents the Agencies from enforcing the Final Rules against Plaintiffs—the 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, and Independent Bankers Association of Texas. The order entered by the court does not expressly state that it applies to Plaintiffs’ members. We believe that this was an unintentional mistake by the court, which should be corrected. However, we believe that the court did intend to limit the beneficiaries of the injunctive relief to just the members of the Plaintiffs. As a result, this could potentially create uncertainty and confusion in the banking industry, with banks unsure of whether or how to proceed with compliance efforts in the interim. This may lead other financial institutions and associations to seek joinder as occurred in the case challenging the CFPB’s small business lending rule when the Texas district court did not initially issue a nationwide preliminary injunction. That preliminary injunction was later expanded on a nationwide basis to all financial institutions. That is precisely what the court needs to do here.

The Federal Reserve Board, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency on March 21, 2024 issued an Interim Final Rule extending the applicability date of the facility-based assessment areas and public file provisions of the Final Rules from April 1, 2024, to January 1, 2026. However, even if ultimately unsuccessful, the Plaintiffs’ challenge to the Final Rules may render all current implementation dates difficult to achieve and force further push back of compliance deadlines.

Consumer Finance Monitor Podcast Episodes

We have released two Consumer Finance Monitor podcast episodes focused on the Final Rules: “Community Reinvestment Act reform: a close look at the final rule” and “A look at the joint Community Reinvestment Act proposal issued by the OCC, FDIC, and Federal Reserve Board”.

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