Federal Court Blocks Enforcement of Revised Community Reinvestment Act (CRA) Rules

U.S. District Judge Matthew Kacsmaryk, sitting in the Northern District of Texas, has granted an injunction forbidding federal bank regulators from enforcing the Community Reinvestment Act (CRA) rules, which were recently overhauled. The April 1 injunction puts the entire CRA revision on hold pending further litigation.

The Kilpatrick firm reports that banks were near-universally unhappy with the new rules for regulatory review of CRA compliance, issued in October 2023. Bank trade groups sought the injunction. They argued that the new framework for analysis of CRA compliance exceeded the regulators’ mandate.

The CRA, enacted in 1977, requires federal regulators to assess a bank’s record of meeting the credit needs of the entire community. The concern it addressed was redlining credit for applicants in poor, usually minority neighborhoods. The revision introduced new tests scheduled to be fully effective by 2026. The plaintiffs argued that they impose a significant administrative burden on all banks, and the industry-wide cost of compliance will exceed $600 million.

Judge Kacsmaryk agreed with the trade groups’ claim that new rules went beyond the intent of the statute by requiring consideration of lending activity in geographies outside of where a bank maintains a physical facility. He rejected the agencies’ contention that “credit needs” could be construed to include deposit products as necessary to a bank’s lending activity.

The injunction forbids enforcing the new rules against the plaintiff industry trade groups. Some uncertainty exists because it does not specify whether the injunction pertains to banks that are members of the plaintiff groups and banks that are not members of the groups. A modification might be required, but the decision will significantly delay implementation of the CRA regulations pending further litigation.