Community Reinvestment Act
Texas Bankers Association v. OCC
Date: Sept. 18, 2024
Issue: Whether the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency’s final rules implementing the Community Reinvestment Act exceed their statutory authority to warrant a preliminary injunction.
Case Summary: ABA and its co-plaintiffs filed a response brief opposing the agencies’ preliminary injunction appeal in its lawsuit challenging the agencies’ final rules implementing the CRA.
In its complaint, ABA argued the final rules exceed the agencies’ authority under the CRA because it creates new assessment areas unconnected to a bank’s physical deposit-taking presence and assesses bank products that are not credit-related. ABA also argued the final rules are arbitrary and capricious under the Administrative Procedure Act because they do not give banks reasonable notice of the areas and products to be assessed and the market benchmarks against which their performance will be evaluated. ABA also moved the court for a preliminary injunction.
On March 29, 2024, Judge Matthew Kacsmaryk of the Northern District of Texas granted ABA’s motion for a preliminary injunction. First, the court determined ABA adequately pled associational standing and could challenge all provisions of the final rules, including those covering banks with over $10 billion in assets. Next, the court determined ABA demonstrated a substantial likelihood of success on the merits because the agencies’ reading of “entire community” clashes with the text of the CRA, which focuses on the geographic location of a bank’s deposit-taking facilities. The court also concluded the CRA does not authorize the agencies to assess deposit products, and the major question doctrine favors ABA. Finally, the court decided ABA demonstrated a substantial threat of irreparable injury, highlighting the ABA’s declaration of substantial, unrecoverable compliance costs suffered by its members if the final rules were implemented and later struck down.
On July 18, 2024, the agencies filed their opening brief appealing the preliminary injunction. The agencies argued they did not exceed their statutory authority by issuing regulations that evaluate retail lending in a bank’s “entire community” or by assessing deposit products and digital delivery systems for whether “credit needs” are being met. The agencies also argued the district court erred in finding ABA showed irreparable harm, and the court’s assessment of the balance of equities and public interest was flawed.
In response, ABA urged the Fifth Circuit to affirm the district court’s ruling granting the preliminary injunction, making four arguments. First, ABA argued the final rules unlawfully require the agencies to evaluate banks based on their performance nationwide, rather than within their specific “community,” which is defined as a limited geographic area. As explained in the brief, the CRA did not authorize the agencies to evaluate whether banks meet the credit needs of the whole nation as the final rules do for many large and intermediate banks. Rather, the relevant “community” is the area around a bank’s deposit facilities and does not extend anywhere banks make a certain volume of loans, or even nationwide. What is more, the CRA’s text repeatedly specifies the “community” whose “credit needs” banks should meet is the “community” immediately surrounding where a bank accepts deposits. ABA noted a bank’s “community” has a uniform meaning for all banks. ABA explained the final rules fail because the CRA does not empower the agencies to define a bank’s “community” differently based on the bank’s size or proportion of loans to different locales.
In addition, ABA emphasized that the major questions doctrine further undermines the agencies’ interpretation. Under the major questions doctrine, courts require a clear statement when agencies assert authority “to exercise powers of case economic and political significance.” Put differently, “the more an agency asks of a statute … the more it must show in the statute to support its rule.” In implementing its final rules, the agencies ask a great deal. ABA noted the agencies’ sweeping assertions of authority would open the door for them to use the CRA as roving authority to examine any banking practices — including deposit practices — anywhere in the United States. As these practices could be untethered to any statutory criteria beyond “adequately serving” the credit needs of people somewhere in the United States, ABA highlighted that vast assertion of authority is the type of agency self-empowerment the major questions doctrine forbids.
Second, ABA argued the CRA only allows evaluation of banks’ performance as to community credit needs. The final rules conflict with the CRA’s limitation that agencies can only assess banks’ performance in meeting community “credit needs.” ABA explained that “credit” means lending, not deposits, and by evaluating deposit-related services and products, the final rules assess the antithesis of lending: customers depositing money with a bank, not borrowing money from it. In addition, ABA stressed that deference cannot save the agencies’ interpretation. The agencies demand judicial deference to their interpretation of “credit needs” based on their authority to promulgate “regulations to carry out the CRA’s purposes.” However, under Loper Bright, the Supreme Court declared “courts, not agencies … decide all relevant questions of law.”
Third, ABA argued the final rules inflict quintessential irreparable harm through significant unrecoverable compliance costs. Under Fifth Circuit precedent, complying with a regulation later held invalid almost always produces the irreparable harm of nonrecoverable compliance costs, because the APA does not waive the government’s sovereign immunity for damages. ABA emphasized that banks would incur significant costs complying with the CRA as litigation proceeds, and they would not be able to recover those costs later. The final rules would also require banks to overhaul current compliance systems, develop and test new computer programs, conduct program planning, upgrade vendor relationships, hire additional IT staff, and evaluate the potential effect on their business strategies and related plans.
Finally, ABA argued the balance of the equities favors a preliminary injunction. While the final rules inflict a clear risk of irreparably harming its members, ABA pointed out that the agencies and public face no countervailing harms should the preliminary injunction remain intact.
Bottom Line: On Sept. 25, 2024, a coalition of 19 states, Banking Economist Dr. Kenneth H. Thomas, and the Bank Policy Institute, Consumer Bankers Association, and Mid-Size Bank Coalition of America each filed amicus briefs urging the Fifth Circuit to affirm the CRA preliminary injunction. The briefs reiterated the legislative history of the CRA makes clear that the CRA’s assessments must be tied to banks’ physical, deposit-taking presence and only Congress can expand the CRA to include considerations other than a bank’s actual community.
Documents: Brief
