On March 29, a Texas federal court granted a preliminary injunction enjoining the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the agencies) from implementing their Final Rule modernizing how they assess lenders’ compliance under the Community Reinvestment Act (CRA). Notably, the court found the plaintiffs demonstrated a substantial likelihood of success on the claim that the Final Rule violates the CRA, indicating how the district court will likely find on the merits.

As a result of the injunction, enforcement of the Final Rule is halted pending resolution of the lawsuit. The effective date, originally set for April 1, 2024, is extended day for day for each day the injunction remains in place.

As discussed here, the Final Rule, originally issued on October 24, 2023 and finally published in the Federal Register on February 1, 2024, contained the stated goals of encouraging banks to expand access to credit, investment and banking services in low- and moderate-income (LMI) communities; adapting to changes in the banking industry, including mobile and online banking; providing greater clarity and consistency in the application of the CRA regulations; and tailoring CRA evaluations and data collection to bank size and type.

One week following publication of the Final Rule, as discussed here, 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 Revenue Based Finance Coalition (collectively, the plaintiffs) filed a complaint in the U.S. District Court for the Northern District of Texas arguing that the Final Rule violates the Administrative Procedure Act (APA) because the agencies acted in excess of their authority: (i) by assessing banks’ activities outside of the locations where they maintain a physical presence and accept deposits; and (ii) by assessing banks’ deposit products rather than the credit products targeted in the statute. They further argued the Final Rule is arbitrary and capricious. In addition to asking the court to ultimately vacate the Final Rule, the plaintiffs asked the court to grant a preliminary injunction that would pause implementation of the Final Rule while the court decides the case.

The court agreed with the plaintiffs’ argument that a bank’s community should be defined in relation to the bank’s physical location, rather than where the bank serves its customers. The court also agreed that the CRA does not authorize the agencies to assess deposit products. “[I]n every operative provision [of the CRA], Congress specified that only credit need be considered.”

The court also found that the plaintiffs demonstrated a substantial threat of irreparable injury. The plaintiffs argued that the Final Rule was of such scale and complexity that banks must take immediate steps to comply, incurring substantial costs that would be unrecoverable even if the Final Rule was later struck down. The court agreed, noting that compliance costs must be “more than de minimis” and that the plaintiffs had provided clear evidence of such costs.

In considering the balance of equities and the public interest, the court found that these factors also supported granting the injunction. The court said the plaintiffs had demonstrated “with ease” that they were likely to succeed on the merits and noted that there is generally no public interest in the perpetuation of unlawful agency action.

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Photo of Matthew Bornfreund Matthew Bornfreund

Matthew provides comprehensive guidance to clients on a wide range of regulatory, transactional, and compliance matters, helping them to advance their operational goals and launch new products and services. His clients include domestic and international traditional and nontraditional banks, as well as fintechs…

Matthew provides comprehensive guidance to clients on a wide range of regulatory, transactional, and compliance matters, helping them to advance their operational goals and launch new products and services. His clients include domestic and international traditional and nontraditional banks, as well as fintechs, private equity funds, and payment services firms.

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Greg leverages his broad experience and pragmatic approach, bringing a wealth of knowledge, business insight and practical problem-solving skills to efficiently manage transactions and advise clients in an evolving legal landscape. He combines his corporate and transactional experience with a robust knowledge of…

Greg leverages his broad experience and pragmatic approach, bringing a wealth of knowledge, business insight and practical problem-solving skills to efficiently manage transactions and advise clients in an evolving legal landscape. He combines his corporate and transactional experience with a robust knowledge of bank regulatory issues to provide valued legal solutions for financial institutions, financial technology companies and other businesses. Greg often works closely with clients to design and implement internal policies and procedures and contractual safeguards in commercial arrangements in connection with corporate and regulatory requirements and risk management best practices.

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The world’s leading banks trust Kevin to manage their regulatory challenges. An in-depth understanding of regulators and their objectives, coupled with his comprehensive knowledge of the banking business, have positioned him as a trusted advisor to clients across the financial sector.

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With over two decades of consumer financial services experience in federal government, in-house, and private practice settings, and a specialty in fair lending regulatory compliance, Lori counsels clients in supervisory issues, examinations, investigations, and enforcement actions.

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