Beneficial State Bank joins consumer groups in opposing CRA lawsuit

Bloomberg News

WASHINGTON — Oakland, California-based Beneficial Bank is breaking with many of their industry colleagues by opposing a lawsuit challenging updates to implementing regulations for the Community Reinvestment Act.

Randell Leach, CEO of Beneficial State Bank — a financial institution with a focus on community development — said the American Bankers Association-led lawsuit against the revamped CRA rules compounds the banking industry's history of discrimination, noting that many of the members of the bank trade groups challenging the new anti-redlining rules discriminated against minority borrowers in the past.

"This isn't the first time that the banking lobby has decided to file a lawsuit and spend millions of dollars rather than update its practices to be fairer and more transparent," Leach said. "In many cases, the very same banks that have practiced racial and ethnic discrimination are arguing that this improved legislation is inconvenient, which is simply abhorrent."

In a rare moment of public intra-industry disagreement, the Oakland bank is calling not only for the final CRA to proceed, but also for additional corrective measures to "redress the banking sector's long history of racism that has perpetuated wealth inequities in the U.S."

A coalition of trade groups — including the ABA, Independent Community Bankers of America, U.S. Chamber of Commerce, Texas Bankers Association and Independent Bankers Association of Texas — filed a lawsuit in February in the Northern District of Texas attempting to stop recently finalized reforms to implementing regulations for the CRA.

The suit argues that the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency arbitrarily exceeded their statutory authority when they finalized their amendments to the CRA rules in October. The rule is the first such reform to the implementation rules of the 1977 anti-redlining law since the 1990s. Since then, a federal judge in Texas issued a preliminary injunction against enforcing new rules pending the outcome of the case.

The plaintiffs argue that the final rules unnecessarily heighten the complexity and compliance burden of the CRA, ultimately undermining its very intent — to compel banks to serve the needs of the lower-income communities they serve. 

Banks have long complained about aspects of the existing CRA regime for years, and opposed aspects of the rule since it was unveiled last fall. But it was uncertain that their opposition would culminate in a lawsuit, in part because the new rule included some provisions that banks have long sought, including a pre-approved list of activities that banks can get CRA credit for. 

Federal banking regulators have not backed down from the rule, with agency heads saying in subsequent discussions that their agencies' staff made painstaking efforts to strengthen and modernize the CRA while ensuring various obligations under the rules are tailored to ensure banks — especially smaller firms less immediately capable of adapting to the complex regulations — are not unduly burdened. Under the rule, banks under $2 billion of assets have no additional data collection responsibilities.

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Trades have argued that their opposition to the rule is founded not in the financial impact it could have on their businesses but in their concern for communities, arguing that the rule would make lending to minorities and low-income borrowers less advantageous.

In an amicus brief filed in the ABA case, Beneficial State Bank — joined by the National Fair Housing Alliance, National Urban League, National Coalition on Black Civic Participation, UnidosUS, and the Raza Development Fund — said bank industry opposition to the rule does not represent the industry as a whole, much of which is interested in promoting community lending. 

"In reality, [the American Bankers Association] is but one of the voices for a complex, multifaceted industry that takes a variety of views on federal regulation in general and the Community Reinvestment Act in particular," the brief noted. "The final rule provided meaningful regulatory relief to smaller and intermediate-sized banks, including reforms that were not only unchallenged, but lauded by the industry."