Anti-Redlining Overhaul for Banks Paused by Texas Federal Judge

A federal judge in Texas blocked banking regulators’ rewrite of an anti-redlining law, giving banks a reprieve from a new regulation set to take effect Monday.

The Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency went beyond the bounds of the 1977 Community Reinvestment Act in their final rules issued last October, Judge Matthew J. Kacsmaryk of the US District Court for the Northern District of Texas said in a ruling March 29.

The long-awaited CRA rules were set to expand regulators’ assessments of banks’ lending and investments in low- to moderate-income communities to include mobile banking services and stiffer criteria for big banks. It drew a lawsuit in February from the American Bankers Association, the US Chamber of Commerce, and several local Texas industry and banking groups that argued the overhaul would discourage lending.

In addition to the preliminary injunction, the order from Kacsmaryk, a Trump-appointed judge, will extend the rules’ implementation date for each day the hold remains in place. The rules were scheduled to take effect Monday, with a staggered implementation of several provisions over the next few years.

“While we strongly support the goals of CRA, the Final Rules exceeded the banking agencies’ regulatory authority and created disincentives for banks to lend in low- and moderate-income communities that need access to credit the most,” the trade groups behind the lawsuit said in a March 30 statement.

The Fed declined to comment. The FDIC and OCC couldn’t be reached for comment over the weekend.

The CRA was enacted nearly 50 years ago to address historic redlining practices that harmed non-White borrowers. The Fed, FDIC, and OCC measure banks’ lending and investment in covered communities. Banks with poor compliance can see their branch expansion and merger applications hampered by regulators.

The law’s implementing regulations were last updated in the early 1990s. An effort to update the rules by the Trump administration’s OCC was repealed after the Biden administration took over in 2021.

Williams & Connolly LLP and the Underwood Law Firm represent the plaintiff trade groups.

The case is Texas Bankers Association v. Office of the Comptroller of the Currency, N.D. Tex., No., Memorandum and Opinion 3/29/24.