Amid COVID-19 Pandemic, OCC’s Rushed Rule Lessens Accountability for Banks, Silences Communities Impacted by Systemic Lending Discrimination
National Community Reinvestment Coalition, California Reinvestment Coalition Seek to Halt Unlawful Rule, Protect Vulnerable Communities
Federal Reserve, FDIC Declined to Join OCC in Issuing New Rule
San Francisco, C.A. — Today, the National Community Reinvestment Coalition (NCRC) and the California Reinvestment Coalition (CRC), represented by Democracy Forward and Farella Braun + Martel, filed suit against the Office of the Comptroller of the Currency (OCC) for unlawfully eviscerating the vital anti-redlining rules put in place under the Community Reinvestment Act (CRA). The CRA was passed to combat redlining and ensure banks lend and invest in low- and moderate-income communities and communities of color. OCC issued its new rule despite the fact that it will decrease investment in low- and moderate-income communities and communities of color — contrary to the purpose of the CRA. And in violation of the Administrative Procedure Act, OCC lacks data to support the rule and ignored community stakeholders’ comments raising major problems with OCC’s approach. NCRC and CRC — two nonprofit organizations founded to ensure underserved communities have access to capital and financial services — are suing to ensure the OCC follows the law and protects lower-income communities as the CRA requires.
“The new rules weaken requirements for banks to lend to lower-income borrowers and communities, which is the whole point of the law,” said Jesse Van Tol, CEO of NCRC. “To make matters worse, it is clear that the OCC ignored the vast majority of community organizations’ dissenting comments. Even most banks don’t want these new rules put into place, and they still are unsure what it will take to implement them. It is also clear that the OCC has not done the proper data collection and analysis to understand how their arbitrary rule changes will impact the communities CRA is designed to help most, even before the global pandemic and racial justice protests changed the dynamic. We have been left with no choice but to file suit against the OCC to protect our most vulnerable and underserved communities.”
“It is clear that the Trump administration is waging war against communities of color not just in the streets, but also through administrative regulation. Dismantling the Community Reinvestment Act, seminal civil rights legislation, is the latest example of the Administration’s attacks on homeowners and small businesses owned by people of color, immigrants, and women,” said Paulina Gonzalez-Brito, Executive Director of the California Reinvestment Coalition. “The OCC rule change comes at a time when millions of people are at risk of losing their homes and more than 90% of small businesses did not get access to PPP loans. This decision not only seeks to silence community voices, but coupled with the aftermath of the pandemic will increase poverty and deepen racial inequities.”
Former Comptroller of the Currency Joseph Otting made undermining the CRA the hallmark of his tenure as the head of OCC. His overhaul has been roundly criticized by other federal bank regulators, and neither the Federal Reserve nor the Federal Deposit Insurance Corporation (FDIC) — the two other agencies charged with administering the CRA — joined the final rule. After issuing the rule, Otting immediately resigned.
“Amid a pandemic, the ensuing economic downturn, and urgent calls for racial justice, the Trump administration has unlawfully weakened measures meant to protect communities of color from the discriminatory practice of redlining,” said Democracy Forward Executive Director Anne Harkavy. “We’ve filed suit to ensure OCC follows the law and reconsiders its ill-conceived changes, which OCC’s sister bank agencies recognized were the wrong choice for communities across America.”
The CRA was enacted to address the practice of redlining and secure access to financial services for communities of color and low- and moderate-income communities — services that have long enabled affluent, white communities to build wealth. The CRA imposes an obligation on banks to meet the financial needs of the communities in which they do business — taking the deposits they receive from a given community and reinvesting them in that same community, instead of investing elsewhere.
Despite these obligations, OCC unlawfully issued a new rule that would:
- Dramatically expand the types of activities that would qualify for CRA credit, allowing banks to “comply” with the CRA while engaging in activities that do exceptionally little for the underserved communities the Act seeks to protect.
- Diminish the value the CRA places on having bank branches in low- and moderate-income communities.
- Allow banks to ignore a large number of communities they do business in and still receive a “passing” grade.
- Exclude community engagement in CRA evaluation — a crucial means of enforcing the CRA that then-Comptroller Otting personally objected to after facing opposition to OneWest Bank’s practices when he was head of the bank.
OCC’s unlawful new rule:
- Is contrary to the text, history, and purpose of the CRA (and decades of implementation by the three agencies).
- Is almost entirely unsupported by data or analysis and does not account for contrary data and analysis provided by stakeholders, the public, and even other federal agencies.
- Is arbitrary and capricious, as it was finalized without meaningful consideration of the near-universal criticism OCC received from stakeholders.
- Was issued without publication by OCC of the underlying input, data, and analysis that supposedly support it.
- Includes harmful new provisions that were not presented for public comment in OCC’s proposed rule.
OCC rammed these changes through despite widespread concern voiced by community groups like NCRC and CRC, the vast majority of commenters — including a coalition of 22 states led by California — and even the banks themselves, who voiced “serious concerns” about the changes.
OCC kept the public in the dark throughout the rulemaking process as it worked to weaken the CRA’s protections. OCC not only publicly criticized and tried to silence groups like NCRC and CRC for their opposition to the proposed changes, but also withheld key data and analysis about its decisionmaking. It has repeatedly failed to comply with Freedom of Information Act requests submitted by Democracy Forward, NCRC, and CRC, necessitating litigation to compel compliance.
On Friday, the House of Representatives is expected to begin consideration of a joint resolution to override OCC’s new rule under the Congressional Review Act.
The suit was filed on June 25 in the U.S. District Court for the Northern District of California. Read it in full here.
Democracy Forward is a nonprofit legal organization that scrutinizes Executive Branch activity across policy areas, represents clients in litigation to challenge unlawful actions, and educates the public when the White House or federal agencies break the law.
National Community Reinvestment Coalition and its grassroots member organizations create opportunities for people to build wealth. We work with community leaders, policymakers and financial institutions to champion fairness in banking, housing and business. NCRC was formed in 1990 by national, regional and local organizations to increase the flow of private capital into traditionally underserved communities. NCRC has grown into an association of more than 600 community-based organizations in 42 states that promote access to basic banking services, affordable housing, entrepreneurship, job creation and vibrant communities for America’s working families.
The California Reinvestment Coalition (CRC) is the largest statewide community reinvestment coalition in the country, with over 300 member organizations across California that provide services to tens of thousands of low- income residents. CRC members include affordable housing developers, community development financial institutions, housing counseling agencies, small business technical assistance providers, legal services agencies, and community-based organizations.
Farella Braun + Martel is a leading Northern California law firm representing corporate and private clients in sophisticated business transactions and complex commercial, civil and criminal litigation. Clients seek our imaginative legal solutions and the dynamism and intellectual creativity of our lawyers. We are headquartered in San Francisco and maintain offices in the Napa Valley that are focused on the wine industry.
California Reinvestment Coalition
Farella Braun + Martel LLP