The federal government’s attempt to expand fair lending rules has been blocked for many institutions.
The new rules, which had been due to take effect on April 1, are based on incorrect interpretations of federal law, U.S. District Judge Matthew Kacsmaryk ruled on March 29.
Current rules, for instance, based on the Community Reinvestment Act (CRA), require banks and other lenders to provide services to low- and moderate-income people in the local community. The expanded rules stretch the definition of community to any individuals with whom the lenders do business.
Government officials alleged that the word “entire” before community in the law necessitated a fresh examination of the statute and prompted the new rules.
The judge, an appointee of President Donald Trump, also said that the section of the new rules that authorize federal banking agencies (FBAs) to assess deposits, instead of only credit activities, was based on an incorrect reading of the law.
He pointed to how the law says the agencies shall “assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods” by taking into account “capital investment, loan participation, and other ventures undertaken by the institution” provided that these activities “help meet the credit needs of local communities.”
“Not a single foregoing provision—nor any other CRA provision—authorizes the FBAs to assess deposit products,” he said.
The preliminary injunction blocks the rules for many groups, including the U.S. Chamber of Commerce, which sued over them. The groups said the rules should be blocked as illegal.
“We welcome this decision by the Northern District of Texas pausing implementation of the Community Reinvestment Act final rules until the litigation we filed challenging the rules can be resolved,“ the groups said in a joint statement. ”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. We look forward to litigating this matter to a final judgment.”
The Office of the Comptroller of the Currency, which is headed by a director appointed by the president, along with the Federal Deposit Insurance Corporation and the Federal Reserve, announced the new rules in 2023 and published final versions of them earlier this year.
The agencies didn’t respond to requests for comment on the order.
The case was filed in Amarillo, where Judge Kacsmaryk serves as the sole active judge, and where one of the plaintiffs, the Amarillo Chamber of Commerce, is located. Four other plaintiffs are based in Washington, with the rest situated in other parts of Texas.
‘Judge Shopping’ Update
The U.S. Judicial Conference recently announced a new policy to crack down on litigants who file cases in unrelated districts for the purpose of getting a preferred judge, whom they believe will rule in their favor, assigned to their case.The practice, known as judge shopping, would be curbed by random assignments of cases, even in areas where locally filed cases have previously been heard by a single judge, according to the conference.
“The random case-assignment policy deters judge-shopping and the assignment of cases based on the perceived merits or abilities of a particular judge,” said Judge Robert Conrad, secretary of the Judicial Conference. “It promotes the impartiality of proceedings and bolsters public confidence in the federal Judiciary.”
But the top judge for the U.S. District Court for the Northern District of Texas, of which Judge Kacsmaryk is a part, said on March 29 that the district wouldn’t adhere to the policy.
“The consensus was not to make any change to our case assignment process at this time,” Chief U.S. District Judge David Godbey, appointed by President George W. Bush, told Senate Majority Leader Chuck Schumer (D-N.Y.) in a letter.
Mr. Schumer and other Democrats had urged Judge Godbey to adopt the new policy, calling judge shopping an “anti-democratic practice.”
Spokespeople for Mr. Schumer didn’t respond to a request for comment.
The District Court has 11 active judges and is divided into seven divisions. Most judges are in Dallas, but some smaller divisions, such as Amarillo, Fort Worth, and Lubbock, have just one or two active judges.
Senate Minority Leader Mitch McConnell (R-Ky.) had said he was against the new judicial policy and that districts could choose not to implement it, noting the policy isn’t legislation. The courts should “weigh what is best for their jurisdictions, not half-baked ‘guidance’ that just does Washington Democrats’ bidding,” he said on the Senate floor.
Several sitting judges also expressed displeasure with the conference’s move.
“Judges are supposed to follow the laws enacted by Congress, not bend the rules in response to political pressure,” U.S. Circuit Judge James Ho, an appointee of President Trump, said in a statement.
Circuit Judge Jeffrey Sutton, an appointee of President George W. Bush, was among the backers, describing the change as a “good idea.”
